Drop Brexit trade plan, Philip Hammond tells Tories

Drop Brexit trade plan, Philip Hammond tells Tories

Chancellor believes Britain needs customs union. France tells May she can change direction.

Philip Hammond is preparing to lead a battle within the government to soften Brexit by keeping Britain inside the EU customs union, The Times has learnt.

The chancellor believes that ministers must rethink their decision to pursue an entirely independent trade policy, according to several sources.

One said that the Treasury was in “street-fighting mode” and another predicted that Mr Hammond would win support for his position from Damian Green, the prime minister’s newly appointed deputy.

A senior Tory Brexiteer added that there was a push by some in the cabinet to “secure a very different relationship with the EU” after the Tories’ disastrous election result, adding: “There is a great deal of concern that they are changing Brexit.” President Macron of France said last night that the bloc’s doors remained open for Britain to reverse Brexit. At a press conference with Theresa May in Paris he warned, however, that the start of formal negotiations next week would make it harder for Britain to return in the event of a change of heart.

David Cameron added to pressure on Mrs May to adopt a softer Brexit and talk to Labour.

The former prime minister told a conference in Poland: “It’s going to be difficult . . . but perhaps [there is] an opportunity to consult more widely with the other parties on how best we can achieve it.” Mrs May had been right to stay in post after the election but parliament “deserves a say” on the deal, he said, adding: “I think there will be pressure for a softer Brexit.”

The customs union is a trade agreement between EU states that allows their companies to exchange goods without tariffs while imposing common tariffs on imports from outside. If Britain leaves the customs union, it would be able to negotiate free-trade agreements with other countries — a key pitch made by Mrs May during the election campaign.

Any attempt to reopen the debate would infuriate the Tory right, including Boris Johnson, the foreign secretary, and Liam Fox, the trade secretary, who believed that they had scotched past attempts by the Treasury to remain in the customs union. The cabinet discussed Brexit yesterday and agreed to maintain the pre-election position. But Mr Hammond and other former pro-Remain cabinet ministers are said by allies to regard last week’s election result — when the Tories lost 32 seats instead of gaining dozens as expected — as a mandate to reopen discussions.

The chancellor believes that the economic consequences of withdrawal from the customs union could be profound in the short term while the gains from possible new trading opportunities would not materialise for several years. About 44 per cent of British exports in goods and services went to other countries in the EU last year. Wolfgang Schäuble, the German finance minister, hinted yesterday that, after talks with Mr Hammond, he understood the government was considering softening its approach to Brexit.

He told Bloomberg news that ministers were thinking about the consequences of young voters having opted for Jeremy Corbyn on the basis of “more distance to Brexit, not enthusiasm for the Labour Party”.

Asked if the government might reverse its decision to leave the EU, he said that it would not be helpful to speculate. Mrs May’s spokesman said: “The British people voted to leave the EU and we will be delivering on that will.”

The prime minister announced in her Lancaster House speech in January that Britain would leave the customs union. She said that she did not want Britain to be part of the Common Commercial Policy that strikes trade deals or “be bound” by the Common External Tariff, and suggested that Britain must reach a “completely new customs agreement” with the EU or become an associate member.

Both those options would require domestic legislation that would almost certainly fail to pass through parliament without a Tory majority, however. The Democratic Unionist Party, which is poised to strike a confidence-and-supply deal to prop up the Tories, has made clear that it would oppose a “hard” border between Northern Ireland and the Republic. These calculations are factors in the Treasury push to change tack. The department declined to comment.

The chancellor, who was facing the sack before the election result, is preparing to make his first significant intervention tomorrow in a speech at the Mansion House. There has been no cabinet agreement to deviate from the policy set out at Lancaster House, despite a discussion on Brexit at yesterday’s first full cabinet meeting. A cabinet minister told The Times: “I don’t think it is possible to stay in the single market but the customs union is where it gets more interesting. We need to make sure we explore options fully.” Any change risks splitting the party and could, in effect, make Dr Fox’s job as international trade secretary redundant. Michael Gove, who has returned to the government as environment secretary redundant. Michael Gove, who has returned to the government as environment secretary, said it was “really important” that the EU exit package was in the interests of the  whole country.

George Freeman, who leads the Conservative Policy Forum, said that ministers needed to

take a “less ideological” approach to Brexit and let issues be discussed in parliament. He told the World at One on Radio 4: “I think people have been worried by the hard Brexit language, which suggests we don’t want to be active members. I think we do.”

Q&A What is the customs union?

The customs union, like the single market, exists to make it as easy as possible to buy and sell goods across the EU’s internal borders. Where the single market, or the internal market as the EU calls it, is based on common regulations, the customs union applies common EU tariffs to goods from outside the area, so goods can circulate freely once they have enteredthe EU.

Can we remain in it?

This is where the semantics come in. The EU customs union, by definition, comprises EU members, so full membership looks impossible, short of a radical overhaul of the workingsm of the EU and its treaties.

But some other countries, notably Turkey, have a customs union with the EU. It is by nature asymmetric. If the EU strikes a free trade deal with another country, Turkey is obliged to grant the same access to the new country. Yet the new country is not obliged to return the favour to Turkey, and Turkey’s union also only includes industrial goods.

Are there other models?

Where there’s a will, there’s a way. However experts have been scratching their heads on how membership of a customs union can be reconciled with striking free-trade deals independently of the EU. Imagine, for example, that the UK signs a free-trade agreement with Japan. The EU would not risk a flood of goods arriving from Japan via Britain that have avoided EU tariffs or which may not meet EU regulations. So the greater the onus Britain places on new trade deals outside the EU, the greater the need for the EU to carry out checks.

So endless queues at Dover are on the way?

Separately from Brexit planning, work is already being done to minimise friction at the border to reduce costs for business. Big companies will be able to use “trusted trader” or authorised economic operator schemes that will reduce the paperwork and risk of delay for repeat cargoes.

What about a hybrid model?

One plan drawn up by Treasury officials before the election would see a “hybrid” or parallel customs union under which the UK leaves but levies “parallel tariffs” identical to the EU customs union’s Common External Tariff. Goods imported by the UK, but destined for the EU, would be considered customs pre-cleared by the EU, removing a huge bureaucratic hurdle, with the proviso that duties would be largely sent to Brussels. Critics say such a system would be hard to negotiate and overly bureaucratic for business and government.

What do the other parties say?

Labour has said that it would leave the single market but it has been non-committal on the customs union. The DUP implies in its manifesto that it would seek to leave the customs union, although its desires to avoid a hard border are in tension with that.

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