Brexit Unity Eludes May Again Amid Cabinet Impasse on Customs

(Bloomberg) -- Prime Minister Theresa May’s Cabinet remains split over Britain’s future trading relationship with the European Union, with her most senior ministers still looking at how to improve the two options on the table.

May’s inner Brexit circle met for more than 90 minutes on Tuesday and isn’t likely to gather again this week, according to an official familiar with the matter, who spoke on condition of anonymity because the discussions are private. Instead, two separate sub-groups tasked with honing the government’s plans will continue their work, with the prime minister seeking progress as soon as possible, the official said.

Britain’s customs relationship with the EU will dictate how much friction traders face after Brexit, and potentially whether there will be a hard border with Ireland -- something all sides have pledged to avoid. May’s preferred option would see Britain stay closer to the bloc than hardline Brexiters want, and after ministers split 6-5 against her on May 3, she divided them into two working groups ahead of Tuesday’s meeting in a bid to end the deadlock.

May’s favored “customs partnership” plan would see Britain levying tariffs at EU rates, providing refunds for goods destined to British markets if U.K. tariffs are lower. The option preferred by Brexiters, called “maximum facilitation,” would use trusted trader programs and technology to regulate the border.

Seeking Agreement

The prime minister wants consensus around a single option that she can present it to her wider Cabinet and Conservative Party, as well as the EU. Though the bloc previously dismissed both options as unworkable, it has started to engage on May’s partnership plan by asking for more details.

Both working groups were set up with two ministers opposed to the option they were discussing. Business Secretary Greg Clark and Northern Ireland Secretary Karen Bradley were teamed with Brexit Secretary David Davis on the technology option, which the latter supports. Environment Secretary Michael Gove and Trade Secretary Liam Fox were focusing on the partnership plan with May’s de facto deputy, Cabinet Office Minister David Lidington.

Issues that need resolving on maximum facilitation include how to make it as frictionless as possible, and how to overcome EU concerns around plans to exempt small traders from some provisions, the official said. On May’s preferred option, hurdles include the impact of Britain having its own independent trade and tariffs policy, and who would have jurisdiction over a dispute resolution mechanism.

Both groups have only met once so far, the official said, but will meet regularly in the coming days.

Applying Pressure

The main opposition Labour Party said Tuesday it will use a rarely deployed parliamentary device to force the government to reveal the details of the two customs options, which could reveal key intelligence on what May’s government has in mind to pitch to Brussels. The party has previously used the “humble address” to get the government to hand over its Brexit economic assessments.

Business Secretary Clark visited Norway on Monday to examine the country’s border with Sweden, according to another official familiar with the matter. As a member of the European Economic Area, Norway is part of the EU’s single market but not its customs union, meaning that there are still border checks for goods crossing between the two jurisdictions.

Both the government and the main opposition Labour Party have rejected joining the EEA because it would leave the U.K. subject to EU rules after Brexit -- though the House of Lords voted in favor of it last week.

©2018 Bloomberg L.P.