What Is The Main Difference Between A Free Trade Agreement And A Customs Union

Customs unions and free trade agreements can look the same. The difference between the two is that, in a customs union, the participating countries set a common customs tariff (a single external tariff applied by all members) against third countries, which is not the case in a free trade agreement. This leads to other differences: (i) in the context of a customs union, participating countries must participate in trade negotiations as a single entity (usually the EU), while in a free trade agreement, members can negotiate individually; (ii) a customs union allows the free movement of goods between Member States, but not a free trade agreement; and (iii) in the context of a customs union, customs between Member States is not required, but in a free trade agreement it is necessary and its function can even be strengthened. There are EU-wide regulations covering a range of industries and products, from food standards and the use of chemicals to working hours to health and safety. This is an attempt to create a level playing field and an internal market; this does not happen in a free trade area. If the UK left the customs union but remained in the single market, our exporters would have to deal with the so-called “rules of origin”. You may find, for example, that after Brexit, a trade deal with the EU-27 is much more valuable than a deal with the UK. For the UK to continue to negotiate duty-free exports with EU member states, it must conclude a free trade agreement and it is generally assumed that, in such cases, goods exported from the UK must comply with the rules of origin. However, the white paper published by the UK government is based on a different approach. Instead of setting the rules of origin, it proposes to conclude a “facilitated customs agreement” with the EU; Goods imported into the UK from outside the EU will be subject to EU or UK customs (if undecided, whichever is higher), depending on the final destination, thus avoiding the problem of circumvention and allowing the free movement of goods between the EU and the UK.

Most free trade agreements have set tariffs between counterparties and then discuss the rules of origin to be established to compensate for the abolition of these tariffs. However, the case of Brexit is different. In the beginning, there was a free movement of goods, and now the counterparties offer to soak up this flow. So it`s understandable that the UK is coming up with a scheme that goes against conventional wisdom, but for the EU it`s probably an uncomfortable proposition, as the complexity of the system raises doubts about its feasibility. .