Trade

Brexit talks are back (not that they ever went away)

LONDON — The board is set for Brexit Phase 2, and the pieces are already moving.

The negotiations in Brussels on Britain’s departure from the EU may have dropped from the headlines since the new year, but to all intents and purposes, Phase 2 has already begun in earnest and major decisions that will shape the future of the U.K. and the EU are being made almost daily.

This week, a draft withdrawal agreement is due to be published that will, according to an EU diplomat familiar with the situation, formalize the agreement on Phase 1 signed after Theresa May’s early morning dash to Brussels in December.

But in truth, Phase 1 never really ended.

Officials from the two sides have been meeting behind closed doors in recent days to clear up a raft of withdrawal issues that weren’t addressed in the December accord. These so-called technical talks — even though they encompass some substantive topics — have covered customs, data protection and intellectual property.

The U.K. side wants to avoid what one British official called “the pantomime” of the round-by-round approach to talks used in Phase 1.

At the same time, both sides have been engaged in final preparations for the Phase 2 negotiation itself — on the U.K.’s future relationship with the bloc.

With final positions still potentially malleable, British businesses, desperate to limit trade disruption, are using the window as a last ditch attempt to steer the government into a U-turn on May’s decision to exit the EU customs union.

In a speech at the University of Warwick on Monday, CBI Director General Carolyn Fairbairn will call for both the U.K. and the EU to “revisit red lines.” In the U.K.’s case she will say that the government’s policy to leave the EU customs union and pursue a Canada-style trade deal is the wrong one. “A Canada deal is an ocean away from what we need,” she will say, adding that hundreds of thousands of British jobs are at risk.

Remainers in parliament see an opportunity too, with polling released on Friday from BMG Research finding 60 percent support for staying in the EU single market and 57 percent support for remaining in the customs union.

“It is clear that a majority of the British public and an even greater proportion of Labour voters want the U.K. to stay in the single market and customs union, which is the best anti-austerity policy there is because it protects businesses and jobs,” said Labour MP Chuka Umunna, a supporter of the Open Britain campaign group. “It is vital we stand up against Theresa May’s false claims that it is necessary to leave the single market and customs union if Brexit takes place.”

Financial services decision time

Whether or not the U.K. government’s position can be changed, first up are the talks on a transition period, which diplomats expect to begin shortly after the crucial January 29 meeting of the General Affairs Council that will finalize EU chief negotiator Michel Barnier’s mandate for the talks.

Almost simultaneously, according to three diplomats, the EU will start discussing the most important question of all for the U.K: the place of financial services in any future trade relationship and hence the degree of access the City of London will have to the EU market. That will be the first time the EU27 have begun, officially, to formulate a collective position on the matter.

The first discussion will take place at technical level, in the forum of Brexit officials catchily known as the “ad hoc Working Party on Article 50.” In the official agenda, which is not public, the meeting is scheduled for January 30 and is billed as focusing simply on “services.” But during a meeting of EU ambassadors on Thursday morning, officials explained that the discussion will also include financial services.

A controversial proposal under which the U.K. could pay a fee to have access to the EU financial services market could be on the table, according to one diplomat from a Northern European country, but a number of other diplomats insist this is not something they are yet actively considering.

British government officials hopeful of a bespoke trading arrangement have nevertheless been encouraged by a line from Barnier’s January 9 speech, in which he said a free-trade agreement with the U.K. should be “adapted to the specificities of the relationship between the EU and the U.K.” and that a free-trade agreement could include “provisions on regulatory cooperation” on financial services.

The EU’s chief Brexit negotiator Michel Barnier leaves a meeting at the Dutch Senate in The Hague on January 9, 2018| Bart Maat/AFP via Getty Images

Barnier did, however, go on to say that the U.K.’s banks and other providers would “no longer enjoy the benefits” of passporting and automatic equivalence of regulatory standards. His comments chimed with those of French President Emmanuel Macron, who at last week’s Anglo-French summit, dismissed the idea that a free-trade agreement could give the City of London anything like the access to Europe it has while inside the single market. A senior U.K. official, speaking after the Macron speech, characterized his words as standard pre-negotiation hardball.

But precisely what kind of trading relationship the U.K. goes into the negotiation seeking is still up for debate among top ministers in the U.K. Cabinet, a second British official, familiar with the situation, said.

Theresa May has until April to settle on a position, by which time EU leaders at the European Council summit at the end of March should have adopted its new future relationship guidelines. They will decide if there has been “sufficient progress on sufficient progress,” said an EU diplomat in a reference to the convoluted nature of the Brexit process.

Choreography clash

The precise nature of the negotiation to come is also up for grabs.

The U.K. side wants to avoid what one British official called “the pantomime” of the round-by-round approach to talks used in Phase 1.

The intense media spotlight on each scheduled week of talks and the pressure cooker atmosphere that came with it is not a good way to negotiate, the official said. While acknowledging the need for a public-facing aspect of the negotiation — similar to the regular David Davis/Michel Barnier press conferences of Phase 1 — the British side would prefer “a steady flow of conversation” between the two sides, the official said.

Brussels sees it differently. One official said the round-by-round system was a “key” to allowing negotiators to “build on each subsequent round on established points of agreement.”

In truth, whichever format the two sides agree on, top officials from both sides — chief among them May’s EU sherpa Olly Robbins and Barnier’s deputy Sabine Weyand — will likely maintain the high-level background communication they have continued thus far.

Despite reservations about the structure of talks, the British official was optimistic that the two sides would get down to brass tacks very quickly in Phase 2. This time the negotiating teams already know each other — very well.

“I will be amazed if there is not more high drama,” the official said. But the two sets of negotiators now have “strong relationships from Phase 1 … forged in fire.”

Hans von der Burchard contributed reporting to this article.

Original Article

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