UK weighing customs union deal after Brexit

Theresa May’s Brexit advisers are secretly considering whether Britain could strike a customs union deal covering trade in goods with the EU, a move that would severely limit the UK’s ability to strike out on its own.

Senior British officials argue that such a step would limit a loss of trade with Europe after Brexit, help address concerns about the north-south Irish border, and reduce the need for complex new customs procedures.

The Financial Times has been told by three UK officials that the discussions are “live” in Whitehall.

One official close to Mrs May confirmed the plan — which would take effect after a transition period of about two years following Brexit in March 2019 — was one option being considered.

“If we can find a way of keeping goods in the customs union and retaining some independence on trade — particularly on services — we should look at it.” Philip Hammond, chancellor of the exchequer, and Greg Clark, business secretary, are among ministers favouring a close customs relationship after Brexit.

Liam Fox, the pro-Brexit trade secretary, rejected the idea, telling Bloomberg: “It is very difficult to see how being in a customs union is compatible with having an independent trade policy because we would therefore be dependent on what the EU negotiated in terms of its trading policies and we’d be following behind that.”

“We have to be outside of that to take advantage of those growing markets. One of the reasons we are leaving the European Union is to take control and that’s not possible with a common external tariff,” he said.

But Theresa May, when asked in an interview with Sky whether Britain could stay in a customs union with the EU, declined to rule it out.

“What I want to do is ensure that we have got the best possible trade arrangements with China and with other countries around the world once we have left the European Union,” she said.

If it had a customs union with the EU, Britain would still seek to strike trade deals with non-EU countries, particularly since it would no longer benefit from the bloc’s agreements with other nations.

But London’s bargaining power could be limited, since countries with EU deals would already have access to the UK goods markets via the customs union.

Britain could still strike its own trade deals on services, which make up about 80 per cent of the economy, but services-only deals are a relative novelty that would represent a new departure for the global economy.

The customs union proposal is backed by the CBI employers federation, but a UK government spokesman said: “We want to see the most frictionless arrangement as possible but also we need to have the freedom to sign trade deals across the world.”

Under the customs union plan, Britain would retain the EU’s common external tariff on goods with the aim of minimising bureaucracy at the border.

The move would help reduce the need for border inspections and paperwork, but not eliminate it because the EU27 would still need to check that goods flowing from the UK to the bloc met regulatory standards for sensitive products unless the UK also signed up to common regulations under single market rules.

A customs deal covering just trade in goods could appeal to the rest of the EU because of its strength in the sector. The UK had a surplus of £14bn on trade in services in 2016 but it was outweighed by a deficit of £96bn on trade in goods.

George Osborne, former chancellor, urged Mrs May to remain part of a customs union on Thursday, saying the sums “don’t stack up”.

Earlier this week, leaked government forecasts predicted that the UK could lose between 2 per cent and 8 per cent in growth over 15 years if it leaves the customs union and single market, depending on what model it adopted.

The paper concluded that even a trade deal with the US would only benefit GDP by about 0.2 per cent in the long term.

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