Sunday, 2 April 2017

EU Rules Out U.K. Trade Deal Before Brexit Is Finalized

In World Economy News 01/04/2017

The European Union won’t agree to any future trade pact with the U.K. until after Britain leaves the bloc and will look to set tight conditions on a divorce deal during coming talks, according to a draft of the bloc’s negotiating guidelines.
European Council President Donald Tusk sent the guidelines–which must be agreed on at a summit of leaders from the remaining 27 member countries next month–to EU capitals on Friday.
Speaking Friday at a press conference in Malta, Mr. Tusk said coming negotiations over two years on Britain’s exit will be “difficult, complex and sometimes even confrontational.”
“The EU27 does not and will not pursue a punitive approach,” he said. “Brexit in itself is already punitive enough.”
If adopted, the guidelines would set the U.K. and the EU on a collision course, with both sides already in disagreement on issues from the sequence of the talks to the conditions Britain would have to accept to secure a post-Brexit transitional deal.
Launching the U.K.’s exit process on Wednesday, U.K. Prime Minister Theresa May said she wanted to reach an agreement on an ambitious new trade deal within the two-year negotiating period.
However, the guidelines say the priority in exit talks will be on securing clear divorce terms and that discussions will only give an “overall understanding” of the U.K. and EU’s future relationship. They said there would be one divorce package for the U.K. and ruled out bilateral side deals with other member states.
“Once, and only once we have achieved sufficient progress on the withdrawal, can we discuss the framework for our future relationship. Starting parallel talks on all issues at the same time, as suggested by some in the U.K., will not happen,” Mr. Tusk said.
However, he signaled that discussions on a future deal could come relatively swiftly, saying the bloc will probably review in the autumn whether enough progress has yet been made on the divorce terms.
The bloc insists the U.K. must settle an exit bill–in the region of EUR50 billion ($53.4 billion) to EUR60 billion–which includes all of the U.K.’s legal and financial commitments, including its contingent liabilities as an EU member. It said Britain must abide fully by EU law, which would include offering full rights and benefits to EU citizens who come to the U.K. before exit talks wrap up.
“In these negotiations the union will act as one. It will be constructive throughout and will strive to find an agreement,” the draft guidelines say. But the bloc will prepare contingency plans in case the talks fail.
Both the U.K. and the EU have said they want an early deal guaranteeing mutual rights of U.K. citizens in Europe and EU citizens in Britain–a point the guidelines underlined. They also want to avoid the recreation of a hard border between Northern Ireland and Ireland.
The draft guidelines make clear that any transitional period must be limited in time and that there is a proper enforcement mechanism so that the U.K. respects the terms. If, during this period, the U.K. wants to extend the period in which it is subject to some of the benefits of membership, it would have to accept EU rules, pay into the budget and abide by the decisions of the EU courts.
The bloc also said the European Court of Justice can continue to rule on any legal cases against the U.K. after its departure, and that the court can, after Brexit, initiate proceedings against the U.K. based on any breach of EU law during its time as a member. Mrs. May has said that following Brexit, the U.K. wouldn’t be subject to EU courts.
While the bloc says it wants to preserve the U.K. as a close partner and agree an ambitious trade deal, the guidelines seek to limit Britain’s future room for maneuver in future negotiations.
They said the U.K. can’t win sector-by-sector future access on current terms to the single market.
They said that any future agreement must ensure the U.K. doesn’t win a competitive advantage by having weaker state-aid rules or more-lax rules on workers’ rights, the environment or on its fiscal framework. Mrs. May has suggested that the U.K. might have to focus on a low-tax, low-regulation economy in the absence of a strong future economic deal with the EU.
In her notification on the letter, Mrs. May appeared to set out a warning to her partners: Failure to agree a decent exit deal and future agreement could see the U.K. reduce its cooperation on terrorism and security.
On Friday, both sides sought to play down any rift.
“I want to stress one thing: The U.K.’s commitment to the defense and security of Europe is unconditional,” Foreign Secretary Boris Johnson said ahead of a meeting of foreign ministers from the North Atlantic Treaty Organization in Brussels.
In Malta, Mr. Tusk said, “I am absolutely sure no one is interested in using security cooperation as a bargaining chip.”
EU officials have said while there are likely to be changes in wording, they are confident the key principles in the document will remain when the final guidelines are set on April 29.
At that point, the EU will use the guidelines as the basis for a detailed negotiating mandate for EU chief negotiator Michel Barnier. Only after that, possibly in late May or early June, can substantive negotiations begin.

Source: Bloomberg