Manufacturers tell Britain to drop 'max fac' post-Brexit customs proposal

By Alistair Smout and William James

LONDON (Reuters) - British manufacturers on Tuesday said the government should abandon one of its two post-Brexit customs proposals, criticising the idea of a technology-based solution as unrealistic and a waste of money.

Prime Minister Theresa May wants Britain to maintain as friction-free a border as possible with the European Union after it leaves the bloc and is developing two possible solutions.

But her government is unable to agree which one to put forward in negotiations, and the EU has already dismissed both the draft options being considered in London.

The EEF manufacturers' association said that it was naive to think that a technological border solution known as the "max fac" option could be implemented by 2020.

"It may have some long-term benefits, but suggesting max fac is a solution to our immediate problems is a non-starter," EEF Chief Executive Stephen Phipson said in a statement. He said it was not a credible option and should be dropped.

The customs conundrum has become a test of May's leadership as she looks for a way to hold her cabinet together, pacify rival factions of her Conservative Party, and win agreement from Brussels.

The outcome will define commerce between Britain and its biggest trading partner for decades.

The max fac options has been championed by some from the influential Eurosceptic bloc within May's party who want looser ties with the EU after Britain leaves the bloc.

The EU says that since deciding to withdraw from its customs union, May has not set out how she plans to avoid erecting a land border to control the flow of goods between the British province of Northern Ireland and EU member Ireland.

The EEF has previously urged the government to give businesses clarity on what Brexit will look like to allow firms to plan for the change, warning of the consequences for complex cross-border supply chains if it does not.

Last week another major employers' group, the Confederation of British Industry said remaining in a customs union was currently the only workable option for Britain. Finance minister Philip Hammond rejected that view.

"NOT CREDIBLE"

May is considering two possible customs systems.

One is max fac, or maximum facilitation, in which Britain and the EU would be entirely separate customs areas but would try to use technology to reduce friction and costs at the border.

Max fac has attracted extra scrutiny in the last week after Britain's most senior tax official said that such a customs arrangement could cost businesses up to 20 billion pounds ($27 billion) a year.

The other is a "customs partnership", preferred by some who want closer ties to Brussels, in which Britain would cooperate with the EU more closely and collect tariffs on its behalf, so declarations are not required for goods crossing the border.

"I hope that the Government now recognises that one of these options is simply not credible," he said. "We need to put all of our resources into developing a workable solution, and quickly."

Phipson said he had written to business minister Greg Clark about his concerns over a max fac arrangement, adding that despite similar arrangements at the U.S.-Canada border, most goods were still subject to normal checks.

He said that after a decade of substantial investment, only 100 Canadian companies could use a fast-track system into the United States, and that pursuing max fac as an option was wasting time and money.

($1 = 0.7509 pounds)

(Reporting by Alistair Smout and William James; Additional reporting by David Milliken; Editing by David Holmes and Richard Balmforth)