Theresa May faces a June deadline for a decision on the Customs Union but can no longer hope to bridge the divide in her cabinet.
The British prime minister has now been told she has until June to address this deadlock.
The UK leaves the EU in March 2019, but businesses expect to have a transition arrangement based on the status quo until the end of 2020. This transition agreement relies on a compromise reached with May’s government in December 2017, which commits to a borderless Ireland. That is an agreement to which the UK can no longer be relied on to uphold.
On Sunday, the French foreign minister Jean-Yves Le Drian said that June’s European Summit is May’s “ultimate deadline” to commit to a specific solution that addresses the dead end. The June deadline was acknowledged by Brexit Secretary David Davies in April, although he dismissed it as “artificial.”
However, the June deadline has been affirmed by the Irish foreign secretary, Simon Coveney.
Dublin has a decisive say on the matter, as the Irish border is the only one the UK has with the EU. The Good Friday agreement was founded on the notion of a borderless Ireland, to which the British government commits, in theory.
The split in the British government reached a dead end last week, with Theresa May splitting her cabinet along existing lines to consider two scenarios under consideration.
On the one hand, there is the faction led by her Chancellor Philip Hammond, making the case for a “customs partnership.” In this scenario, the UK will retain regulatory alignment with the EU on a voluntary basis, collecting tariffs for the EU.
On the other hand, Leave campaigners such as Michael Gove, Boris Johnson and Liam Fox are calling for a “maximum facilitation” scenario, which relies on technology. That scenario suggests that it is possible to avoid a border in Northern Ireland by means of a trusted trader scheme, whilst ignoring trade between small and medium businesses. In the case of fundamentalist backbencher Jacob Rees-Mogg, the UK should not even have to guarantee a borderless Ireland.
The elusive compromise
May’s allegedly sides with the customs partnership scenario, dismissed by her foreign secretary as “crazy.” In an interview with the BBC, Michael Gove said on Sunday that he saw flaws in the “partnership” scenario but trusted Theresa May to deliver on a compromise.
Speaking to the BBC, Labour’s shadow Brexit Secretary, Sir Keir Starmer, says that neither of the two options are neither “workable” nor “acceptable” to Brussels and calls for a comprehensive customs union. He called the current divide between the two unworkable solutions a “farcical” situation. Joined by the Liberal Democrats and the Scottish National Party, the opposition is calling for a vote that the government could lose, as the bipartisan majority is in support of a Customs Union even if the majority of the cabinet favours an uncompromising position.
The Irish foreign secretary said that any solution that entails a physical border of any kind, as in the scenario advocated by Leave campaigners, would present security challenges.
The European Commission has raised objections to both scenarios, but Ireland’s foreign minister is more sympathetic to the customs “partnership” scenario. At this stage, Theresa May cannot hope for a compromise that can carry both wings of her Conservative Party and have a fighting chance in Brussels.
In a letter to the Sunday Times, the prime minister offered assurances of a frictionless border and asked for a renewal of trust.
Meanwhile, the pressure on the economy is increasing.
Despite parliamentary insistence, the government has refused to release studies on the potential impact of a hard Brexit on the economy.
Only in February did the Department for Business, Energy and Industrial Strategy officially request from business groups to map their supply chains, flagging areas of the economy most at risk, The Luxembourg Times report. Analysts have expressed concerns for the UK’s presence in complex manufacturing, ranging from the car industry to aviation if customs union arrangements are disrupted.
The cost of tariffs on production, which will erode British competitiveness, is not the only issue at hand. The EU will need proof of origin for products coming from the UK when it leaves the EU. Customs Checks threaten to significantly undermine the supply chain.