Brexit Briefing: Mrs May shows another card

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at 2016.10.25
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Brexit Briefing: Mrs May shows another card

Theresa May occasionally provides valuable detail about the way she is approaching her Brexit negotiation. One such moment came in the House of Commons on Monday when she was asked a question by a Labour MP on whether the UK would be leaving Europe’s customs union.

The prime minister could have batted the issue away, as she often does, by saying she will not give a running commentary on her planned negotiation. Instead, she was more revealing.

“The important point about the customs union is that the way in which you deal with the customs union is not a binary choice,” she told Chris Leslie. “There are different aspects to the customs union, which is precisely why it is important to look at the detail and get the answer right, not simply make statements.”

The prime minister’s answer confirms the direction in which she is heading on this crucial issue. Chancellor Philip Hammond has for months warned that quitting the customs union would saddle companies with form-filling, delays and frontier checks and require a new north-south border in Ireland. Liam Fox, international trade secretary, has called for the UK to leave, arguing that this is essential if Britain is to strike trade deals with third countries. There is speculation that the clash has become so fraught that it might lead to one of them resigning.

Mrs May’s rejection of the issue as a “binary” one suggests she is seeking a compromise. As the FT has reported, an idea being mooted is that the UK would leave the customs union but allow industries with complex supply chains, such as cars and aircraft manufacturing, to be given carveouts with a special regime to guarantee cross-border trade.

Mrs May’s pursuit of this solution may explain why Carlos Ghosn, chief executive of Nissan, recently left Downing Street in an upbeat mood, saying he was “confident” the UK would provide conditions that allowed the company to invest in Britain. After all, if the idea of special carveouts were realised, there would be no tariffs on cars traded between the EU and the UK and no customs checks on cars shipped across the channel.

However, the compromise the UK is seeking is not straightforward. Britain would need to get the EU to agree to such a settlement and there are two problems.

First, many in the EU would regard this as British cherry-picking. Cars are important, but so are chemicals, pharmaceuticals, food and drink and so forth. As John Springford of the Centre for European Reform puts it: “The EU27 will not allow the UK to pick favoured sectors to stay in: they will say it’s all or nothing.”

Second, such an agreement will fall foul of the World Trade Organisation’s most-favoured nation rules. Mr Springford says: “If the EU and the UK make trade in cars tariff-free with each other, they must eliminate tariffs on cars for all countries. The only way around this is to sign a trade agreement that covers the majority of goods sectors.”

Some analysts argue that it makes little sense for the UK government to choose which industries face customs costs with its largest trade partner. Instead, it would be far more sensible if the UK just stayed in the customs union. But this is impossible for Mrs May because the UK would not be able to sign free-trade agreements with countries outside the EU — and Mr Fox would be out of a job.

Background reading

The FT publishes the latest instalment in its Future of Britain Project, inviting readers to brainstorm ideas for the UK after Brexit. Here, Ryan Bourne of the Institute of Economic Affairs, says the UK must pursue a “hard Brexit” to create a more open economy.

Iain Martin argues that if the City of London is to thrive after Britain leaves the EU, it needs to rediscover the buccaneering spirit of the eighties (The Times).

William Hague says that the government must go beyond Heathrow and launch a new infrastructure plan in order to calm Brexit jitters (Telegraph).

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Published at Tue, 25 Oct 2016 12:11:57 +0000

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