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It's time to stop believing in these 'magic' Brexit solutions

Members of the anit-brexit campaign group “Border communities against Brexit” in Northern Ireland
The Irish government fears the UK is not serious about its proposals but merely using them as a sop to placate those worried about the peace process. Photograph: Paul Faith/AFP/Getty Images

From the minute the UK government first proposed its idea last August of maintaining “invisible borders” after Brexit, the convoluted plan was dismissed as “magical thinking” by EU officials. What has changed this week is that the time for pretending otherwise has run out.

First, Downing Street reassurances were rejected on Wednesday by the House of Lords, where peers voted by a majority of 123 to push Britain toward a customs union – arguing it was the only practical alternative to wrecking the Irish peace process with a hard border.

Now a fresh account of the latest withering exchange with officials in Brussels has made the front page of the Daily Telegraph, making it impossible for Conservative ministers to maintain the illusion any longer that the EU is being steadily persuaded to change its mind.

If the government wants to avoid a more serious rebellion in the House of Commons when the customs union question returns for a vote after local elections in May, it has to convince anxious Tory backbenchers that it is on track to reach agreement at the EU summit in June. Reading in their house newspaper that the UK alternatives were this week subjected to a “systematic and forensic annihilation” and “detailed and forensic rebuttal” creates a cognitive dissonance that no amount of Downing Street spin can hide. “It was made clear that none of the UK’s customs options will work,” an EU source told the Telegraph. “None of them.”

Staying in the single market and customs union

The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election.

The Norway model

Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules.

The Canada deal

A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far.

No deal

Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

It was telling that the British response to the story on Friday – though insisting things weren’t quite that bad – was to acknowledge that the other side was briefing aggressively against them and their scheme, which is never a good sign if you are trying to pretend everything is tickety-boo.

For some, this may still come as a surprise. After all, the EU had shown a willingness to collude in postponing a showdown before the previous summit in March. It is possible that the hardball tactics now are a prelude to another last-minute fudge in time for the next one.

The problem, however, is that the two UK customs proposals in question would require unprecedented levels of trust and cooperation – possibly even more so than the current arrangements between member states.

Unlike, for example, the recent dispute over the post-Brexit financial settlement, there is no point simply negotiating through gritted teeth until both sides wearily agree to put the issue behind them. Without lasting faith across the EU that this will work, it almost certainly won’t.

Both UK proposals require the EU to suspend more than its innate scepticism. They also require Brussels to be willing to ignore a substantial amount of future rule-breaking and potential smuggling in order to get the British government out of a hole.

The first, and less ambitious, of the two proposals outlined in August, is a “streamlined customs arrangement”, whereby the onus is on businesses to police their own trade activity and report imports and exports that should be subject to duty. In Northern Ireland, where the highly integrated farming industry makes even this look too onerous, whole swaths of smaller traders would be exempted entirely from complying with normal customs rules.

If this isn’t enough of an ask to make of the bureaucrats in Brussels, the UK would actually prefer a more ambitious option, a “new customs partnership”, to be implemented. In this scenario, the UK pretends (“mirrors” to use the technical term) that it still is in a customs union with the EU. This means not just collecting duties on overseas imports, as all members do now, but also tracking all goods after they arrive to make sure whether they are destined for UK or EU markets.

As bewildered officials once again pointed out in Brussels this week, this requires a number of heroic assumptions for it to work. Firstly, the EU would need to trust a non-member state to police its most sensitive enforcement mechanisms. Secondly, it would need to impose red tape on businesses the likes of which has never been seen, even in the imagination of the most fervent Eurosceptics. Finally, it is all likely to cost a fortune in new systems, on both sides of the border.

At the best of times, either of these two options would be a stretch: ignore, or recreate a bureaucratic nightmare many times more complex than that which exists today.

But these are not the best of times, to put it mildly. Mistrust already abounds on all sides. The Irish government, in particular, fears the UK is not serious about its proposals but merely using them as a temporary sop to placate those worried about the peace process.

More importantly the EU senses an even more significant victory could be looming. If it can persuade the government’s own MPs that there is no hope of British proposals coming to pass, then remaining in a customs union is now a realistic fall-back solution. Downing Street acceptance of the need for “close regulatory alignment” suggests continued single market membership may not be far behind either.

Both would be an anathema to Brexit true-believers, but a relief to business, Brussels and much of Westminster. By playing hardball now, the worst-case scenario for the EU is that Britain becomes like Norway – a compliant, satellite state. By pinning all its hopes on “magical” proposals, which fail to emerge when the wand is waved, the UK may have left itself with nowhere else to go.