Brexit Secretary Spells Out U.K. to Be Leaving EU Customs Union

The U.K. will be leaving the European Union’s customs union to gain control over its own tariffs and negotiate trade deals around the world, Brexit Secretary David Davis said as he outlined the government’s vision for Britain’s future outside the bloc.

Prime Minister Theresa May will seek to agree on a “mutually beneficial new customs arrangement” between the U.K. and the EU during Brexit talks, according to a new document published Thursday. Britain is also aiming for the “freest possible” trade in financial services with the bloc after Brexit.

Read an explainer on difference between customs union and single market.

“We will not be bound by the EU’s Common External Tariff or participate in the Common Commercial Policy,” according to the 77-page outline. “But we do want to ensure that cross-border trade with the EU is as frictionless and seamless as possible.”

Speaking to lawmakers in Parliament in London, Davis was asked to confirm that the U.K. would part ways with both the single market and the customs union. “We exclude ourselves from the Common Commercial Policy and the Common External Tariff, which amounts to that -- exactly,” the Brexit secretary replied.

First Time

Davis thus effectively confirmed for the first time that whatever new arrangements the U.K. has with the EU, it will no longer be a member of the customs union, which enables British exporters to trade tariff-free with the rest of the bloc.

Previously, the government has said it has an open mind on the shape of new customs arrangements, with suggestions that some form of associate membership could be agreed. Once out of the customs union, the U.K. can strike free-trade agreements with countries outside Europe but it loses in other ways, with more checks and red tape at EU borders.

Writing the foreword to the white paper, the premier promised to “get on with it” and forge ahead with exiting the EU. “Business isn’t calling to reverse the result, but planning to make a success of it,” May said.

The document puts her formal Brexit plan in writing. The so-called white paper highlights that the EU has a lot to lose from cutting off for U.K.-based financial services, suggesting “market fragmentation” and the withdrawal of services would hurt European companies.

‘Possible Disruption’

“The financial services sector is an important part of the European economy, contributing significantly to the funding and growth of European business,” the document said. Thursday. “It is in the interests of the U.K. and the EU that this should continue in order to avoid market fragmentation and the possible disruption or withdrawal of services.”

The government is making the case that EU companies and consumers would suffer if Brexit deprived them of access to the region’s main financial hub even if some London-based banks shift jobs and operations to the bloc.

In a report for the finance industry published this week, PricewaterhouseCoopers LLP estimated that about three quarters of Europe’s trading of currencies and also interest-rate derivatives takes place in the U.K., as does half of the region’s fund-management activities. Lending from U.K.-based banks to EU companies totaled 1.2 trillion euros ($1.3 trillion) in the second quarter of 2016, about 9 percent of total lending to EU residents.

The document will be used by lawmakers who wish to put the prime minister under pressure over her plans. While the opposition Labour Party has backed the principle of leaving the EU, it has said it will push for maximum access to the bloc’s single market. Many in the Conservative Party have also said they’ll push to keep more ties with the bloc.

That the government has had to publish the plan at all is the latest of a series of retreats for May. Last month ministers argued that her Jan. 17 speech on the subject gave all the information necessary. But the Supreme Court’s ruling that the government needed Parliament’s approval to begin negotiations has forced May to give more details.