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According to analysts customs unions concern trade in goods so they should not constrain what the UK does in the services sector. Photograph: Chris Ratcliffe/Bloomberg via Getty Images

Signing Britain up to a customs union with the European Union need not prevent it from striking important trade deals elsewhere, according to influential new thinking in Whitehall.

Officials and business leaders are anxious to puncture what they see as myths about a customs union that have deterred ministers from considering it as a much-needed economic option after Brexit.

While leaving the existing EU customs union is a direct consequence of Brexit, civil servants believe that agreeing a new customs union with the EU is not only possible but still compatible with key aims of Liam Foxs Department for International Trade.

There is a crucial difference between the [existing] customs union and a [future] customs union and [chancellor Philip] Hammond understands this now because the Treasury have taken him through it, said one official familiar with the process.

The simplistic analysis by those who want to paint it in the worst way is that its totally unacceptable because we would still be bound by EU trade deals. That is true of membership of EU customs union but you can have customs unions with the European Union customs union.

Such a deal would allow physical products to trade freely across borders without export duties or delay only as long as the EU and UK shared a common external tariff with other countries. But most experts are agreed that such a deal need not prevent Britain seeking deals with countries outside the EU to liberalise trade in the crucial services sector.

Customs unions are about trade in goods by definition because you only pay tariffs on goods, explained the anonymous official. They are nothing to do with the trade in services, which is the majority of what the UK does, so why should signing up to a customs union to facilitate what you do in trade in goods constrain what you do in services?

We could go off and see if we can do better than the EU in trade in services, they added. There is an argument that is not a bad thing to try because the EU generally, particularly France and Germany, has never been keen on liberalising trade in services. Its never been keen in the single market, let alone with third parties, so the UK striking out on its own might be able to do a bit better. The point is what you dont do is ruin your trade in goods while you find out.

Importantly from a British perspective, Turkey, which has such a customs union with the EU, is not obliged to follow EU single market rules on allowing freedom of movement.

Its still challenging, but a lot of this is why people have started talking about customs union so much recently, said the official, who believes some immigration agreement would still be necessary. You cant get anywhere on trade in services without discussing the terms on which the people providing the services can move back and forth.

Nonetheless, this variant of soft Brexit could prove more palatable than full membership of the single market to many in Westminster and business.

Though retaining a customs union with the EU would madden the Tory right, there is a strong macro-economic case for doing so, said Charles Grant, director of the Centre for European Reform. According to the Treasurys unpublished analysis, the economic benefits of future [free trade agreements] would be significantly less than the economic cost of leaving the customs union.

The government has spoken little about its plans since Theresa Mays Lancaster House speech when she called instead for a bespoke customs union with carve-outs for vulnerable sectors such as the car industry.

This was dismissed by EU leaders as cherry-picking and would breach World Trade Organisation rules that say bilateral customs unions are only permissible if they cover substantially all trade in goods.

Privately, officials in Brussels are said to be much more open to the idea of a wide-ranging new customs union with Britain, as long as it respects existing common market rules and has a dispute resolution mechanism such as the European court of justice.

Original post:
New customs union with EU after Brexit is still an option, analysts say - The Guardian