What to Expect as U.K. Ministers Converge on May's Country House

(Bloomberg) -- U.K. Prime Minister Theresa May gathers her divided cabinet at her Chequers country house on Friday in an attempt to thrash out a concrete plan for Brexit. It looks like they couldn’t wait till then to start tearing apart her idea. Here is a guide to what the fight is about.

What are they discussing?

May and her officials have drawn up a 100-page document known as a White Paper that lays out in detail the shape of the future economic partnership she’ll seek with the European Union after leaving the bloc. A key component of this is the nature of post-Brexit customs arrangements. For months, ministers have been squabbling over two options. When the Brexit war cabinet discussed them in May, they divided 6-5, with May in the minority.

What were the two customs options?

May’s preferred option -- and that of the pro-Europeans in cabinet -- was the New Customs Partnership. That would see the U.K. collecting tariffs at EU rates at the border, providing refunds where applicable for goods destined for domestic consumption. The Brexiteers instead favored the Maximum Facilitation plan that relied on technology and trusted-trader programs to ensure frictionless borders. A key point to note: the EU dismissed both as unworkable.

So are they still in play?

No. May has ditched both this week and aims to persuade her ministers of the merits a third option, dubbed a Facilitated Customs Agreement, which splices together elements of the two previous options. Under that plan, the U.K. would collect tariffs on goods crossing the border that are destined for the EU. The use of clever technology and trusted-trader schemes would keep bureaucracy to a minimum for businesses, with 96 percent of all trade by value subject to the correct tariffs from the start. The plan aims to avert customs checks at the politically sensitive Ireland-U.K. land border, while allowing Britain to set its own tariffs and strike its own trade deals -- both key demands of Brexit hardliners.

So will the cabinet swallow it?

That will be tested on Friday, but early signs aren’t good. Brexit Secretary David Davis wrote to May to tell her that her new idea on customs will fail, according to a person familiar with the situation. Even so, his fellow Brexiteer, Environment Secretary Michael Gove, has predicted that the cabinet would reach an agreement with no resignations. But even then, Britain will have to sell the proposal to the EU. On Thursday, a person familiar with the German stance told Bloomberg Chancellor Angela Merkel’s government is unconvinced by the new proposal.

What’s at stake?

After months of quarreling and bitter recriminations -- both public and private -- between ministers, May is fast running out of time to unify them. Brexit talks have barely advanced since March, with the stalemate over the Northern Ireland border holding up the divorce terms. And envoys have yet to substantively discuss the future relationship, adding to the risk that a deal won’t be done in time for Brexit, scheduled for next March. The longer the delays, the greater the chance of Britain tumbling out of the bloc without a deal.

What does business say?

Corporate Britain wants two things: clarity and detail on what happens after Brexit. Businesses have long said the proposed 21-month post-Brexit transition period is a wasting asset. Without knowing what they’re transitioning to, the argument goes, there’s no point in having a transition period. Patience is wearing thin: Airbus last month put its head above the parapet to say it’ll have to pull investment from Britain if there’s no deal. Since then, automakers BMW and Jaguar Land Rover have added their own warnings, while Rolls Royce told Bloomberg Thursday it was moving the design approval for large jet engines to Germany to ensure it can continue operating whatever the Brexit outcome.

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