Mounting pressure on Theresa May to leave the customs union could put Anglo-Irish trade ties at risk, it has been reported.
According to the Financial Times, Ms May is being urged to leave the union by her trade secretary Liam Fox so that he will receive maximum freedom to negotiate new trade deals.
As part of the customs union the EU negotiates trade deals with external partners and then sets an identical rate for every member state.
Mr Fox wants the UK to leave the customs union as part of Ms May's Brexit strategy. The trade secretary believes the union has stifled trade.
The Treasury warned that goods crossing from Northern Ireland into the Republic could face “various forms of customs control and their liability to duty determined according to complex rules or origin”.
Mr Fox urged the Prime Minister to leave the union on Wednesday where he said the UK has nothing to fear from breaking out.
Whether or not to leave the trade union remains a key point of the UK's exit strategy from the EU and it is understood Ms May will decide on the matter before the end of the year.
Quitting the union would not preclude the UK staying within the ESM.