David Davis is reportedly pushing for Northern Ireland to be given joint EU and UK status and a 10-mile border buffer zone after Brexit in a bid to tackle the ongoing customs deadlock.
The move would see the province follow both British and European regulations and have a "special economic zone" brought in along the 310-mile frontier.
The Sun reports that together the solutions would rule out the need for border checkpoints, which the EU has held as a red line.
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The buffer zone, which would share the same trade rules as the Republic, is said to be of benefit to local traders such as dairy farmers, who make up 90% of the cross-border traffic.
However, a drawback to the regime is that it could mean factories are forced to run two different production lines.
And the plan could be brought to a halt by the DUP before it is off the ground, with the party’s 10 MPs needed by the government to give them a Commons majority on any deal.
A major red line for the unionists is that Northern Ireland must not be subject to different rules to the rest of the UK.
The government has published a white paper based on HMRC’s work setting out two possible options for customs after Brexit – a highly streamlined customs partnership, known as maximum facilitation, and a new customs partnership. The first of these would seek to negotiate a continued waiver from the EU on the requirement to submit entry and exit summary declarations for goods being moved between the UK and the EU, while the second option could see the UK acting in partnership with the EU to operate a regime for imports that aligns precisely with the EU’s external customs border, even if goods enter the UK first.
The plan suggested by Davis is a revised version of the ‘Maximum Facilitation’ option. The original, favoured by senior Brexiteers, and which involved the proposed tracking of goods was knocked back amid fears it could impinge on the terms of the Good Friday Agreement.
A senior Whitehall source told the paper: "Max Fac doesn’t look like anything it used to for Northern Ireland now, because the technology has been stripped out.
"But it doesn’t matter what we call it as long as it works, and we think it will."
They added: "Max Fac 2 is tremendously complicated, but it’s at least something the Cabinet can unite around.
“Persuading the DUP and then the EU to agree to it will be a different job altogether and, let’s be honest, it will be very hard work.”
A Department for Exiting the European Union source said: "No decisions have been taken, but a lot of hard work and ideas are going into it."