Brexit-Backer Fox Offers an Argument for Keeping Customs Union

(Bloomberg) -- Has a key pro-Brexit member of Theresa May’s Cabinet offered a rationale as to why a euroskeptic might be able to live with keeping the U.K. in the customs union?

Liam Fox, in charge of international trade and an ardent backer of Brexit, had as recently as February warned that staying in the European Union’s trade regime would be a “complete sell-out.” It would conflict with the goal to pursue free-trade agreements independently as trade policy for goods would effectively be outsourced to Brussels.

Brexit-Backer Fox Offers an Argument for Keeping Customs Union

Yet in a speech to the City, Fox hinted that given that the U.K.’s strength lies with the service industries that makes up 80 percent of the economy, the rules that govern manufacturing goods such as cars would not affect Britain much -- or its ability to thrive in a post-Brexit world.

“The point that I am making, though, is that discussions around trade and export policy can often be too focused on the movement of physical goods, to the detriment of our comparative advantage in services," he told a conference in London.

The customs union only deals with goods.

‘This Potential’

May is under pressure from business and members of her own party to agree to stay in the customs union -- a reversal of the policy she has pursued for more than a year. Business, the European Union, and probably a majority of Parliament all want the U.K. to stay, but if May agrees to do so it could prompt a rebellion in her party that could end up with her being ousted.

Fox argues that free-trade agreements have done little for the service industries that are key to Britain. "While the system has many strengths, its provisions remain under-equipped to effectively govern the global trade in services," he said Monday. "It would be remiss for developed nations such as ours not to recognize this potential and lead the way on trade in services liberalization."

He goes on to say: “Often, there is broad agreement between nations on the need to liberalize this trade. As a result, barriers can often be removed more swiftly and easily when compared to traditional FTAs.”

Keeping the customs union would help reboot talks in Brussels and would help avoid a hard border between Northern Ireland and Ireland after Brexit -- an issue that’s now an obstacle in talks. May has ruled it out repeatedly, even as some of her officials want her to accept it. A vote in Parliament this week will confirm just how much support the policy has among lawmakers.

The risk is that a shift in policy could prompt some like Fox or Foreign Secretary Boris Johnson to resign and precipitate a government crisis. But what if they can find a way of squaring the circle?

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