UK eyed customs deal to avoid Northern Ireland Brexit backstop - EU sources

By Francesco Guarascio and Gabriela Baczynska

BRUSSELS (Reuters) - British negotiators urged the EU to accept assurances Britain would effectively stay in a customs union with the EU to avoid a hard border with Ireland and make a hotly contested "backstop" for Northern Ireland unnecessary, EU diplomats said on Monday.

But diplomatic sources briefed on Sunday's breakdown in Brexit talks, said the European Union insisted that an insurance policy to keep Northern Ireland alone inside the EU's economic zone is still vital - something London says it cannot accept.

The EU position, the sources told Reuters, is that London's assurances of maintaining EU-UK customs links to avoid a hard border are mere aspirations, and cannot be sealed into treaty law before Britain leaves the bloc in March, hence the backstop.

That so-called backstop agreement on Northern Ireland is the one major issue to thwart hopes of having a draft withdrawal agreement ready for EU leaders to approve on Wednesday.

And the issue underlines how far British Prime Minister Theresa May's difficulties in securing agreement from her own ministers, as well as key allies in Northern Ireland, are holding up a deal.

British negotiators, who have worked with EU counterparts in Brussels at times through the night over the past week or so, appeared close to agreement on a backstop plan that would have only a remote chance of being triggered.

Yet any language in the draft withdrawal treaty which might one day potentially create barriers to trade between Northern Ireland and the British mainland, in the absence of a future EU-UK customs deal, remains hotly opposed by some of May's allies.

EU negotiators discussed possibly extending Britain's status-quo transition period by a year until the end of 2021 as a way to give London more time to agree the EU-UK customs deal it wants to solve the Irish border issue. But that failed to end Britain's objections to any Northern Ireland-only backstop.

Back in London it became clear over the weekend that even a remote possibility of that could not win political agreement. That was made even clearer to EU negotiator Michel Barnier when May's Brexit Secretary Dominic Raab, a long-time opponent of EU membership, flew in for a final meeting on Sunday evening.

Diplomats said that Raab not only ruled out any kind of Northern Ireland-only backstop, however hedged with caveats of it being unlikely to be used, but also reopened some issues that the EU side believed had already been settled.

Essentially, Brussels is willing to consider Britain staying in a customs area with the EU -- something May last year ruled out and which many of her supporters insist is unacceptable.

However, any such deal on an indefinite EU-UK customs union, which would obviate much of the need for checks on Britain's only land border with the EU, would only be sealed into law after negotiations on a future relationship which will start only after Britain leaves in March, the EU says.

For that reason, diplomats said, the EU insists on an Irish backstop in the withdrawal treaty.

Leaders of the 27 other member states will be briefed by Barnier over dinner on Wednesday. Since no talks with Britain are planned before then, it remains unclear what leaders will say about further negotiations -- or whether a summit pencilled in for mid-November to seal the accord will be scheduled,

Diplomats have warned on Monday that a Brexit breakthrough at the summit later this week was now unlikely.

Among member states calling for a firm EU response to May's failure to agree to the backstop is France. Diplomats said Paris is urging the EU executive to step its planning for a possible "no deal" scenario in March, to ensure businesses and ordinary people have some certainty about how Brexit will affect them.

That in turn could raise pressure on Britain for a deal.

(Reporting by Francesco Guarascio and Gabriela Baczynska; Editing by Alastair Macdonald and Jon Boyle)