Angela Merkel's UK-EU customs union fears 'a barrier to Brexit deal'

Angela Merkel's UK-EU customs union fears 'a barrier to Brexit deal'

Angela Merkel’s fears that the British economy could gain a competitive advantage through even a temporary EU-UK customs union after Brexit have emerged as a major obstacle to progress on the Irish border issue.

Angela Merkel’s fears that the British economy could gain a competitive advantage through even a temporary EU-UK customs union after Brexit have emerged as a major obstacle to progress on the Irish border issue.

The German chancellor has been a major force behind the scenes in arguing such a deal cannot be nodded through in the withdrawal agreement; rather, there will need to be hard negotiations in the 21-month transition period once the UK has left the EU.

The EU and the UK have found themselves at an impasse over the Irish border. Brussels is insisting the withdrawal agreement contains an “all-weather” solution for avoiding a hard border, in which Northern Ireland alone stays in the single market and customs union.

Theresa May has said no British prime minister could accept such an outcome. The UK government is pushing for the EU’s backstop proposal to be replaced in the agreement by a temporary UK-wide customs union, insisting it cannot allow Northern Ireland to be “carved off” from the rest of the country.

Downing Street has been banking on Berlin to sweep to the rescue at a crunch time in the negotiations.

It has long been thought in Whitehall that Merkel would recognise the overriding need to avoid a no-deal scenario. But one EU diplomat said Germany “was now willing to accept” this.

Berlin believes the temporary customs arrangement with the UK would look similar to the customs deal with Turkey, and there would need to be strictures to ensure a level playing field, an EU diplomat said.

Given the complicated nature of such negotiations, and the chance they may not be successful, Merkel is arguing for the EU’s proposed backstop to remain in the withdrawal agreement, to ensure there are no circumstances in which a hard border would emerge on the island of Ireland.

The UK is leaving the EU’s customs union, Berlin argues, and is now seeking an arrangement similar to that enjoyed by Turkey.

While “welcoming” this move, Berlin is not willing to let a major economic power obtain such an agreement too easily, and is preparing to build in stringent rules on competition, state aid and alignment with EU standards.

A senior EU diplomat with knowledge of Merkel’s thinking said: “A proposal to talk about a customs union stems from the EU, but a customs arrangement has to be part of the future relations.” Talks on the future relationship would have to be conducted after the UK leaves the EU on 29 March.

Last week, Merkel told Germany’s major exporters’ association she wanted a deal with the UK, “but not at any price”.

“We must not allow our single market, which is really our competitive advantage, to be destroyed by such a withdrawal,” the chancellor said.

In an op-ed in European newspapers, the former prime minister Tony Blair, and the former deputy prime ministers Nick Clegg and Michael Heseltine, asked European leaders not to close the door on the UK changing its mind about Brexit.

They write of the “unrealistic hopes in Britain of not just a ‘last-minute’ major concession by the EU side in the current negotiations, but of something even more delusional: that once the UK has left and is in the transition period, the 27 remaining member states will capitulate on the principles of the single market and give the Britain access to the market without abiding by its rules”.

The EU-Turkey customs union removes tariffs on goods and sets a single external tariff on imports from third countries.

It covers trade in industrial goods, but not agricultural products – apart from certain processed agricultural products – coal and steel products or public procurement. Like other customs unions, it does not cover services.

But Turkey is bound by rules that prevent it from undercutting EU member states. “To negotiate this [with the UK], we need more time than we have until March, since the UK is such a major economic power,” a senior EU source said.

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