U.K. Government Open to Temporary Customs Union with EU After Brexit

By Jason Douglas Features Dow Jones Newswires

The U.K. government on Tuesday will formally signal it is open to creating a temporary customs union with the European Union after Brexit as it prepares for fresh talks on its separation from the bloc later this month.

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In a statement, the U.K.'s department for exiting the EU said that its forthcoming paper will set out two long-term options for post-Brexit customs arrangements with the EU aimed at making trade in goods as "frictionless" as possible after the U.K. formally withdraws from the bloc in early 2019.

One option calls for a "highly streamlined" customs arrangement aimed at simplifying border checks on goods moving between the U.K. and the EU. The second envisages a new "customs partnership" that would "negate the need for a customs border between the U.K. and the EU," according to the statement. Further details are due to be published later Tuesday. EU officials have warned however that Britain won't be able to achieve frictionless trade with the bloc once it leaves.

The department said that in an interim period, after Brexit but before the long-term arrangements come into force, "One possible approach would be a temporary customs union between the U.K. and the EU."

Such a time-limited period of implementation would ensure that businesses only have to adjust once to a new customs relationship, it said.

The department added that it will on Wednesday publish proposals for managing the border between EU member Ireland and Northern Ireland after Brexit. The paper "will make clear the commitment to maintain a seamless and frictionless border with no return to the hard borders of the past," it said.

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The publication of the U.K. government's negotiating position on these issues highlight an increasing push by the British government to set out its view of a future EU-U.K. relationship. Talks resume in late August, with both sides hoping to make significant progress by the time EU leaders next meet in October.

While the U.K. paper focuses on future customs arrangements, the EU has said it won't discuss the future relationship until it sees sufficient progress on a trio of issues: the Irish border, the rights of EU and U.K. citizens after Brexit, and a settlement of the U.K.'s past financial commitments to the bloc that haven't yet been paid.

Post-Brexit customs arrangements present particular challenges. U.K. Prime Minister Theresa May has said the U.K. will leave both the EU's single market for goods and services, which sets common rules and standards, and the bloc's customs union, which levies common tariffs on imports.

Two government ministers -- Treasury chief Philip Hammond, who campaigned to stay in the EU, and trade secretary Liam Fox, who campaigned to leave -- declared at the weekend that the U.K. wouldn't stay either in the single market or customs union during the planned "interim" period meant to enable an orderly transition to a new economic relationship.

Exiting the customs union -- as well as leaving any subsequent interim customs-union agreement with the EU -- is essential if the U.K. is to enter into its own free-trade deals, which pro-Brexit lawmakers say is one of the principal benefits of withdrawal.

Some EU officials have acknowledged the benefits of some kind of transitional access to the EU's customs union for Britain after its scheduled departure in March 2019. They note that both British and European ports, airports and other transport hubs are unlikely to be ready to process the large-scale customs checks required if it were to exit abruptly.

Yet Michel Barnier, the EU's top Brexit negotiator, has repeatedly warned the U.K. that it can't expect to exit from the EU and maintain the economic benefits of membership of the single market and the customs union, a point EU officials believe isn't clearly understood in some quarters in the U.K.

"I have heard some people in the U.K. argue that one can leave the single market and build a customs union to achieve frictionless trade. That is not possible," Mr. Barnier said in July.

"The decision to leave the EU has consequences."

Laurence Norman contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

August 14, 2017 17:52 ET (21:52 GMT)