EU must name its price for post-Brexit trade

LONDON — Inside the U.K. government, the outstanding question in the Brexit debate is not what it wants — but what price the EU is going to charge.

In Brussels and much of Westminster, Theresa May stands accuses of dithering over her “end state” aspirations. “I think the first real big step is for the United Kingdom to say very clearly what it wants,” Malta’s Prime Minister Joseph Muscat told reporters at the European Council summit in Brussels earlier this month, echoing calls for more clarity from several EU leaders.

According to this charge, May is a leader unable to make a decision, running a government refusing to face up to the realities of Brexit.

Yet to the most senior U.K. officials, this is little more than Brussels spin. From the U.K. government’s perspective, Britain’s position could not be much clearer. It wants a giant free-trade deal covering as many sectors of the economy as possible.

The U.K. expects the EU to demand a series of cross-cutting “level playing field” clauses

May made it clear back in January that she wants out of the single market and the customs union and the ability for future parliaments to diverge from the EU’s rules and regulations when it sees fit. “That’s the whole point,” May told MPs last week when asked if Britain would have full regulatory authority after Brexit.

Her Brexit vision is laid out in her “foundational texts” — her speeches at Lancaster House in January and in Florence in September.

What more is the prime minister expected to divulge, her supporters ask?

With Phase 1 of the divorce negotiations now complete, British officials believe it is now for Brussels — not London — to put its cards on the table, according to conversations with senior U.K. officials who spoke to POLITICO on condition of anonymity. It is the EU27 that must reveal the cost they want to extract for the type of Brexit May wants.

The EU might, for example, rule out certain sectors of the economy being included in the future trade deal — as chief negotiator Michel Barnier appeared to do with financial services last week. The more sectors of the economy the EU is unwilling to include, the less value the whole deal will have for the U.K.

A Southhampton port | Scott Barbour/Getty Images

Even a cut-down deal is still likely to be of considerable value, but the narrower the offer, the less Britain will be willing to pay for it in close regulatory alignment and other commitments, such as future budgetary contributions or defense and security cooperation.

Such “cost benefit” analysis can only be carried out by London once it knows the EU’s price. “We will want as much as possible but what is the cost?” one U.K. official said. “That is where the onus is on the EU. There will be rights and obligations. It’s about keeping it in balance.”

The government — and the prime minister herself — acknowledge there will be costs. “The decisions we both take will have consequences for the U.K.’s access to European markets and vice versa,” May said in Florence.

Under the plan envisaged by the U.K., a free-trade deal will set out the sectors of the economy where each side agrees to cooperate on regulation and standards in order to achieve greater access to each other’s markets than would ordinarily be the case under World Trade Organization (WTO) rules.

Each sector has its own chapter in the agreement that sets regulatory tram lines inside which both sides are expected to remain. If either side breaches these lines — by undercutting the other with unfair business subsidies, for example — that triggers a penalty such as a return to WTO rules.

In the EU’s free-trade deal with Canada, these penalties are often agreed chapter by chapter so that if one side breaks the rules in one area of the agreement, the whole deal does not collapse.

Britain knows what it wants. It just doesn’t yet know if it can afford it.

According to U.K. officials, such clauses could be included in a future U.K.-EU deal to ensure Britain is not caught in the “Swiss Trap” where breaking one rule ruins the whole agreement.

Such a deal offers the U.K. the have-your-cake-and-eat-it possibility of free access to European markets combined with the future freedom to set its own rules and regulations. Other sectors of the economy currently covered by the single market will simply not be included in the free-trade deal, allowing Britain to diverge as much as it wants from the EU standard.

To guard against such divergence the U.K. expects the EU to demand a series of cross-cutting “level playing field” clauses, according to one British official. Such requirements could ensure the U.K. does not fall below certain environmental standards or protect against the unfair use of government subsidies to give British businesses an unfair advantage. If these are too onerous though, that would harm the entire deal’s attractiveness for the U.K. “If they make it too prohibitive, it undermines the whole model,” one U.K. official said.

Shetland fishermen hope to get a financial benefit from Brexit, but it may be complicated | Andy Buchanan/AFP via Getty Images

Britain, in other words, knows what it wants. It just doesn’t yet know if it can afford it.

Should the price in terms of regulatory alignment with the EU be too steep, U.K. officials say the government will have to either narrow the scope of the agreement (removing chapters) or make it more shallow (providing less access).

Either way, it is for the EU to move next.

Original Article

Politico