U.K. sees extended EU customs ties as Irish border fix

Thursday , May 17, 2018 - 4:00 AM

Tim Ross and Ian Wishart

(c) 2018, Bloomberg.

Prime Minister Theresa May’s inner Cabinet has drawn up a plan to fix the intractable Irish border problem: keeping some European Union customs rules for years after Brexit.

It’s an idea that still faces obstacles in the U.K. and EU officials have already expressed skepticism, but the proposal is to keep the U.K. aligned with tariff and customs rules for longer as a last resort, according to people familiar with the matter. One person said ministers agreed to propose it to Brussels in the coming weeks.

The EU is demanding an insurance clause to make sure no border emerges on the island of Ireland. But the backstop proposed so far is unacceptable to May as it would sever Northern Ireland from the rest of the U.K. So May’s Brexit Cabinet discussed alternatives this week as it tries to break the deadlock.

The new proposal would keep the U.K. inside the common EU external tariff but it would still want to be able to strike trade deals with other countries.

May reiterated Thursday that the U.K. will “be leaving the customs union” and will negotiate “future customs arrangements” instead. Speaking to reporters at a summit in Sofia, she wasn’t asked about the new proposal in any detail.

The language on this is riddled with subtleties. The government line is that the U.K. will “leave” the customs union and single market in March 2019 -- on Brexit day -- even though it has agreed to a transition that will keep it in those two arrangements through 2020. Any solution May comes up with to solve her Brexit dilemma is unlikely to be called a customs union, to give her full deniability, even though it may look like one.

Getting negotiators in Brussels to agree to this is another matter. The EU is highly unlikely to accept it as an alternative to its own plan for a backstop for Ireland, according to a person familiar with the bloc’s negotiating position.

Two years on from the referendum, the divided U.K. government still hasn’t decided what it wants from Brexit and EU officials see the latest proposal as another episode in the domestic political drama.

Irish Prime Minister Leo Varadkar said on Thursday that the U.K. hasn’t come up with any plausible alternatives to the backstop.

EU officials have signaled they could be prepared to extend the whole transition period for longer if needed but reject a piecemeal approach. A wholesale extension of the transition -- including abiding by all EU rules and free movement -- would be harder for May to sell to the members of her Cabinet who are keenest on getting Brexit done.

EU officials are also clear that there’s not much scope for changing the terms of their proposed backstop. The wording can change slightly to make it more palatable to the U.K. but the concept has to remain broadly the same. And the EU says the backstop must only apply to Northern Ireland -- it doesn’t want the U.K. staying in the customs union by the backdoor as a result of the last-resort clause being triggered.

Another person familiar with the EU position said that the proposal being floated in London could be an additional backstop but would not be acceptable as a replacement for the existing clause.

Negotiations are stuck on the question of the Irish border as the EU waits for the U.K. to come up with more ideas. May is under pressure to deliver at a summit in June.

The prime minister wants to solve the question by negotiating a sweeping new commercial agreement with the EU that avoids the need for arduous goods checks and tariffs.

But the EU says an insurance policy for Ireland must be agreed first in case the U.K. free trade deal doesn’t work out as planned. While the U.K. see the backstop as a last resort, EU officials have said in private they expect the backstop to come into effect -- hence the desire to get it right.

The new proposal is controversial as May has repeatedly vowed that the U.K. will leave the EU customs union, even though some of her officials think any new arrangements won’t be ready in time for the end of the transition period in December 2020.

Any extension of EU customs rules -- particularly if there’s no cut-off date -- would spark a backlash among Brexit campaigners in May’s Conservative party. Some of them have privately warned she will face a challenge to her leadership if she tries to tie the U.K. too closely to the EU’s rules.

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Bloomberg’s Jessica Shankleman and Dara Doyle contributed.

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