Why U.K. Is Struggling to Find the Path to ‘Brexit’

The Bank of England in London. Leaders of the European Union are adamant that all members of the single market adhere to the four freedoms: free movement of labor, capital, goods and services. Credit Marco Kesseler for The New York Times

LONDON — A recently leaked memo from a consultancy firm has highlighted cabinet divisions over Britain’s withdrawal from the European Union, while suggesting that the government may need six additional months to settle on a plan and to recruit tens of thousands of extra civil servants.

The document identified tensions between enthusiasts for British withdrawal, including the foreign secretary, Boris Johnson, and the international trade secretary, Liam Fox, and those fighting to preserve closer economic ties to the bloc, such as the chancellor, Philip Hammond. The enthusiasts believe Britain has to make a clean break with the European Union, while the more cautious types want to preserve Britain’s access to the European market by maintaining membership in the customs union or the single market, or perhaps some combination of the two.

As Prime Minister Theresa May’s self-imposed deadline of March for starting negotiations on withdrawal with the European Union draws closer, this clash is emerging as the primary sticking point. But it is proving remarkably difficult to resolve.

What’s the difference between the customs union and the single market?

Both the customs union and the single market eliminate tariffs between member states. The customs union sets tariffs with non-European nations, so members share a common trade policy with the rest of the world. The single market removes non-tariff trade barriers, too, for instance by maintaining common product standards. Unlike most free trade deals, the single market also covers some services, which are crucial for Britain, with its big financial sector.

For example, without Britain’s single market membership, banks based in London (including foreign-owned ones) could not offer many services to clients in Continental nations.

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Prime Minister Theresa May of Britain has stressed the importance of regaining control of immigration policy and of freeing Britain from the European Court of Justice. Credit Toby Melville/Reuters

Norway has considerable (but not unlimited) access to the single market without being part of the European Union, or its customs union, through membership in the European Economic Area. The downside is that Norway has no vote in making rules it must follow.

So why not seek a status similar to Norway’s?

A maze of rules and regulations aimed at leveling the playing field and harmonizing product standards infuriates British euroskeptics and helped fuel the campaign to leave the European Union, known as Brexit.

More important, leaders of the European Union are adamant that all members of the single market adhere to the four freedoms: free movement of labor, capital, goods and services. Yet control of immigration was seen by many as the driving force behind the Brexit vote. So that chasm needs to be bridged. The question is how.

To secure full single market membership, Britain would most likely have to contribute to the European Union budget, accept the free movement of workers from the rest of the bloc, and accept rulings from the European Court of Justice or a similar body such as the European Free Trade Agreement (EFTA) court. That would be a tough sell to hardened supporters of Brexit in Mrs. May’s Conservative Party.

Is the European customs union a more practical and reachable goal?

It might be. Not all members belong to the European Union; Turkey, for example, is not a European Union member but is in the customs union. Britain would be able to trade freely in goods within the union, which would free it of the burden and inefficiency of checking the origins of all the products coming to and from the bloc. But Britain would have to comply with some European Union regulations. Quitting the customs union could mean significant new tariffs, for example for British-based automakers. Consequently, the chancellor, Philip Hammond, is reported to want to retain customs union membership.

How ‘Brexit’ Could Change Business in Britain

Several months on, little is clear. Britain’s trading relationship with the E.U. looks to be in limbo. Companies are reassessing their long-term investments in Britain. Here’s what’s happened so far.

So what does the British government say about Brexit plans?

As little as possible. Accused of lacking a strategy, it refuses to give a running commentary, saying that would weaken its negotiating position. But British officials had not prepared for Brexit before the referendum and are having to examine its impact on every sector of the economy — a huge exercise. In doing so, they appear to be uncovering more questions than answers.

But Mrs. May must have given some hints on her thinking, right?

In October, she stressed the importance of regaining control of immigration policy and of freeing Britain from the European Court of Justice — comments that suggested she was aligning herself with the proponents of a clean break. That set off a precipitous decline in the pound.

But she has since tread more cautiously, saying that Britain does not face a “binary” choice between maintaining a formal relationship with the European Union — either in the customs union or the single market, or some combination of the two — or a complete divorce. That implies that she wants some kind of hybrid settlement. This might mean leaving, then opting back into parts of Europe’s economic arrangements, for example those that help finance and the auto industry, while offering some budget contributions in exchange.

That sounds like a solution, no?

European nations are not so sure. To many it sounds like a variant of Mr. Johnson’s statement that, as far as the European Union is concerned, he is pro having his cake and pro eating it. Donald Tusk, president of the European Council, responded to that by inviting Mr. Johnson to undertake an experiment: “Buy a cake, eat it, and see if it is still there on the plate.”

But Germans want to sell Britain their cars, the French want to export their wine. Ultimately, won’t they make a deal in their own economic interests?

Britain’s decision to quit the European Union was fundamentally a political one, rather than economic, so it is logical to assume that politics will shape the negotiating position of its partners, too.

Many European nations will resist any agreement with Britain that undermines the bloc’s fundamental principles, particularly the movement of labor, or its basic economic structures. The fear is that this would prompt other countries to copy the British, which could be the beginning of the end of the entire postwar European drive to greater integration. Though Britain is a big market, the rest of the European Union collectively is bigger, and therefore the survival of the single market of the 27 is more important to most nations.