The radical scheme also proposes a 10-mile wide special economic zone along the region’s border with the Republic of Ireland, an EU member, The Sun newspaper reported.
The blueprint is expected to benefit dairy farmers, who account for 90 percent of cross-border trade, but will put the Conservative cabinet on a collision course with allies from Northern Ireland's Democratic Unionist Party.
The pro-unity DUP entered in a minority coalition agreement with Prime Minister Theresa May’s Conservatives last year after the Tories lost majority in a general election.
London has been in talks with Brussels on how to avoid a hard Irish border, but DUP reportedly said it wanted the region to be treated as the rest of the United Kingdom.