Cabinet Clash Only First Test for UK's New Brexit Strategy

Stephen Fidler

The Wall Street Journal

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July 10, 2018 11:55 a.m. ET

LONDON—More than two years after Britain voted in a referendum to leave the European Union, Prime Minister Theresa May has finally come off the fence over the future relationship she foresees with the bloc.

The reaction—the resignation of two prominent cabinet ministers, which plunged her fragile government into turmoil—helps to explain why she waited so long.

Mrs. May’s Brexit proposal, agreed to by the cabinet on Friday, hugs the EU fairly close. It would keep the U.K. inside the EU’s single market for goods, including food products, and include a complicated and untested arrangement to avoid the need for new customs checks on the borders between the U.K. and the EU.

Mrs. May’s choice appears to have been influenced by the gathering anxieties of big manufacturers—publicly voiced by companies like Airbus SE , Jaguar Land Rover and Honda Motor Co. Ltd.

They and others are worried that their sensitive just-in-time supply chains will be seriously disrupted if new controls are erected at the U.K.-EU border. Mrs. May was also seeking to make good on a promise that Brexit won’t lead to the reemergence of a physical border on the island of Ireland.

Mrs. May knew it would be tough to keep her cabinet united, and ministers reached out last week to ask other EU capitals not to unsettle its internal deliberations. On Thursday night, according to an EU official, the European Commission received several messages from London, Paris and Berlin—orchestrated from London—to refrain from publishing details about a proposed Irish border solution, so as not to scuttle a cabinet agreement. The details weren’t published. The British government didn’t immediately respond to requests for comment.

Like most battle plans, Theresa May’s Brexit proposal is unlikely to survive its first engagement with the opponent. On its face, it is an attractive economic proposition for the bloc, allowing for unfettered trade in goods—with which the EU runs a big surplus with the U.K.—and accepting that trade in services, where the U.K. has a surplus with the EU, will suffer.

Big manufacturers are worried their supply chains will be disrupted if new controls are erected at the U.K.-EU border. Above, vehicles were checked last year at a Jaguar Land Rover factory in Solihull, England. Photo: LEON NEAL/GETTY IMAGES

But it breaches the EU’s declared red lines: that no country gets to choose between the parts of the single market it likes and the parts that it doesn’t.

Brussels has a fundamental objection to U.K. plans to remain inside some of the EU’s single market while insisting it has the right to regulate itself: It would give British lawmakers and judges authority over what products can circulate inside the EU.

Yet, Brussels is packed with lawyers and the EU’s much vaunted legal order which glues its 28 states together is an elastic concept that is sometimes stretched for political expedience—though that is usually done for the sake of a member state rather than one planning to leave. And at least the U.K. has finally put together a vision of a future relationship that the EU can discuss.

But even if the U.K. proposal were to be accepted by the EU, it is questionable whether it would lay the concerns of big manufacturers to rest.

The U.K.’s cabinet met Tuesday in London. Photo: DOWNING STREET/ASSOCIATED PRESS

Under the plan, the British Parliament would have oversight of incorporating EU rules into U.K. law “with the ability not to do so, recognizing this would have consequences.”

This raises the prospect that at any time the legislature in London could decide not to put a new EU law onto the U.K. statute book, a step that would likely lead to the suspension of the U.K.’s special membership of the EU’s single market.

For Brexit supporters, such a commitment would put a gun to the head of the British Parliament. It is why David Davis, the Brexit minister who quit on Sunday night, said in his resignation letter that the “supposed control of Parliament” would be “illusory rather than real.”

Yet if the U.K. Parliament merely rubber stamps EU legislation, the single market would over time become more onerous to the British as the EU legislates more rules and regulations without the U.K. sitting at the table.

This appears to be an inherently unstable arrangement that is unlikely to convince manufacturers that their pan-European supply chains would remain intact over the long term enough for them to make large further investments in the U.K.

More likely in any case is that the EU rejects the U.K. proposal, forcing Mrs. May’s government back to the drawing board to think about what further concessions it could make. This is just the prospect foreseen by Mr. Davis. “I am also unpersuaded that our negotiating approach will not just lead to further demands for concessions,” he wrote.

That demand could either lead the U.K. to seek a closer relationship with the EU—possibly leaving it inside the single market and its customs union and therefore in thrall to the entire EU rulebook—or to push it further away toward an arrangement more like the trade accord that the EU has with Canada.

But time is running very short. It isn’t clear that any option is favored by a clear majority in Parliament, leaving further Brexit chaos more likely than not. Mrs. May may well ride out this week’s resignations. But before March 29, when Britain is due to leave the EU, she is likely to confront even tougher tests.

—Valentina Pop in Brussels contributed to this article.

Write to Stephen Fidler at stephen.fidler@wsj.com

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