European Customs Union

What Is the European Customs Union?

The European Customs Union is a trade alliance formed by members of the European Union (EU), allowing them to work as a single unit. Formed in the late 1960s, the organization allows the free movement of goods within the union without any tariffs and implements standardized rates of customs duties on goods imported from other countries. The union is also responsible for preventing the trade of dangerous goods, plants, and animals, as well as fighting organized crime, terrorism-related activities, and tax fraud.

Key Takeways

  • The European Customs Union is the body that regulates imports and exports within the European Union.
  • The Union eliminated customs duties and import restrictions among its member nations.
  • It established and administers the tariff-free movement of goods among its member countries.
  • It also sets regulations for the quality and safety of goods imported into member countries.
  • The U.K.'s exit from the European Union and the Customs Union changed the rules for British businesses doing business in Europe and for U.K. consumers buying European goods.

Understanding the European Customs Union

The European Customs Union traces its origins to 1968 when all customs duties and restrictions among the member countries of the European Economic Community (EEC) were lifted. The goal was to provide the free movement of goods within the union and allow members to work together as one unit. The establishment of the union also allowed it to impose a single customs tariff, which replaced national customs duties on imports to the six nations that were then members of the EEC.

There are 27 nations that are part of the European Union. Three other nations (Iceland, Liechtenstein, and Norway) are part of the European Economic Area (EEA) but not the European Union. The United Kingdom officially withdrew from the European Union at the beginning of 2020, in a move known as Brexit.

Administered by the European Commission, the duties of the European Customs Union are implemented by the national customs offices of the member nations. EU Customs officials handle the logistics of imported goods to the EU. These imports are vast in scope, accounting for approximately 15% of all imports worldwide. In 2020, the value of the EU trade with other countries amounted to €3.7 trillion.

The union is responsible for enforcing regulations designed to maintain the quality and security of goods imported to the union. These rules focus on the following areas:

  • Protection of health and safety in the region through regulations governing the import of potentially dangerous goods such as contaminated foodstuffs or faulty electrical products
  • Ensuring that technology exports that could be used in weapons manufacturing are not used for that purpose
  • Prevention of smuggling of endangered or protected plants, animals, or prohibited products such as ivory
  • Cooperation with law enforcement officials to clamp down on illegal activity such as drugs or weapon trafficking, money laundering, tax evasion, and the counterfeit goods trade

In mid-April 2022, Ukraine President Volodymyr Zelenskyy submitted a questionnaire on European Union membership to a Union envoy. The nation is seeking to fast-track its EU membership application in the wake of Russia's invasion of the country.

Special Considerations

The United Kingdom officially left the European Union on Jan. 31, 2020. As such, the country is also no longer a part of the European Customs Union. The move, which was known as Brexit, led to varied and complex changes for all involved.

British businesses from England, Wales, and Scotland (but not Northern Ireland) must make customs declarations for goods exported to and imported from EU nations, just like any other non-EU country. Although there are no new taxes or limits, the bureaucratic burden is significant for corporations. It also meant changes for British travelers to Europe, notably the need for passports during travel to the EU and the end of free roaming charges on cell phone plans.

On the positive side, Brexit ensured that the U.K. can make its own trade deals with other nations like the U.S. It also is now free of European Union rules and regulations regarding imports and exports.

As part of the Brexit agreement, the United Kingdom left the border open between Northern Ireland, which continues to follow most EU regulations, and the Republic of Ireland, which is a member state of the European Union. Subsequent plans by the United Kingdom to disregard the open border agreement have met strong resistance from the EU as well as opposition from other countries including the United States.

The European Customs Union vs. the Single Market

Although the European Customs Union and the European Single Market are both entities created by the member states of the EU, there are some fundamental differences between the two. The Single Market is a trade agreement that eliminates trade regulations and tariffs between all EU members and four non-members that are part of the European Free Trade Association.

It is possible for a country to be a member of the Single Market but not the Customs Union and vice versa:

  • The Customs Union regulates international trade deals and handles imports from outside the union
  • The focus of the Single Market is on the free movement of labor as well as on working conditions and health and safety standards throughout the region

Norway is a member of the Single Market and not the union. It sets its own trade agreements for imports from outside the union but follows EU regulations for moving goods and people within the Single Market. Norway may only circulate domestically produced goods within the Single Market on a tariff-free basis and must prove the origin of these goods since it's not part of the union.

Turkey, Andorra, and San Marino are not part of the EU or the Single Market. However, the European Union has customs union agreements with these countries. 

History of the European Customs Union

As noted above, the European Customs Union was established in 1968. It has continuously moved towards ease of movement of goods and people across Europe. In 1987, hundreds of customs declaration forms issued by many nations were replaced with a single standard form. Customs formalities for commercial vehicles crossing borders were discontinued in 1987. Customs offices were electronically connected in 2005. The Union also took an active role in the security at the borders of member nations.

Do You Pay Customs Within the EU?

No customs duties are collected when goods are transported across EU borders by individual travelers or by commercial carriers. That doesn't mean that the buyer doesn't pay duties. Travelers pay duties on imported goods when they enter an EU nation. If a non-EU citizen, including an American, buys goods online from an EU nation, a value-added tax (VAT) is applied. This tax varies by state. Excise duty is charged on sales of alcohol and tobacco products.

What Countries Are in the European Customs Union?

As of 2022, the member nations of the European Customs Union are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungar, the Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.

Norway, Iceland, and Liechtenstein have a free trade area relationship with the EU but are not members of the customs union.

How Much Is the Customs Between the EU and the UK?

It's complicated. Before Brexit, UK consumers could buy or bring in goods from Europe without paying import duties. That changed in early 2021 as one step in the gradual Brexit implementation. Now, consumers can purchase items for £135 or less from most online retailers without additional duties. Duties must be paid on more valuable items at rates that vary by product. Gifts worth more than £39 are generally subject to a U.K. VAT of 20%.

Why Is Norway Not in the EU?

With 27 member nations, the European Union has absorbed most of Europe, even stubbornly independent nations like Sweden and Austria. But Norway remains aloof. It's a notable omission since Norway is one of Europe's most prosperous nations.

Norwegian voters vetoed EU membership by referendum in 1972. An active movement against membership has persisted ever since, and makes a number of arguments:

  • Norwegian citizens have greater democratic voices if they remain independent of the EU
  • The EU is forcing its poorer member nations into accepting globalization to the detriment of their own businesses
  • The EU has failed to address environmental issues effectively
  • Norway has greater autonomy by remaining outside the EU
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