EU Is Said to Engage With U.K. Trade Plan in Boost for May

(Bloomberg) -- The European Union is starting to engage with Theresa May’s proposal for how to keep trade flowing after Brexit -- a plan it had branded unworkable.

European negotiators are still struggling to see how the complicated and untested scheme -- which May’s own foreign minister has called "crazy" -- could work, but they have asked a series of questions with a view to finding a way forward, according to two EU officials.

It’s good news for May, who is still fighting to get her Cabinet to back her vision of how trade between the EU and U.K. will operate after 40-year-old ties are severed. Brexit supporters hate the proposal as it would maintain close links to the bloc, and because they see it as a backdoor route to remaining shackled to the EU for longer.

The EU continues to believe full membership of the EU’s existing customs union is by far the best way of keeping trade easy after the split and solving the conundrum of the Irish border. But it is willing to explore alternatives, according to officials involved in the Brexit negotiations in Brussels. May has ruled out remaining in the customs union as it would break an oft repeated pledge, although she’s under pressure from Parliament to change tack.

May’s position is perilous at home with her Cabinet in open defiance and Foreign Secretary Boris Johnson brazenly criticizing her proposal. EU officials have often said in private they would prefer to deal with May than see her ousted and replaced by an arch-supporter of Brexit such as Johnson or Jacob Rees-Mogg.

The EU is keen to make progress in slow-moving talks, with just seven weeks to go until a summit in June where the EU wants the U.K. to set out a clearer plan for the future relationship -- and what it means for the Irish border. Irish Prime Minister Leo Varadkar said on Tuesday that May’s proposal was "welcome" and could be made to work.

The EU has asked the U.K. to provide more details about the customs partnership idea, including:

  • How can the U.K. collect EU tariffs when no longer legally a member of the EU
  • How will the U.K. mirror EU law while also enjoying the freedom to deviate from it
  • How does the U.K. intend to channel customs duty collected in the U.K. into the EU’s central budget
  • How should EU customs authorities reciprocate for products destined for the U.K.
  • How will the U.K. ensure compliance with rules of origin, to prevent cheaper goods entering the EU by the backdoor

The EU hopes British officials will provide answers during the next round of Brexit negotiations, which start on May 22. In the meantime May’s cabinet needs to agree on a unified position.

The U.K. Cabinet has discussed two options for a post-Brexit customs relationship. May’s preferred plan would see the U.K. mirror the EU’s customs regime, collecting EU tariffs and reimbursing businesses if U.K. tariffs are lower. A second plan, known as “maximum facilitation” or Max Fac, would set up a looser relationship between the two trading partners and use technology to minimize disruption and border checks. Brexit-backers like the second version.

May herself has hinted that new customs procedures and systems may not be ready in time for when the U.K. is scheduled to leave the structures of the EU in December 2020 after a two-year transition period. That makes Brexit-backers suspect that the U.K. would end up staying inside the customs union in the meantime.

©2018 Bloomberg L.P.