By Tsvetelia Tsolova
SOFIA (Reuters) - Prime Minister Theresa May said on Thursday Britain would leave the EU customs union after Brexit but a source said London was considering a backstop plan that would apply the bloc's external tariffs beyond December 2020.
Asked about reports that London would ask to stay in the European Union's customs area beyond the end of a post-Brexit transition period in 2020, May denied she was "climbing down" on plans to leave.
"No. The United Kingdom will be leaving the customs union as we're leaving the European Union. Of course, we will be negotiating future customs arrangements with the European Union and I've set three objectives," May told reporters on the sidelines of an EU summit in Bulgaria.
She said the objectives were that Britain should have its own trade policy with the rest of the world, should have frictionless trade with the EU and that there be no hard border with EU member Ireland.
In talks with European Commission President Jean-Claude Juncker and European Council President Donald Tusk, she reiterated her view that a backstop agreement put forward by Brussels to prevent a hard border was unacceptable.
"The prime minister said the UK would shortly put forward its own backstop proposal in relation to customs," her spokeswoman said.
Earlier, the source, who is familiar with the discussions, said on condition of anonymity the government was trying to find a way to make the backstop arrangement more acceptable to Britain rather than seeking an extension of a transition period.
The source said Britain could apply the EU's external tariffs for a limited period beyond December 2020 in the case of a delay in the implementation of any Brexit deal.
May has been struggling to unite her cabinet over the terms of Britain's divorce with the EU, with a row over future customs arrangement dividing her government and all but stalling Brexit negotiations.
An EU official expressed doubts about Britain's proposal, saying it would be unrealistic to keep EU tariffs and, at the same time, be able to do trade deals with other countries. "It again sounds like trying to have the cake and eat it, like picking what they like, but not the rest," the official said.
The current schedule for talks makes a formal summit of EU leaders next month an important step towards a final Brexit deal in October to give both sides enough time to ratify it by Brexit day in March 2019.
Britain otherwise risks crashing out of the bloc, a scenario that could hurt the economy and disrupt people's lives.
Irish Prime Minister Leo Varadkar told reporters after meeting May that she presented to him her new ideas on customs arrangements.
"Any move that helped to align all of the EU and the UK in terms of customs into the future would be beneficial," he said. "It would help solve some of the problems related to the border but not all of them. It would certainly help us continue to trade between Britain and Ireland much as we do now."
EU officials are warning time is running out to seal a Brexit deal this year because there has been not enough progress in the negotiations in recent months, most importantly on how to avoid the hard border or physical controls on the border between the Irish Republic and the British province of Northern Ireland.
If no better ideas emerge, the bloc wants the backstop clause under which it would go on regulating trade in Northern Ireland after Brexit to prevent a hard border. Both sides fear a return of border controls could reignite the violence that afflicted Northern Ireland until a peace deal in the late 1990s.
Under such a scenario, Britain would not be given the adaptation period from next March to the end of 2020, but go straight out of the EU with little detail agreed on how to handle its ties with the bloc.
May has said as it stood in March, the EU's backstop was unacceptable because it would cut off Northern Ireland from the rest of the United Kingdom.
Extending the use of EU tariffs is part of discussions to make the backstop arrangement more palatable to Britain, and could be triggered if there were a delay in the ratification of the Brexit deal or if there were problems introducing new technology at the border, the source said.
At home, May has to balance the demands of Brexit supporters against those ministers who want to keep the closest possible ties to the EU, and any hint that Britain could stay within the customs union has become a flashpoint.
(Reporting by Elizabeth Piper, Estelle Shirbon, William James and Andy Bruce in London, Writing by Gabriela Baczynska; editing by David Stamp)