Liam Fox: there will be no customs union with EU after Brexit

Liam Fox said the government was not considering continuing a customs union-style arrangement with the EU, insisting it would restrict the UK in forging new trade deals with the rest of the world.

Related: China commends Theresa May for 'sidestepping' human rights

The international trade secretary poured cold water on reports that the government was considering a deal under which trade in goods would be covered by a customs union arrangement with the EU, but the UK could retain independent trade policy on services.

The Financial Times reported on Friday that the idea is actively under consideration by the government’s Brexit advisers and is favoured by the chancellor Philip Hammond and business secretary Greg Clark.

Speaking to Bloomberg TV in China, on the final day of the prime minister’s three-day visit, Fox said being part of a customs union would not allow Britain to set its own trade regulation.

Staying in the single market and customs union

The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides, free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election.

The Norway model

Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but  is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules.

The Canada deal

A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far.

No deal

Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organisation rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish  bilateral agreements to deal with the consquences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

“It is very difficult to see how being in a customs union is compatible with having an independent trade policy because we would therefore be dependent on what the EU negotiated in terms of its trading policies and we’d be following behind that,” he said.

Asked if he was ruling out any form of customs union in future, Fox said: “We have to be outside of that to take advantage of those growing markets. One of the reasons we are leaving the European Union is to take control and that’s not possible with a common external tariff.”

Speaking to Sky News on Friday in Shanghai, Theresa May was more vague about the government’s intention. The prime minister said there was much the UK could do to improve trade with China while inside the EU.

“What I want to do is ensure that we have got the best possible trade arrangements with China and with other countries around the world once we have left the European Union,” she told Sky News. “I do want to do those free trade agreements. There is more trade that we can do even before we get to those free trade agreements.”

Fox said the Chinese were impressed with May’s visit and said it should silence her backbench critics. “Theresa May’s middle name is resilience,” he told Bloomberg. “And that’s exactly what she’s showing and I do wish more people could have seen the commitment she was showing to Britain’s national interest on this trip to China.”

Powered by Guardian.co.ukThis article was written by Jessica Elgot in Shanghai, for theguardian.com on Friday 2nd February 2018 06.38 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010