Reuters | 15 May 2020

UK, EU demand each other give ground in trade talks or risk no deal

by Gabriela Baczynska, Guy Faulconbridge, Andrew MacAskill

BRUSSELS/LONDON (Reuters) - Britain and the European Union both demanded that the other side give ground in talks on a new post-Brexit trade deal or risk severe damage in tetchy exchanges after the latest bout of bargaining ended with scant progress on Friday.

The United Kingdom left the EU on Jan.31 but the main terms of its membership remain in place for a transition period until the end of this year, giving it time to negotiate a new free trade deal with the bloc.

Failure to reach a deal would convulse global trade just as the world aims to exit the coronavirus lockdown. But so far the talks have not gone well - and that was the only thing on which both sides agreed on Friday.

“We made very little progress towards agreement on the most significant outstanding issues between us,” UK chief negotiator David Frost said after a third week-long round of talks.

The main sticking point has been so-called “level playing field” rules to ensure fair competition. The EU says they are indispensible to ensure Britain does not undercut its standards, but which Britain rejects as binding it to European laws.

“As soon as the EU recognises that we will not conclude an agreement on that basis, we will be able to make progress,” Frost said. “We very much need a change in EU approach for the next round beginning on 1 June.”

EU chief negotiator Michel Barnier fired back by saying the talks have been “very disappointing” and heading for a stalemate unless London changed tack.

“There will be no agreement with the UK without a balanced agreement on fisheries and a proper, balanced agreement on level playing field,” Barnier told a news conference, adding he was determined to get a deal but no longer optimistic it was coming.

“We will not bargain away our values for the benefit of the British economy,” he said.

He accused London of trying to pick and chose the tastiest morsels of the EU’s single market but rejecting conditions for access all the 27 member states honour.

Sterling weakened on Friday as Brussels and London dug their heels in ahead of a key deadline at the end of June.

Both sides are then due to assess progress so far in talked aimed at agreeing trade deal with no tarifss or quotas on any goods, and agree on whether to extend the talks, which London has refused to do.

A senior British official said London proposed exploring no tariffs or quotas on 98-99% of goods instead. The EU said honing the detail of such an arrangement would take years and the bloc would still demand level playing field guarantees.

BREXIT NO DEAL?

After years of Brexit political chaos in London, investors and companies are trying to work out if London and Brussels are simply ratchetting up the rhetoric or are so far apart that there could be a cliff-edge at the end of 2020.

Time is ticking and the EU has a strict timetable, further complicated by the coronavirus pandemic, which has sapped resources and political attention on both sides of the English Channel, as well as complicating the Brexit talks dependant on intense horse-trading done face-to-face, rather than virtually.

With no extension of the negotiating time, the EU says any talks would need to wrap up around October to allow for ratification of any new deal by the EU parliament and the 27 national capitals.

The EU is pushing for a broader deal with Britain that would also cover open access to fishing waters, deep security ties, specific obligations on climate, human and labour rights.

London is mostly focused on a narrower trade deal and rejects the strings the EU would want to attach to a more ambitious new relationship as Prime Minister Boris Johnson - a leading Brexit campaigner - wants to take Britain out of the bloc’s orbit and away from the jurisdiction of its courts.

Goldman Sachs said it still expected a minimalistic trade deal to be sealed this year, which would give Johnson the opportunity to publicly declare his Brexit mission accomplished.

However, the investment bank also said unresolved issues could be pushed into a new “implementation phase” of any new trade deal, meaning some EU rules would continue applying to Britain beyond the end of this year. Negotiations on many aspects of a broader new relationship would de facto continue.