There is a way out of the PM’S Brexit bind

Neither the customs union nor the new customs partnership will work. Mrs May should try ‘max fac’

Yesterday, Theresa May confirmed that Britain will leave the EU’S customs union. On what should come in its place, however, the Prime Minister finds herself boxed in.

The House of Lords supports a new customs union with the EU. So do Tory rebels in the Commons, who might vote in favour of one with Labour. Watching eagerly is Michel Barnier, the EU’S Brexit negotiator, who has been told by rebel MPS that he need not engage seriously with alternative customs proposals.

Meanwhile, the Prime Minister knows her Cabinet is divided, and so too is her Parliamentary party. Eurosceptics threaten a vote of no confidence unless Britain can pursue an independent trade policy. But Europhiles will make that impossible if they vote for a customs union.

So how can she keep her party together, avoid defeat in Parliament, and meet her policy objectives?

To critics, those objectives seem irreconcilable. They are to allow Britain to strike its own trade deals, avoid a hard border in Ireland, and minimise friction in cross-border trade. And this is the rub. If Britain and the EU have different tariffs and different product standards agreements with other countries, customs checks between Britain and Europe will be needed. If we want to avoid checks, we must sign up to EU tariffs and regulations, and accept we cannot sign trade deals with other countries.

This is what a customs union requires. It would also mean that Brussels could grant trading access to Britain to other countries without seeking reciprocal access for the UK. And it could agree deals that could cost British jobs – or open up public services to private sector competition – without any say for MPS. This is why Norway and Switzerland, despite their close links to the EU, refuse to join a customs union.

But if the Government opposes a customs union, it needs to agree its preferred approach. Downing Street wants to keep open its “new customs partnership” (NCP) proposal, in which Britain would effectively form the EU’S external border, running customs checks for goods heading to Britain and Europe.

This is a neat idea in theory but in practice it risks becoming a customs union by another name. Because of the complexity of running dual customs checks and tracking goods on their onward journey, and the need for UK alignment with EU regulations, it would be almost impossible to agree trade deals with other countries. Even if we did, many businesses would choose to avoid the bureaucracy by paying higher EU tariffs.

The Brexit Cabinet Committee rightly rejected the NCP last week. But even if it had not done so, Downing Street would have struggled to proceed without the support of the International Trade and Brexit secretaries and many Eurosceptic Tory MPS. It should be dropped.

The only alternative is known as “maximum facilitation”. Critics say “max fac” will create friction in trade with Europe. And it would require a customs border. But this can be made efficient by sensible policy and technology, and the costs can be offset by the opportunities provided by trade deals with the world’s fastest growing economies.

This option is dismissed by Europhiles but it is no unicorn: as a Swiss trade negotiator told Policy Exchange recently: “We have a smoothly operating frictionless border with the EU, even though we are not a member of the customs union.”

Downing Street’s reluctance to choose “max fac” is driven by concern about the Northern Irish border. But “max fac” does not demand a hard border. Checks do not need to be conducted along the border: the administration can be done in advance through pre-registration and trusted trader schemes, and monitoring can be conducted in each country. Small businesses can be exempted, more powers devolved to Belfast, and more all-ireland governance arrangements can be agreed to facilitate trade.

The Commission says this is impossible, but their negotiating stance is hardly surprising when they believe Parliament might force the Government into a customs union. And whatever Barnier says, “max fac” would be no anomalous lacuna in the EU’S border. Two years ago, more than a million migrants simply walked into Europe. And as anybody who has driven into France from Switzerland knows, there are no checks along whole sections of the EU border.

The EU is ignoring its own negotiating guidelines. They say “the unique challenges of Ireland will require flexible and imaginative solutions”. The responsibility to find these solutions is not only British but European too.

If there is a compromise to be made, ministers might accept that “max fac” will take longer to be introduced than the current implementation timetable suggests. But to get its way with Brussels, and to convince Parliament that there is an alternative to a customs union, the Government needs to get on with it, choose “max fac” – and start making its case.