05 January 2018

Financial Times: Philip Hammond broaches customs union deal with EU

Chancellor Philip Hammond has left open the possibility of the UK joining a new customs union with the EU — a move that would ease commerce with the bloc but limit Britain’s ability to strike free-trade agreements with other countries.

In a letter to the Commons Treasury select committee dated December 20 and published on Friday, Mr Hammond declined to rule out a new customs union. He said Brexit negotiations would “be guided by what delivers the greatest economic advantage to the UK”.

Mr Hammond’s letter sets out as strategic objectives frictionless trade with the EU, avoiding a hard border with Ireland and an independent international trade policy. It gives no indication, however, of how the government would prioritise them if they are incompatible.

He did not rule out a new customs arrangement similar to the relationship Turkey has with the EU.

Such an arrangement, which could include a new customs union, would need to “facilitate the freest and most frictionless trade in goods between the UK and the EU, and allow us to forge new trade relationships with our partners in Europe and around the world”, said Mr Hammond.

His mention of “trade in goods” opens up the possibility of a customs union with the EU for goods, leaving Britain free to seek deals with other countries on services and agricultural products.

Another option floated in Whitehall is for Britain to seek a customs union with the EU covering only certain products — such as cars — although World Trade Organization rules state that any free trade agreement has to cover “substantially” all trade between the two parties. [...]

Nicky Morgan, the pro-Remain Conservative MP who chairs the Treasury committee, said Mr Hammond’s letter was significant.

“It was widely thought that being in a long-term customs union with the EU had been ruled out by the government,” she added. “But the chancellor’s letter confirms that this is not the case.

“It is vital that the cabinet reach agreement on these central questions about the UK’s future relationship with the EU as a matter of urgency.” [...]

Full article on Financial Times (subscription required)

Letter to the Chair from the Chancellor on the customs union

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