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Theresa May denies customs union climbdown

The Guardian logo The Guardian 17/05/2018 Anne Perkins, Daniel Boffey in Sofia and Jennifer Rankin in Brussels

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Watch: Kenneth Clarke says Prime Minister Theresa May’s cabinet is 'deadlocked' (Bloomberg)

Theresa May has denied climbing down over membership of the customs union after Britain leaves the EU.

The prime minister spoke after the Telegraph reported that she was preparing for Britain to remain in the customs union after 2021 as the row over the Irish border continues. 

May arrived at the EU western Balkans summit in the Bulgarian capital, Sofia, with the German chancellor, Angela Merkel, and the French president, Emmanuel Macron, after a meeting with the two leaders.

She said: “No, we are not [climbing down]. The United Kingdom will be leaving the customs union, we are leaving the European Union. Of course we will be negotiating future customs arrangements with the European Union and I have set three objectives; the government has three objectives in those.

“We need to be able to have our own independent trade policy, we want as frictionless a border [as possible] between the UK and the EU so that trade can continue and we want to ensure there is no hard border between Northern Ireland and Ireland.”

Theresa May arrives for a dinner before a summit with leaders of the six western Balkans countries in Sofia, Bulgaria. © Reuters Theresa May arrives for a dinner before a summit with leaders of the six western Balkans countries in Sofia, Bulgaria. Downing Street sources earlier dismissed reports that the Brexit war cabinet had agreed that the UK would have to stay in the customs union for an extended period if there is to be is no hard Irish border.

The reports emerged as peers finally gave the EU withdrawal bill a third reading, but not before inflicting a 15th defeat on the government. The future of the bill is now uncertain as the government tries to estimate the risk of irreversible defeats in the Commons.

With the cabinet still deadlocked over the best way forward on the future relationship with the UK’s biggest trading partner, pressure is mounting. Before the EU summit at the end of June, a way has to be found to satisfy EU negotiators that the UK proposals can avoid the “backstop” solution of Northern Ireland remaining part of the EU’s trading arrangements.

Related: The battle over the customs union will decide the fate of Brexit

© Reuters

According to the Daily Telegraph, ministers, including the leading Brexiters Boris Johnson and Michael Gove “reluctantly” accepted at Tuesday’s inner Brexit cabinet committee that there would have to be an extended period of membership of the customs union for the whole UK while technology is developed to monitor the border without imposing more permanent structures at the 270 crossing points that exist between Ireland and Northern Ireland.

But one source dismissed the reports, saying: “There was no proposal discussed or agreed that would see us staying in the customs union beyond the implementation period.”

A customs union is an agreement by a group of countries, such as the EU, to all apply the same tariffs on imported goods from the rest of the world and, typically, eliminate them entirely for trade within the group. By doing this, they can help avoid the need for costly and time-consuming customs checks during trade between members of the union. Asian shipping containers arriving at Felixstowe or Rotterdam, for example, need only pass through customs once before their contents head to markets all over Europe. Lorries passing between Dover and Calais avoid delay entirely.

Customs are not the only checks that count – imports are also scrutinised for conformity with trading standards regulations and security and immigration purposes – but they do play an important role in determining how much friction there is at the border. A strict customs regime at Dover or between Northern Ireland and the Republic of Ireland would lead to delays that will be costly for business and disruptive for travellers. Just-in-time supply chains in industries such as car making could suffer. An Irish peace process built around the principle of entirely unfettered travel between north and south could be jeopardised.

The period of transition is scheduled to end in December 2020. Technically, it would be possible to extend it, although that would have to be agreed by the EU as part of the withdrawal agreement, which has to be finalised by this autumn.

The proposal would be bitterly opposed by the Brexiters outside cabinet. On Thursday the former Tory leader and leading leave campaigner Iain Duncan Smith said it would be “very unwise” to extend membership of the customs union, and he warned against believing that everything had to be perfect before the point of departure.

“Perfection on departure is idiotic. Functionality is required and that already exists,” Duncan Smith said.

But the contours of a “third way” between Theresa May’s customs partnership, in which the UK would act as the EU’s tax collector, and “max fac”, where technology and trader status would be used to ensure a customs border was invisibly enforced – both dismissed by Brussels – is being talked of more and more widely.

Sources at the Department for Exiting the EU also denied the Telegraph report and said policy was still in development. But one possibility would be to remain inside the common external tariff while the details and functionality of a new arrangement are hammered out.

However, that would mean that the UK would also be bound by EU trade rules and trade policy. It would be impossible to sign off on new free trade agreements with third countries.

EU officials in Brussels think a possible delay in leaving the customs union could be a sign of “more realistic” thinking from the UK. “We would cautiously welcome this as a first step but would have some questions,” one EU diplomat said. “If it’s only a play for time, that’s our concern. You can’t build a future relationship on soft assumptions.”

The big question for Brussels is whether the UK would be using a delay to buy time for options the EU deems unworkable, while sliding back on promise to avoid a hard border on the island of Ireland. The government has promised twice that if no other solutions are found, it will sign up to the EU “backstop”.

“The yardstick [for any new proposal] will be does it work for Ireland and does it work for the EU,” said and EU source, stressing that member states had not been presented with the details. “Whatever happens, it needs to deliver permanent certainty that there will be no hard border.”

There are further complications associated with trying to remain in part of the EU trade system, where the standards underpinned by the single market as well as the common external tariff are integral parts. It is unlikely that Brussels would accept short-term, partial membership of the trading system.

Speaking at the summit of EU leaders in Sofia, Dalia Grybauskaitė, the Lithuanian president, reflected the view of the EU that the UK would not be able to stay in a customs union alone with Brussels beyond the transition period.

She said: “I think that negotiations are about the whole package we cannot separate any pieces. Everything will be finally negotiated after it is finally negotiated.”

Continuing access to the EU single market and membership of the customs union beyond 2021 would raise complex legal problems, unless it was treated as part of the withdrawal agreement. The UK would be obliged to continue making contributions to the EU budget, which would be anathema to many Brexiters.

However, there is a growing realisation that a deal described as “temporary” that was acceptable to Dublin – which has an effective veto on any deal – and that averted the potentially chaotic imposition of customs checks at every UK point of entry may be the least bad option.

The future of the withdrawal bill may become clearer later on Thursday when government business for the next 10 days is announced.

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