EU Sees U.K. Brexit Customs Plan as More ‘Magical Thinking’

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The European Union has told the U.K. that a key part of its Brexit plan -- how customs will operate after the split -- won’t work.

While chief EU negotiator Michel Barnier welcomed Britain’s overall new Brexit plan last week as a positive first step, he has serious concerns about much of the detail. A central part of the new blueprint is an untested, as yet theoretical customs system that was devised as a way for Prime Minister Theresa May to keep all elements of her warring Cabinet happy.

Barnier has told the U.K. government that the idea is unsatisfactory, and he will dismiss a U.K. suggestion that the two sides work to improve on the plan together, three EU officials said. Barnier told a House of Lords committee earlier this month that the proposal was "not new," and little changed from a proposal that the EU rejected a year ago, according to a transcript released by Parliament.

It’s a major setback for May as the plan represents the best chance of a compromise she can sell back home to a divided party and Parliament. The system was thought up in response to the U.K.’s wish to strike new trade deals with other countries -- a key demand of Brexit campaigners -- while also keeping trade with the EU free and easy.

Brexit Secretary Dominic Raab meets Barnier on Thursday and the pair are due to speak to reporters at 5:30 p.m. in Brussels. It’s their first meeting since May announced she was taking control of the process herself, subordinating the Brexit department, which has taken a more hardline stance since it was created two years ago.

Talks are also stuck on the issue of the Irish border -- how to keep the frontier between Northern Ireland and the Republic of Ireland open when it becomes the U.K.’s land border with the bloc. The U.K. is considering a plan that could be acceptable to the EU but would outrage the Northern Irish party that helps keep May in power.

Novel Idea

The U.K.’s “Facilitated Customs Arrangement” proposal would see British authorities collect U.K. or EU tariffs on goods depending on whether they are destined for the British or European market. The U.K. wouldn’t be in a "customs union” with the EU -- a red line for May -- but would operate “as if in a combined customs territory,” according to the government. That would mean it’s able to strike its own trade deals around the world. May has described it as a "novel idea."

The EU, whose consent the U.K. needs to make the plan work, sees it as little different from a proposal made a year ago, the officials said. At that time, an EU official dismissed it as “magical thinking.”

Barnier has asked Raab to set out how the EU’s objections can be overcome. Barnier isn’t convinced it would be legal for the EU to outsource its customs work to a non-EU country. It’s also not clear how authorities will verify the final destination of goods and what extra costs will fall on EU governments to implement the new arrangement. EU officials say privately that they don’t expect Raab to be able to provide answers that will satisfy them. Representatives of EU member states are also critical of the proposal.

EU officials have also expressed skepticism about the other main aspect of the U.K.’s plan -- to remain in the EU’s single market for goods but not services. While Barnier and the European Commission have privately rejected the idea, some countries are willing to be more flexible, officials said.

After Thursday’s meeting between Raab and Barnier, negotiations are expected to break for two weeks and resume in the middle of August, EU officials said, although the exact dates haven’t been fixed.

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