An anti-Brexit demonstrator wears a pro European Union (EU) badge in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

EU Rejects May's Irish Border Plan as Brexit Impasse Deepens

(Bloomberg) -- European Union officials are set to reject a potential U.K. solution to the crucial issue of what happens to the Irish border after Brexit.

Failure to find a solution to avoid a border on the island of Ireland jeopardizes the entire Brexit deal with less than a year before Britain leaves the bloc. Without it, the U.K. won’t get a transition period and will have to operate under World Trade Organization rules.

The U.K. has indicated during talks that the bloc’s “backstop” option that keeps Northern Ireland in a “common regulatory area” with the EU should apply to the whole of the U.K., according to three people familiar with the EU side of the negotiations. It would mean the whole U.K. stays in parts of the single market and customs union as a last resort.

That won’t work for the European Commission, which wants to offer that special status only to Northern Ireland. If Prime Minister Theresa May is to reverse her decision and keep the U.K. in a customs union, this can’t be done simply by applying the Northern Ireland model to the rest of the U.K.

There are “difficulties and risk of failure” in the negotiations if no agreement is found on key topics such as the Irish border, Michel Barnier, the EU’s chief negotiator, told France 2 television on Friday. He warned of a “disorderly exit” if a deal couldn’t be reached.

Stalemate Deepens

The prime minister’s spokesman, Max Blain, told reporters in London on Friday the government is “confident” of solving the Northern Irish border issue “if everyone works together productively.” Meanwhile, Chancellor of the Exchequer Philip Hammond said in Washington that staying in a customs union was not the best solution for the U.K.

Finding a way to avoid customs checks on the border between Northern Ireland and Ireland after Brexit is proving the biggest obstacle for negotiators. Both sides agree that the withdrawal treaty must include a “backstop” to keep the frontier invisible in case a better option doesn’t emerge.

But they can’t agree on what it should look like, and there is a creeping sense in the U.K. that May could be heading toward a capitulation on a key red line, which in turn would put her political survival at risk.

During this week’s talks, EU negotiators reiterated their rejection of the U.K.’s other proposals for customs and the Irish border, a partnership that would see the U.K. and the EU collect tariffs on each other’s behalves, and the use of technology to avoid customs checks, two of the people said.

Parliament Power

If May backtracks on her promise to pull the U.K. out of the EU’s customs union, that would go a long way to solve the border issue and would also please businesses that are keen on keeping trade easy.

The question then becomes how can she do so without triggering a revolt among Brexit hardliners in her Conservative Party.

With the main opposition party having thrown its weight behind staying in the customs union, the parliamentary maths is not in May’s favor, especially since she lost her majority and relies on a handful of votes from the Democratic Unionist Party in Northern Ireland.

Keir Starmer, chief Brexit spokesman of the opposition Labour party, indicated in an interview with Bloomberg that his party could join forces with rebels from May’s Conservatives in an attempt to defeat the government on a vote on staying in the customs union.

“It’s obvious that there’s a growing chorus of cross-party voices that think the prime minister has got it wrong on a customs union,” Starmer said.

Where to Now?

The Commission’s proposal for the backstop would effectively cut Northern Ireland off from mainland Britain, and May has said no British prime minister could accept that. That is even more the case given her reliance on the DUP.

In December, the two sides agreed on the principle of a backstop that would apply to the whole of the U.K., rather than just Northern Ireland. It was a fudge that was not going to withstand scrutiny and needed to be fleshed out.

The U.K. stands by that agreement, which also pledged “no regulatory barriers develop between Northern Ireland and the rest of the United Kingdom.”

“We have been clear that we will protect Northern Ireland’s place in the U.K. internal market,” a spokesperson for the U.K.’s Brexit department said in an email. “That commitment was set out in December’s joint report, which also includes our guarantee of avoiding a hard border between Northern Ireland and Ireland.”

The EU risks accusations that it’s reneging on its December pledge.

But officials in Brussels say that applying the backstop to the whole of the U.K. would allow Britain to enjoy some of the benefits of single-market and customs-union membership without the obligations. U.K. officials signaled they weren’t surprised at the EU’s stance and expected the bloc to be more conciliatory as the talks progressed.

What is certain is that time is running out. The U.K. and EU want to get the Brexit treaty finalized by October to give the British and European parliaments time to approve it before Britain leaves the bloc at the end of March 2019.

©2018 Bloomberg L.P.