(Bloomberg) -- A British government minister has raised the prospect that the U.K. could seek to stay in the customs union even after leaving the European Union, in a further sign that Prime Minister Theresa May's team may be softening its approach to Brexit.
The government is considering keeping membership of the customs union for certain products, Trade Minister Greg Hands suggested in an interview with Bloomberg this week. He said the government is “looking at broad possibilities” for how such unions can operate, as he explained what May meant when she said in November that membership was not “binary.”
“You can choose which markets, which products the customs unions affect and which they don't -- so there isn't a binary thing of being inside the customs union or outside of the customs union,” Hands said. “The history of international trade has got all kinds of examples of customs unions.”
Europe's customs union allows members to enjoy tariff-free trade among each other and imposes the same duties on external countries. Hands's comments signal the U.K. could be planning to seek agreements on duty-free trade with the EU for individual sectors, hoping that the likes of Germany will agree so as to protect access to the British market for their own exporters.
In a further sign that the government may be relaxing its stance, Brexit Secretary David Davis on Thursday suggested for the first time that the U.K. may be willing to pay the EU to ensure the best possible access to Europe's single market for goods and services. The single market is broader than the customs union and also allows the free movement of capital, services and people.
Pound Gains
The pound jumped after Davis's comments on hopes that May and her colleagues are easing up on their “hard Brexit'' rhetoric, which has signaled a preference for using the upcoming negotiations to clamp down on immigration even if that meant threatening trade.
May's ministers are split over whether the U.K. should seek to stay in the customs union or leave. Trade Secretary Liam Fox is said to be keen to pull out so that he can start negotiating commercial pacts with other countries. Chancellor of the Exchequer Philip Hammond is said to hold concerns about the impact new trade barriers and bureaucracy with Europe would have on the economy.
The unanswered question is whether EU leaders would be willing to allow piecemeal access to the customs union given many have warned the U.K. won't be able to “cherry pick'' the benefits of being in the EU.
Zollverein Union
When asked about the issue by lawmakers last month, May said “the customs union is not just a binary decision” but did not give any further details of what she meant.
In an attempt to explain the premier's comments, Hands said there were many models of customs union, where states group together to agree common tariffs for trading with external partners. He gave the example of the Zollverein, a grouping of German states formed in the 1830s to organize economic policies and trade within the region.
The Zollverein was never “stuck in one place” as to which goods were covered and which weren't, Hands said. “These things can be multifaceted and dynamic.”
Hands said it's crucial that U.K. companies have “maximum access” to the single market. “That's what we would expect to offer to the European Union to U.K. markets in return.” He also said he wants to make sure the City of London remains at the center of the world's financial markets.
“The most important things to the City are that we recognize the importance of financial services to the U.K. economy as a whole,” he said. “That, of course, is not just London, but the number of jobs in the U.K. that depend on financial services right the way throughout the U.K.”
To contact the reporter on this story: Tim Ross in London at tross54@bloomberg.net. To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Simon Kennedy, Andrew Atkinson
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