May Weighs Brexit Fix that Keeps EU Rules for Longer
(Bloomberg) -- U.K. Prime Minister Theresa May is drawing up a plan to keep key European Union rules for longer after Brexit in order to break the deadlock in negotiations, a move that risks angering euroskeptics in her party.
According to people familiar with the situation, the U.K. is working on options to avoid a hard border with Ireland, the issue that’s become the biggest obstacle to an orderly divorce. One idea would effectively prolong large parts of the so-called transition phase -- the two-year grace period that’s due to run from exit day on March 29 to the end of 2020 -- according to one official.
In their efforts to break the deadlock over the Irish border, British negotiators have already proposed a temporary customs arrangement, under which the U.K. would keep the EU’s tariff regime until the end of 2021. Now, May’s officials are looking at proposals to maintain the bloc’s single market regulations in key areas that will help ensure trade flows smoothly so there’s no need for checkpoints or police at the land border with Ireland.
May is working against the clock to get a divorce deal to avoid the legal chaos of tumbling out of the union it’s been part of for 45 years without one. There’s been little progress on the Irish issue since December, and in recent weeks senior politicians have stepped up warnings that negotiations could fail. Both sides are starting to prepare for the worst.
Talks will resume on Aug. 16 in an effort to make progress ahead of a self-imposed October deadline to reach an overall agreement. Chief EU negotiator Michel Barnier has said he is open to new proposals on the Irish issue, but the latest British idea could raise concerns in Brussels.
Both sides have agreed there needs to be a guarantee, or so-called backstop, to make sure that no hard border emerges on the island of Ireland after Brexit. But the U.K. has rejected the EU’s proposal as unacceptable. The U.K.’s plan is that the trade deal it eventually signs with the bloc will establish such close ties that the backstop won’t be needed. The EU side isn’t so sure.
The transition phase -- during which all rules stay the same but the U.K. loses voting rights in the bloc -- is due to finish at the end of December 2020. But May’s team now thinks an extra period of keeping to EU rules could be needed before the final end-state trade arrangements are ready. That’s not going to be popular with ardent Brexit campaigners in May’s Tory party who are impatient for a quick, clean break with the EU.
May has rejected the EU’s proposal for the backstop because it would effectively mean Northern Ireland staying part of the European customs territory and single market regime, while the rest of the U.K. leaves. That would create a customs border between Northern Ireland and the British mainland, which May says no U.K. prime minister could ever accept.
May’s government is waiting for the EU to say what other possibilities could work instead, but has also been working on options in London. These include plans for a two-stage backstop:
- First, an extra transitional “bridge” period would be required to last until the final end-state trade deal takes effect; this would see the whole U.K. aligning its customs rules as well as goods regulations with those of the EU, on a temporary basis;
- Then there would be a new Irish “backstop” clause as part of the future trading arrangements -- to safeguard the open border with Ireland if the U.K. decides to diverge from EU rules and tariffs.
In the long term, part of the answer could be to allow Northern Ireland to keep close to the EU rulebook, which applies across the border in Ireland. Opening the door to greater differences in regulations for goods in mainland Britain and those of Northern Ireland could help. There are already differences in some key sectors such as agriculture.
The difficulty is that May needs to keep the Democratic Unionist Party of Northern Ireland onside. The DUP’s members of Parliament prop up May’s minority government in London and are implacably opposed to any splits between the economies of Northern Ireland and the British mainland.
One option gaining support is to take the decision out of the hands of the British government. Instead, the principle underpinning a deal would be based on how far rule-setting is already devolved to authorities in Northern Ireland. This could see the province deciding whether many of its own goods regulations should mirror those of the Republic of Ireland and the EU, without London’s involvement.
In the end, according to one person familiar with the matter, the U.K. could simply decide unilaterally to keep mainland Britain and Northern Ireland in full regulatory alignment with the EU, regardless of what European leaders want.
The U.K. would then promise not to set up border checkpoints for goods entering its territory and would challenge the Irish government and the EU to do the same, the person said.
©2018 Bloomberg L.P.