The International Trade Secretary said a final position could not be reached until it was known what the “end state” of the UK-EU relationship after Brexit would be.
His comments came as Dublin put fresh pressure on the Government to accept a solution which would see either the whole of the UK or just Northern Ireland remain in the single market and customs union.
Rejecting the proposal, Dr Fox said: “We don’t want there to be a hard border but the UK is going to be leaving the customs union and the single market”
He told Sky News’s Sunday with Niall Paterson: “We have always had exceptions for Ireland - whether it’s in our voting rights, our rights of residence in the UK, we have always accepted a certain asymmetry and that will have to be part of whatever agreement we come to with the European Union but we can’t come to a final answer to the Irish question until we get an idea of the end state.
“And until we get into discussions with the EU on the end state that will be very difficult, so the quicker that we can do that the better and we are still in a position where the EU doesn’t want to do that.”
He blamed the European Commission’s “obsession” with forging a closer union for the delays in the Brexit talks, which the UK hopes will move on to discussing trade after a meeting of EU leaders on December 14-15.
“I think the European Union countries need to consider the welfare and the economic prosperity of their people as opposed to the obsession of the commission about the concept of ever closer union.” he said.
Irish MEP Mairead McGuinness, a member of Taoiseach Leo Varadkar’s Fine Gael party, told BBC’s Sunday Politics she was “troubled” by Dr Fox’s comments.
“I hope that the UK is not holding the Irish situation to ransom in these negotiations, it is far too serious and far too critical,” she said.
Ms McGuinness said if Theresa May wants the situation to remain the same post-Brexit “the only way to achieve that is to stay in the customs union and single market, that is the solution”.
The Prime Minister’s DUP allies have warned they will not tolerate any attempt to put barriers between Northern Ireland and the rest of the UK after Brexit.
Mrs May has been given until December 4 to come up with further proposals on issues including the border, the Brexit divorce bill and citizens’ rights if European leaders are to give the green light to moving on to the next phase of negotiations covering the future relationship between the UK and Brussels.
Ireland’s European Commission member Phil Hogan said it was a “very simple fact” that “if the UK or Northern Ireland remained in the EU customs union, or better still the single market, there would be no border issue”.
In a swipe at the Government’s approach to Brexit, he told the Observer: “I continue to be amazed at the blind faith that some in London place in theoretical future free trade agreements.
“First, the best possible FTA with the EU will fall far short of being in the single market. This fact is simply not understood in the UK.
“Most real costs to cross-border business today are not tariffs - they are about standards, about customs procedures, about red tape.
“These are solved in the single market, but not in an FTA.”
Any arrangement which appeared to give Northern Ireland a separate status would be strongly resisted by the DUP, whose 10 MPs are effectively keeping Mrs May in Downing Street after she lost her majority in the general election.
DUP leader Arlene Foster told her party conference on Saturday: “We will not support any arrangements that create barriers to trade between Northern Ireland and the rest of the United Kingdom or any suggestion that Northern Ireland, unlike the rest of the UK, will have to mirror European regulations.”
Speaking on ITV’s Peston on Sunday, shadow chancellor John McDonnell said he was worried about Dr Fox’s comments and said the option of remaining in the customs union and single market should remain on the table.
“I think the one thing that we don’t want to do is jeopardise any movement quickly, because we need movement to enable us to get into the proper trade negotiations.
“So I’m hoping that isn’t a Downing Street sanctioned statement that’s he’s made.”
Mr McDonnell said it was important not to lose any of the gains from the peace process in Ireland during Brexit talks.
“So yes, we’ve said all the way along now that customs union, single market, all these options have got to be on the table now as part of the negotiations, and then through those negotiations see what security that people feel that we can give as a result of that,” he said.
Scottish Tory leader Ruth Davidson said that unless progress on to the next phase is made in December “we are rapidly going to run out of time” for a transitional deal to be put in place.
“I don’t think it means that the world has ended but I do think it’s a setback,” she said.