U.K. Proposes Broad Customs Deal With EU After Brexit -- 2nd Update

By Jason Douglas Features Dow Jones Newswires

The U.K. government proposed a far-reaching customs arrangement with the European Union that it said would eliminate the need for border checks on imports and exports after Brexit.

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The "new customs partnership" with the EU was one of two suggestions the government put forward on Tuesday in a paper detailing its thinking on customs before resuming talks with Brussels this month over terms of Britain's withdrawal from the EU.

The EU barely reacted publicly or privately to the proposals, saying that other priorities had to be settled first in Brexit negotiations including citizens' rights, a financial settlement the EU wants from the U.K. and Ireland. Only then could talks move to the future trading relationship.

"The quicker U.K. & EU27 agree on citizens, settling accounts and Ireland, the quicker we can discuss customs and future relationship," Michel Barnier, Brussels' chief Brexit negotiator, said in a message on his official Twitter account.

The proposals highlight the complexity of negotiating Britain's EU exit after more than 40 years in the bloc. British officials acknowledged that their borderless customs idea was without precedent in international trade.

In the paper, one of several due to be published in the coming days on various issues, the U.K. set out a two-stage approach to giving up its place in the EU's customs union and moving to new arrangements for policing trade in goods with the EU. It hasn't yet spelled out its thinking on services trade, which accounted for 45% of British exports in 2016.

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As a first step, the U.K. said it proposed to leave the customs union when it exits the EU in March 2019. Goods move freely between union members but imports from outside EU borders face common tariffs.

The U.K. said it would seek to negotiate a temporary customs deal that broadly mirrors that arrangement but, critically, would enable it to negotiate its own free-trade deals with non-EU countries -- though those agreements couldn't go into force until after the temporary agreement had expired. As an EU member, the U.K. can't currently negotiate its own free-trade accords, which proponents of Brexit tout as one of the biggest potential prizes of withdrawal.

David Davis, Brexit secretary, told the British Broadcasting Corp. he anticipates this temporary phase would last "something like two years," meaning it would come to an end before a scheduled election in the U.K. in 2022.

The U.K. offered two proposals for longer-term customs arrangements with the EU to take effect after that transition phase has passed.

The government's more ambitious proposal called for a new partnership between the EU and the U.K. that it said would eliminate the need for customs checks entirely between the EU and U.K.

The paper said this could be achieved by preventing goods from abroad that don't comply with the EU's rules from leaving the U.K. for the EU market, while collecting the correct EU taxes on goods destined for the EU market. This would require monitoring U.K. imports from non-EU countries to determine whether they were bound for the EU.

Officials described this approach as "innovative and untested" in international trade. It isn't clear whether the EU would be willing to sign up to such an arrangement if it proved practically possible.

The government's second proposal sketched out a more modest, "streamlined" customs arrangement that would rely on a combination of existing EU agreements with other countries and technological fixes to reduce delays at borders and similar impediments to trade. It said this approach would likely mean "an increase in administration" for businesses compared with current arrangements.

EU officials have been sympathetic to a transition period post-Brexit but have reacted in the past skeptically to long-term technical ideas as a solution to customs and regulation obstacles to trade that would follow from Brexit. EU chief negotiator Michel Barnier declared last month "frictionless trade" wouldn't be possible after Brexit.

Also, the U.K. paper isn't a negotiating document and presented technical ideas that weren't fully developed and lacked significant detail. The two long-term approaches "are worth exploring further, but the hard work of assessing whether these ideas could work in practice has yet to be done," wrote Thomas Sampson of the London School of Economics in a blog.

Keir Starmer, Brexit spokesman for the main opposition Labour Party, described the government's proposals as "incoherent and inadequate," though they were welcomed by the Institute of Directors, a business lobby group.

The U.K. has yet to set out its proposals either on an interim or a long-term basis for its relationship with the EU's single market, the bloc's zone of common product regulation. Once the U.K. is no longer bound by EU single-market rules, EU border checks are likely to be required even if the U.K. remains inside the customs union.

Nigel Farage, one of the leaders of the anti-EU movement in the U.K., criticized the proposal for a transitional agreement with the EU. "I see it as dither. I see it as delay," he said.

--Jenny Gross contributed to this article.

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

(END) Dow Jones Newswires

August 15, 2017 14:25 ET (18:25 GMT)