Johnson proposes FTA with EU and alternative to Irish Backstop

The government's proposals to Brussels for a Free Trade Agreement and the creation of a single regulatory area on the island of Ireland as an alternative to the Irish Backstop were unlikely to 'cut the mustard', analysts said.

In a letter sent to European Commission President, Jean Claude Juncker, and the European Union's chief trade negotiator, Michel Barnier, and other members of the European Council, Prime Minister Boris Johnson said that the "current government's" goal was to ink an FTA with the EU and not a future relationship in which Britain would remain closely integrated with the bloc's customs arrangements.

"In these circumstances, the proposed 'backstop' is a bridge to nowhere and a new way forward must be found," Johnson said.

That new way forward was a proposal for an all-island regulatory zone covering trade in all goods, under which all of the European Union's regulations on goods would continue to apply in Northern Ireland, but only for as long as the EU's rules were wanted - "correcting a key defect of the backstop arrangements".

Thus, the creation of that zone would first need to be approved by the parliaments in both Dublin and Stormont and be subject to renewal every four years thereafter, the PM said.

Furthermore, following the end of the transition period at the end of 2020, Northern Ireland would fully revert to being a part of the UK customs union and not of the EU's.

The proposal also stated that "both parties" would need to commit to never conducting checks at the border in future.

To ensure that trade complies with the UK's and EU's customs regimes, Westminster proposed a "decentralised" system of surveillance with only a small number of physical checks.

"Any risks arising will be manageable in both the EU single market and the UK market, particularly as all third country imports would continue to be controlled by the EU and UK customs authorities," Johnson continued.

According to Westminster, the proposal also provided a "meaningful" Brexit in which the country's trade policy was fully under the UK's control from the beginning, while ensuring that the 'Good Friday' Agreement was protected.

In the same document, Johnson also announced a 'New Deal for Norther Ireland' "with appropriate commitments to help boost economic growth and Northern Ireland's competitiveness, and to support infrastructure projects, particularly with a cross-border focus."

In an initial reaction, and in an apparent reference to the key role proposed for Stormont, the European Commission issued a statement noting "the positive advances, notably with regards to the full regulatory alignment for all goods and the control of goods entering Northern Ireland from Great Britain."

But Brussels added: "There are still some problematic points that will need further work in the coming days, notably with regards to the governance of the backstop."

In the background, reports indicated that there were officials and observers on both sides of the Channel who remained skeptical that a deal could be reached even by the current 31 October deadline for the UK's withdrawal from the European Union, with some believing that the ongoing gestures were only an attempt to try and shift the blame for a possible no-deal Brexit.

Nonetheless, in an apparent concession, the day before a Bloomberg report citing two people familiar with the matter - later denied by a Commission spokesperson - had said that the EU could be willing to set a time limit on the Irish backstop, if the UK agreed to keep Northern Ireland in a customs union with the bloc.

Commenting on the chances of the PM's proposal being accepted by Brussels, Samuel Tombs at Pantheon Macroeconomics said: "We continue to expect a general election to be held in December. [...] But Mr. Johnson's last-minute Brexit proposals won't cut the mustard with the EU.

"[...] But rule-taking would last only for four years, after which the Northern Ireland Assembly could decide if it wanted to follow G.B. rules instead. Northern Ireland also would join the U.K.'s customs territory, but goods flowing to the Republic would not be subject to rigorous checks near the border. In addition, Northern Ireland would levy U.K. VAT. All this would put the economy of the Republic of Ireland and others in the E.U. at a competitive disadvantage, as goods potentially could be imported from Northern Ireland without correct tariffs or VAT rates being levied."

Tombs believed a Labour-LD-SNP coalition government was likely to result from the elections, together with a further Brexit delay in January, although he conceded that "no prediction can be advanced confidently at this stage".

As of 1717 BST, the pound was off by 0.18% against the euro to 1.1236 and off its session lows at 1.1205.