How About a Customs Extension? May's Brexit Team Decides

(Bloomberg) -- There’s a radical new option that Prime Minister Theresa May’s inner Brexit Cabinet has taken into consideration to address the intractable Irish border problem: keeping European Union customs rules for longer.

According to four people familiar with the matter, the 11 Cabinet ministers at the heart of setting Brexit policy spent much of their 90-minute meeting on Tuesday discussing the need for a new plan to ensure that there’s no return to frontier checks on goods moving between Ireland and Northern Ireland.

The EU is demanding an insurance clause to make sure no border emerges on the island. But as the backstop proposed so far is unacceptable to May, her officials are now working on an alternative idea to be discussed at next month’s EU summit. The bloc’s proposal is to keep only Northern Ireland inside its customs territory unless or until another solution can be found -- essentially severing the territory from the rest of the U.K.

A range of options were drafted for May’s ministers to consider. One involves continuing to apply features of the Brexit transitional period relating to customs rules beyond the currently planned cut-off date of December 2020. It would apply to all of the U.K., not just Northern Ireland.

Ministers on Tuesday agreed to put forward that version of a backstop to the EU in June, despite objections from Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, according to another person familiar with the matter and reports in the Telegraph. The person added that the U.K. will be accepting the EU common external tariff during the period.

The idea -- already met with skepticism in Brussels -- is that it would keep the U.K. aligned with some of EU trade rules for longer, as a backstop plan to avoid a crisis over the Irish border. This idea has now made its way up to the most senior levels in May’s Cabinet, with some members believing it has potential to resolve the impasse, according to the people.

Brussels Says No

Getting negotiators in Brussels to agree to this is another matter. Even though May’s Cabinet supported the idea, the EU is highly unlikely to accept it as an alternative to its own plan for a backstop for Ireland, according to a person familiar with the bloc’s negotiating position.

Two years on from the referendum, the divided U.K. government still hasn’t decided what it wants from Brexit and EU officials see the latest proposal as another episode in the domestic political drama.

EU officials have signaled they could be prepared to extend the whole transition period for longer if needed but reject a piecemeal approach. A wholesale extension of the transition -- including abiding by all EU rules and free movement -- would be harder for May to sell to the members of her Cabinet who are keenest on getting Brexit done.

EU officials are also clear that there’s not much scope for changing the terms of their proposed backstop. The wording can change slightly to make it more palatable to the U.K. but the concept has to remain broadly the same. And the EU says the backstop must only apply to Northern Ireland -- it doesn’t want the U.K. staying in the customs union by the backdoor as a result of the last-resort clause being triggered.

Another person familiar with the EU position said that the proposal being floated in London could be an additional backstop but would not be acceptable as a replacement for the existing clause.

Ideas Needed

Negotiations are stuck on the question of the Irish border as the EU waits for the U.K. to come up with more ideas. May is under pressure to deliver at a summit in June.

The prime minister wants to solve the question by negotiating a sweeping new commercial agreement with the EU that avoids the need for arduous goods checks and tariffs.

But the EU says an insurance policy for Ireland must be agreed first in case the U.K. free trade deal doesn’t work out as planned. While the U.K. see the backstop as a last resort, EU officials have said in private they expect the backstop to come into effect -- hence the desire to get it right.

The new proposal is controversial as May has repeatedly vowed that the U.K. will leave the EU customs union, even though some of her officials think any new arrangements won’t be ready in time for the end of the transition period in December 2020.

Any extension of EU customs rules -- particularly if there’s no cut-off date -- would spark a backlash among Brexit campaigners in May’s Conservative party. Some of them have privately warned she will face a challenge to her leadership if she tries to tie the U.K. too closely to the EU’s rules.

©2018 Bloomberg L.P.