EU Prepares to Discuss a Long-Delayed Trade Deal With Britain
December 12 2017 - 5:59AM
Dow Jones News
By Emre Parker in Brussels and Jason Douglas and Stephen Fidler in London
The biggest economic question posed by Brexit -- trade -- hangs
unresolved almost 18 months after Britain voted to leave the
European Union.
At the EU's insistence, negotiations have until now focused on
the terms of separation. But the two sides progressed on that last
week.
At a summit this week, EU leaders may finally authorize
negotiations on the next steps: a temporary transitional
arrangement that will immediately follow Brexit in March 2019 and
the outlines of a future trade deal.
That remains a crucial unknown for exporters across the U.K. and
the European Union, the destination for almost half of British
trade.
The delay has allowed the British government to sidestep its own
divisions between those who want to hug the EU close and those who
want to push it away to allow the U.K. to forge stronger ties with
the rest of the world. In the coming week, Prime Minister Theresa
May's cabinet will formally hold in-depth discussions on the "end
state" for the first time, her spokesman said.
Mrs. May has given some clues to her vision. She has said the
U.K. will leave the EU's single market -- its common zone of
regulation -- and its customs union, which sets uniform external
tariffs for imports to the bloc.
Membership of both allows trade between EU members to carry on
almost free of border checks. If the U.K. leaves either one without
replicating the same arrangements from outside the EU, the
likelihood is that a whole new raft of border bureaucracy will be
required, creating delays at ports and disrupting international
supply chains.
For the EU, Mrs. May's vision has raised as many questions as
they answers. "We need more clarity on how the U.K. sees our future
relations, after it has left the single market and customs union,"
European Council President Donald Tusk said after meeting Mrs. May
last week.
Mrs. May has also said she wants trade with the EU to be free of
tariffs and "as frictionless as possible."
She has ruled out as insufficient a preferential-trade deal on
the lines the EU struck with Canada in 2016. That eliminates
tariffs on most goods. But it still leaves the need for significant
border checks on goods imports to ensure they meet the required
standards and provides only limited access to trade in services --
hugely important to the British economy.
She has also rejected the so-called Norway model. For most
purposes, Norway is part of the EU's single -- or internal --
market. But the price is big ongoing financial contributions to the
EU, acceptance of EU rules without a say in the legislation, and
swallowing the judgments of the EU courts, all of which Mrs. May
has ruled out and would cause a furor with some in her Conservative
Party. Even with all this, Norway has a customs border with
neighboring Sweden, an EU member, because Norway isn't part of the
EU's customs union.
In last week's deal, both sides agreed that to avoid the
re-creation of a new customs border between EU member Ireland and
Northern Ireland -- which is part of the U.K. -- the U.K. would, if
necessary, "maintain full alignment with those rules of the
internal market and the customs union."
To explain the apparent contradiction with Mrs. May's
statements, Brexit Secretary David Davis said Sunday that full
alignment doesn't mean that the U.K. plans to accept EU regulation
post-Brexit. Instead, it aims to create its own regulation that
will meet equivalent standards to the EU's.
"We'll meet the outcomes but not do it by just copying or doing
what the European Union does," he told the British Broadcasting
Corp.
But trade experts say the EU isn't ready to accept such a
halfway house, except perhaps in some limited areas -- particularly
since the U.K. has also said a central aim of leaving the bloc is
to diverge from EU regulations. From the EU standpoint,
frictionless trade is only possible if the U.K. becomes, like
Norway, a regulatory satellite of the bloc.
"We want as much as possible [from a trade deal], but there
needs to be a balance," an EU official said. "The U.K. cannot have
the rights of Norway but only the obligations of Canada."
European Trade Commissioner Cecilia Malmstrom said last week
that even with a comprehensive trade deal, EU trade with the U.K.
will suffer from Brexit. "It cannot be totally frictionless because
they are not in the internal market," she said.
Fredrik Erixon, director of Brussels-based European Centre for
International Political Economy, said there won't be a big debate
in Europe about cutting tariffs. "It's the other part about
regulations that will be difficult," he said.
Mr. Erixon said the U.K. could achieve a closer deal than Canada
-- one that will look more like the Trans-Atlantic Trade and
Investment Partnership that the EU and the U.S. were negotiating
until President Donald Trump halted talks. That agreement would
have gone further than the Canada's by allowing some limited EU
recognition of U.S. regulation, and vice versa.
Such an outcome would mean highly restricted access for U.K.
financial-services firms to the EU market and a lot more
bureaucracy for exporters. It also would leave unresolved the
question of how to avoid a new customs border in Ireland.
Write to Jason Douglas at jason.douglas@wsj.com and Stephen
Fidler at stephen.fidler@wsj.com
(END) Dow Jones Newswires
December 12, 2017 05:44 ET (10:44 GMT)
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