Britain may have to extend EU customs arrangements after Brexit - lawmakers

By Andrew MacAskill

LONDON, May 24 (Reuters) - Britain may have to stay in the EU customs union after the post-Brexit transition period finishes at the end of 2020 because new trading arrangements will not be ready, according to a parliamentary report on Thursday.

Prime Minister Theresa May has been struggling to unite her cabinet over the terms of Britain's divorce with the EU, with a row over future customs arrangements dividing her government and all but stalling Brexit negotiations.

The government is considering two possible options in a debate that has exposed a deep rift within May's cabinet between those who favour a clean break with Europe and those willing to accept closer cooperation with Brussels.

May's spokeswoman says the government intends to be ready with new customs arrangements by the end of the transition period, but others doubt that is possible.

The report by the committee on exiting the European Union said it was "highly unsatisfactory" that nearly two years after the 2016 referendum in which Britons voted to leave the EU, ministers have yet to agree what kind of trading and customs arrangements they want with the bloc.

"We are rapidly running out of time to get new trade and customs arrangements in place," said Hilary Benn, the chair of the committee, and a member of the opposition Labour party.

"Given that ministers are indicating that neither of the two options being discussed are likely to be ready by December 2020, when the transition period ends, the UK will in all likelihood have to remain in a customs union with the EU until alternative arrangements can be put in place."

The government's plan to leave the EU customs union, which sets tariffs for goods imported into the bloc, has become one of the main flashpoints in the Brexit debate, pitting companies and pro-EU campaigners against eurosceptic Members of Parliament.

May has pledged to take Britain out of the customs union with the EU, a step she argues is necessary so that London can strike its own independent trade deals around the world.

But the government has yet to set out to the EU's satisfaction how it would achieve that without erecting a land border to control goods between the British province of Northern Ireland (Other OTC: IRLD - news) and EU member the Republic of Ireland, which Britain has promised it will not do.

British officials have repeatedly said Britain would leave the EU customs union after the end of the transition period, but the government is considering a backstop plan that would apply the bloc's external tariffs for a limited period beyond 2020. (Editing by Stephen Addison)