U.K. Proposes Staying Close to EU Rules to Unlock Brexit Talks

(Bloomberg) -- The U.K. is seeking to rescue Brexit talks after this week’s embarrassing breakdown by signaling a change of tack that would mean staying close to European Union rules beyond its divorce from the bloc.

Negotiations ended abruptly on Monday without the deal that had been mooted because of an intervention from Northern Ireland’s biggest party on the sensitive issue of the Irish border. The collapse presented Prime Minister Theresa May with an almost impossible dilemma: to change her Brexit policy or risk a no-deal split from the EU.

Brexit Secretary David Davis told the U.K. Parliament that he wanted the whole country to remain close to economic regulations after leaving, including in the key area of financial services. The EU didn’t immediately react to the proposal.

“This is a fudge until the trade talks, when options could theoretically include a customs union if the U.K. and EU strike an ambitious trade deal like the status quo -- which is of course extremely unlikely,” said Eurasia Group analyst Mujtaba Rahman.

Border Mess

The proposal at least could unlock the riddle of how to avoid a hard border in Ireland after Northern Ireland leaves the bloc along with the rest of the U.K. Britain needs an agreement with the EU on it before Brexit talks can move on to trade.

The discussions, though, broke up on Monday after a dramatic disagreement within the British camp. The U.K. was proposing exceptional rules for Northern Ireland to allow the province to remain aligned with the republic. The Democratic Unionist Party, which props up May’s government, said that was unacceptable.

May is now scrambling to get the DUP back onside so she can head back to Brussels as soon as Wednesday to renew her push for a deal. If it wasn’t tough enough, the prime minister also faces the threat of a constitutional crisis after Scotland’s leader said her nation should be allowed to remain in the customs union.

Red Lines

Speaking on condition of anonymity, a person familiar with the EU side said there was concern it could reflect a return to unrealistic thinking by the U.K. The EU wants a commitment for Northern Ireland now, and doesn’t want to mix up the border issue with the future trade deal, the person said.

Davis made clear that his proposal doesn’t mean staying in the single market -- as many businesses would like -- and wouldn’t involve a role for the European Court of Justice, a taboo for many Brexit-backers. The role of the ECJ remains a sticking point in talks.

“Regulatory alignment is not harmonization, it’s a question of ensuring similar outcomes in areas where we want to have trade,” Davis told lawmakers in London on Tuesday. “Anything we agree for Northern Ireland in this respect, if we get our free trade area, will apply to the whole country.”

It remains to be seen what the most enthusiastic Brexit supporters in May’s government, such as Foreign Secretary Boris Johnson, will make of the proposal. May’s spokesman told reporters that Davis was speaking on behalf of the whole government.

Vocal Brexit supporter Jacob Rees-Mogg put it to Davis that keeping the United Kingdom together and departing from EU rules should both be "indelible red lines,” as ditching EU rules was the point of leaving. Davis responded: “The red line for me is delivering the best Brexit for Britain and that’s what we’ll do.”

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