Brexit Bulletin: A New Last Resort

(Bloomberg) -- Today in Brexit: Cabinet ministers have discussed keeping the U.K. tied to EU customs rules for longer as a way of avoiding a hard Irish border. The EU is skeptical.

Theresa May’s inner cabinet has discussed staying tied to European Union customs rules for years after Brexit as a last resort to avoid a hard border on the island of Ireland, Tim Ross reports.

It’s a radical proposal – a difficult one for Brexit-backers to accept – and EU officials have already poured scorn on it. But the idea is an alternative to the EU’s proposal for the Irish backstop clause that would keep Northern Ireland aligned with the EU’s Customs Union and Single Market. May has said that no British prime minister could accept such an arrangement as it would effectively sever Northern Ireland from the rest of the U.K.

Preventing a policed border on Ireland is one of the most intractable Brexit problems, and May is under pressure to come up with a solution before an EU summit next month. Her inner Brexit cabinet spent much of its meeting this week discussing the need for a new plan.

A range of options were drafted for May’s ministers to consider. One involves extending customs rules meant for the Brexit transitional period beyond the currently planned cut-off date of December 2020. It would keep the whole U.K. aligned with some of the EU’s trade rules for longer, not just Northern Ireland. Ministers agreed to put the proposal forward to the EU in June, despite objections from Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, according to a person familiar with the situation.

Brexit Bulletin: A New Last Resort

The idea of some kind of extension beyond the two-year transition period has been floating around for a while. One of Gove’s allies raised the prospect last week, as long as the final destination was a clean break from Europe. May herself has hinted that new customs infrastructure may not be ready in time. We reported earlier this week that the idea was making the rounds.

The trouble with the new idea is that the EU is highly unlikely to accept it as an alternative to its own plan, according to a person familiar with the bloc’s negotiating position. As they watch the U.K. infighting from afar, EU officials see the latest proposal as another episode in the domestic political drama.

While European officials have signaled they could be prepared to extend the whole transition period for longer if needed, they 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 out. 

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.

Will May try to explain it to EU President Donald Tusk today when they meet in Sofia?

Today’s Must-Reads

  • Tusk will tell May it’s time to reveal her Brexit plans, Ian Wishart reports. Diplomats are alarmed at the lack of progress.
  • Banks planning Brexit moves may get a bit more time to build up EU units, the European Central Bank said, as it recognized the challenges they face.

Brexit in Brief

Galileo Threat | The U.K. is considering holding up progress on the EU’s mightily important Galileo satellite navigation system if the bloc doesn’t relax its stance on restricting Britain’s access to the program, Alex Morales reports. Both the EU and the U.K. have said they want to maintain a close security and defense partnership, but the EU says the terms of engagement have to be renegotiated. Britain says Galileo is a “test” of how good the post-Brexit defense partnership can be. At stake are U.K.-based contracts and jobs.

15 Defeats | The upper chamber of the U.K. Parliament inflicted a final, 15th defeat on May over her flagship piece of Brexit legislation on Wednesday, adding an amendment on environmental standards. While the elected House of Commons can overturn the amendments, it’s by no means certain that all changes will be struck down. There’s still no date for the bill’s return to the lower chamber.

Labour’s Shifting Stance | The opposition Labour party is “ruling nothing off the table,” including changing its Brexit policy over the EU’s single market, shadow Brexit minister Paul Blomfield told the BBC on Wednesday. Rob Hutton reported last week that Labour was inching toward a shift in policy closer to single market membership.

Risk to Contracts | Contract continuity, or the risk that counterparties to a financial contract may be unable to meet their obligations after Brexit, is a key risk, according to Adam Farkas, head of the European Banking Authority. A cliff-edge Brexit is still “plausible,” he said.

Brexit Drama | Benedict Cumberbatch will play Dominic Cummings, the Gove adviser who is credited as the mastermind of the Brexit campaign, in a new television drama about the referendum, the Guardian reports. The Channel 4 film will be written by James Graham, who wrote the hit political play This House.

Coming Up | Trade Secretary Liam Fox takes questions in Parliament at 9:30 a.m. May is in Sofia where she is expected to talk to Tusk and other leaders on the sidelines.

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To contact the author of this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net.

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