A dog bites a Vote Leave campaign poster during the Brexit campaign. (Photographer: Luke MacGregor/Bloomberg)

U.K. Outlines New Trade Plan for Brexit Ahead of Cabinet Meeting

(Bloomberg) -- U.K. Prime Minister Theresa May is proposing a compromise plan for a Brexit trade deal with the European Union that she hopes will keep her fractious Cabinet together and unblock stalled talks in Brussels.

Ministers don’t expect to see the full detail of May’s post-Brexit blueprint until the eve of the Cabinet meeting at which they’re supposed to reach agreement on it.

But a British official, speaking on condition of anonymity, gave an outline on Wednesday of a new customs proposal to bridge the divide between ministers in May’s Tory party who want a clean split with the EU and their colleagues who say businesses need to keep the closest possible ties to the bloc.

At stake is whether the U.K. government can devise a coherent and unified position that negotiators can then present to their EU counterparts. It also needs to be a plan that the EU doesn’t immediately reject, as time runs out to reach a deal. May meets German Chancellor Angela Merkel in Berlin on Thursday.

The customs idea will be included in a broader Brexit plan to be published next week that is expected to call for closer ties to the bloc than May had initially envisaged. Pro-Brexit ministers who want a clean break from the EU are so far keeping a low profile and Environment Secretary Michael Gove -- a leading Brexit campaigner -- said he didn’t expect to see colleagues resign in protest.

“I’m more optimistic on the U.K. side,” said Charles Grant of the Centre for European Reform think tank. If May “does get her act together and imposes a version of soft Brexit on her party it’s going to be harder for the EU to say ’no, no, no,’ and easier for them to say ’no, but...’”

Under the customs plan, the U.K. would collect tariffs on goods crossing the border that are destined for the EU. The use of technology and accrediting companies through “trusted trader” schemes will keep the bureaucracy for businesses -- such as the need to re-claim if they have overpaid tariffs -- to a minimum, the official said.

The new trade policy -- called a “facilitated customs agreement” -- is a blend of the two U.K. options which split the Cabinet in May and caused the logjam in the negotiations since.

May’s aides hope this single new idea will offer the “best of both worlds” from the two previous customs options and allow ardent Brexit backers like Foreign Secretary Boris Johnson and pro-EU ministers such as Chancellor of the Exchequer Philip Hammond to agree.

The plan is also intended to avoid customs checks at the politically sensitive Ireland-U.K. border.

In theory, the U.K. will be free to strike its own trade deals and determine an independent tariff regime. Winning the freedom to pursue independent trade deals and set tariff policy is a key goal for Brexit campaigners.

Rural Retreat

May has convened an all-day meeting of her Cabinet at her country house on Friday, at which she’s seeking consensus on the customs plan, and the rest of her blueprint for the U.K.’s future relationship with the EU after Brexit.

May’s officials have prepared a so-called white paper outlining the plans and her office is briefing ministers on the outline of its contents. The draft document itself is unlikely to be circulated to the Cabinet until late Thursday, according to two officials. A third said it wouldn’t be surprising if ministers didn’t get the paper until Friday morning.

With just nine months to go until Britain’s scheduled departure from the bloc, substantive discussions are yet to begin on the post-Brexit trade relationship. The rift in May’s Cabinet between pro-and anti-Brexit ministers has jammed progress. The EU has rejected the U.K.’s proposals on customs so far.

Third Option

May’s senior pro-Brexit colleagues want her to explain more clearly how the new customs proposal for the U.K.’s future customs regime will work, as some fear it could keep the country chained to the EU’s tariff regime forever.

It’s not yet clear that her ministers and party will unite behind her approach.

The hardline euroskeptic European Research Group of Tories met May’s chief whip on Wednesday to raise their concerns that she’s going to betray their vision of a clean break with the EU. Jacob Rees-Mogg, the leader of the ERG, said on Wednesday that he will not accept her plan if it ties the U.K. to the EU tariff and regulatory regime.

Under the new customs plan, businesses would pay tariffs at the correct rates at the U.K. border, depending on whether goods are destined for end use in the U.K. or in the EU, the British official said. The use of technology and trusted trader schemes would mean that 96 percent of all trade by value would be subject to the correct tariffs from the start and would not result in firms needing to reclaim if they have been overcharged.

The exception, which the official said would amount to just 4 percent of overall trade, will be for goods for which the end destination can’t be proved at the point of entry.

©2018 Bloomberg L.P.

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