Brexit – a new customs union?

A new, far-reaching customs union between the UK and the EU may well be both sides’ best hope for creating a sustainable relationship that avoids disruption.

The UK has long pressed for a new, deep partnership with the EU, with a bespoke, bilateral free trade agreement likely to be the end result. This, I suggest, will come despite the current difficult outlook. Overall, we have seen the UK and EU begin to work out their difficulties in the negotiations so far.

While there has been much talk that the EU ‘doesn’t do bespoke deals’, it does in fact have several in existence, all of which differ slightly. The Swiss option allows for multiple bilateral deals between the two, while Switzerland itself can pursue its own trade policy.

Second, there is the Ukraine option. It gives almost full access to the single market, with access for goods and services, especially financial. While this is designed as a prerequisite for membership, it could be adapted to serve the UK and the EU as the former becomes a partner to, rather than a member of, the EU.

Finally, we have the Canada option. The Comprehensive Economic and Trade Agreement (CETA), only gives limited access for services, but gives free trade for agricultural and industrial goods. Canada and the EU have mutual recognition of regulations for market access to services, and has its own trade policy.

Given the possibilities outlined above, and the potential for a new agreement that takes elements from all three, it should be possible for the two sides to come to a deal, although we can expect stiff haggling along the way.

Such a deal should be positive for sterling in the long run, since it would avoid trade disruption. We can expect a deal to emerge in due course, but hints along the way will likely see the pound gain. EUR/GBP has been relatively rangebound of late, but with rallies being sold around the £0.90 level we may see a break lower in due course.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by writer