EU eyes Brexit customs deal to break Irish deadlock - sources

By Alastair Macdonald and Francesco Guarascio

BRUSSELS (Reuters) - European Union negotiators are looking at ways to promise Britain a customs deal that could stretch Brussels' Brexit red lines but might break a deadlock over the Irish border, EU sources close to the talks have told Reuters.

Accounts of how British and EU negotiators came close to a deal on Oct. 13 focus on how Prime Minister Theresa May balked at an EU demand for a "backstop" clause. This could put Northern Ireland in a special relationship with the EU that might distance it from the British mainland to avoid putting up customs posts on Britain's only EU land border, with Ireland.

But as the two sides try to rebuild momentum following a Brussels summit last week, the readiness of EU negotiator Michel Barnier's team in that outline deal to soften their refusal to pre-empt the outcome of later talks on a future EU-UK trade pact may help in unlocking an acceptable package.

EU diplomats briefed on the negotiations said a vital part of a complex package was to "anchor" a reference in the legally-binding withdrawal treaty to May's proposal to keep the whole of the United Kingdom in a customs partnership with the EU -- thus avoiding special treatment for Northern Ireland.

Negotiators, who declined direct comment for this report, acknowledged in briefings to EU officials the difficulties of linking the treaty to a more general, and non-binding, political declaration of intent on future relations.

But the EU's shift, as talks move into an end-game where failure would see Britain crashing out of the bloc in March, is part of what one senior negotiator calls a "jigsaw" solution --elements of which on their own cross one side or the other's red lines but that, as a whole, form a package both can live with.



The EU is now considering May's "all-UK backstop" offer. Under this both Northern Ireland and the mainland would remain within an effective EU customs area, avoiding a "hard border" that risks reviving violence in the north against British rule.

One problem for the EU has been that May's proposal seemed to extend what was meant to be a specially favourable deal for one small region to Europe's third ranked economy. It could be considered only under tighter terms, the EU said. The second problem is that such talks should start only after Brexit.

Still, the EU has signalled a will to blur its distinction between Brexit treaty talks and post-Brexit negotiations -- a move that London has demanded since talks started. "You cannot absolutely keep separate the withdrawal treaty and the declaration on the future relationship," Barnier's boss, EU chief executive Jean-Claude Juncker, said two weeks ago.

Building an "all-UK customs element" into the treaty to be finalised soon would, EU officials argue, lend May credibility for her insistence to critics at home that Northern Ireland will never need to be treated differently from the mainland.

The EU also volunteered to extend the post-Brexit status quo transition period by a year until the end of 2021. This would be to ensure more time to negotiate the kind of all-UK customs arrangement that would satisfy Brussels' demands that Britain abide by rules preventing it getting an unfair advantage in EU markets.

However, the EU still wants a "Northern Ireland-only" clause to fall back on in case that UK deal cannot be closed -- that in the end was a dealbreaker for London before last week's summit.

An early offer of an EU-UK customs arrangement, note EU officials, also runs a risk of angering Britons who want to hold May to her rejection of a customs union. The arrangement both sides are studying is very close to a customs union in EU eyes, but Brussels understands that May cannot call it that.

The timetable for talks has been shifted back as May faces stiff opposition within her own party and allies to the Irish and customs elements of a deal. But EU leaders expressed growing confidence after meeting May last week that the jigsaw would fall into place in time for parliamentary ratification by March.

(editing by David Stamp)