The formal partners in negotiations for Brexit are Theresa May’s government and the European Union. On both sides other groups will rightly contribute to the debate, among them the parliamentary ranks of Conservative Eurosceptics. In a speech last night and an interview with The Times, Jacob Rees-Mogg, chairman of the European Research Group (ERG), sounds a warning to Mrs May that her government needs to fundamentally change its tone on Brexit.
Mr Rees-Mogg uses the interview to implore the prime minister to adopt a more optimistic approach to Brexit talks, fearing the alternative is that they become little more than a damage limitation exercise. On the most pressing policy issue, he warns that some 50 fellow ERG members could withdraw support for Mrs May if she seeks a new customs union with the EU. His view is that both the existing European customs union and a hypothetical new variant would tie Britain unacceptably closely to Brussels, “divested of even the limited influence we currently have” and unable to forge its own bilateral trade deals.
As things stand, Britain will technically leave the customs union when its membership of the EU ends, although the transition period envisaged by both sides will preserve most of its functions for about two years from March 2019.
In principle the government then wishes to retain a frictionless border while not adhering to the EU’s common external tariff. This was the position set out by Mrs May in her Lancaster House speech, and one Mr Rees-Mogg supports. In practice it will be hard to realise because complete withdrawal from the customs union would require customs checks at borders between Britain and EU member states, and substantially increased bureaucracy for businesses trading across them.
This is why Philip Hammond, the chancellor, has spoken this week at Davos of his hope for continued close regulatory alignment with the EU, language that Mr Rees-Mogg fears will lead to a softening of the Lancaster House position.
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He should be less fearful. Contrary to the views of many in the ERG, there is scope for a new customs union that differs significantly from the old. In particular, a new version might cover trade in goods only, leaving Britain free to forge new deals elsewhere in the service industries that constitute 80 per cent of the economy. Such a revised customs union could save British companies that trade goods with Europe, and their European partners, a mountain of red tape. As important, it could go a long way towards solving the otherwise intractable problem of the Irish border.
In the absence of a form of customs union, physical checks of some sort would almost certainly be necessary along the 320-mile border between the Republic of Ireland and Northern Ireland. The Irish government would be required to operate these checks under World Trade Organisation rules, lest (say) Chinese exporters ship goods to Northern Ireland and then drive them over the border to the republic. The “soft” border that has worked smoothly since the Good Friday agreement of 1998 would be put at risk.
The purpose of a customs union is to eliminate internal tariffs. It is not realistic to expect the remaining 27 EU countries to create a new customs union without requiring Britain to make concessions, but if clearly defined and negotiated in good faith they would probably be worth making.