Trade

Donald Tusk rejects Theresa May’s Brexit vision

There’s only one dish on the EU’s post-Brexit, future relationship menu: a free trade agreement with zero tariffs, covering all goods — and perhaps services “to an extent.”

European Council President Donald Tusk put forward draft negotiating guidelines Wednesday that seek to maintain “as close as possible a partnership with the U.K.” but that is effectively constrained to a free trade agreement because of London’s insistence on quitting the EU single market and customs union.

Introducing the six-page draft document, a copy of which was obtained by POLITICO, Tusk said that the U.K.’s intention to leave the single market and customs union constrained the options for a future relationship. “It should come as no surprise that the only remaining possible option is a free trade agreement. I hope that it will be ambitious and advanced and we will do our best… Anyway it will only be a trade agreement.”

“A pick and mix approach for a nonmember state is out of the question. We are not going to sacrifice these principles. It’s simply not in our interest,” he added — a reference to the U.K.’s desire for privileged access to the single market in some sectors but divergence in others.

The document makes no specific mention of financial services, which the U.K. is keen to include in a future partnership agreement because of London’s lucrative banking industry.

Instead, the document — which will now undergo intense negotiation and inevitable revisions by the 27 remaining EU countries — holds out the possibility that the future accord would cover “trade in services … to an extent consistent with the fact that the U.K. will become a third country and the [European] Union and the U.K. will no longer share a common regulatory, supervisor, enforcement and judiciary framework.”

EU officials have stated repeatedly in recent days that EU regulation of financial services is now accomplished in a community approach that will make it extremely difficult if not impossible for a broad agreement with a third country. Still, the draft guidelines also do not expressly rule out such a deal with the U.K. if one can be achieved.

While restating the EU’s desire for a close partnership, the draft guidelines state: “The European Council has to take into account the repeatedly stated positions of the U.K., which limit the depth of such a future partnership. Being outside the customs union and the single market will inevitably lead to frictions.”

Indeed, the frictions are already quite apparent.

In a speech on Friday, U.K. Prime Minister Theresa May acknowledged that there would be negative consequences of Brexit for both sides. And in a scathing confidential assessment of her speech, the EU complained that she was engaged in “double cherry-picking” by demanding some benefits of EU membership along with select benefits of a third-country trade accord.

The free-trade deal, according to the draft, should include “trade in goods, with the aim of covering all sectors, which should be subject to zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin. In this context, existing reciprocal access to fishing waters and resources should be maintained.”

Tusk put forward the guidelines as he traveled to Luxembourg for a meeting with Prime Minister Xavier Bettel, part of his regular circuit of meetings with EU leaders.

The draft guidelines state that the EU would be willing to negotiate a different type of relationship in the event that the U.K. changes its stance — essentially an invitation to May or a future prime minister to stay in the single market under terms to be determined.

Beyond the trade agreement, the draft guidelines say other “socio-economic cooperation … could be envisaged” including an aviation transport deal “to ensure connectivity” as well as cooperation in research, education and cultural programs.

In addition, the draft guidelines say the European Council wants to continue “police and judicial cooperation in criminal matters” and that “in the fields of security, defense and foreign policy there should be no gap in the EU-U.K. cooperation.”

However, the Council rejected the idea of the U.K. participating in EU agencies after Brexit, saying “the Union will preserve its autonomy as regards its decision-making, which excludes participation of the United Kingdom as a third-country to EU Institutions, agencies or bodies.” May called last week for the U.K. to become an “associate member” of key EU agencies, specifically the European Medicines Agency, the European Chemicals Agency and the European Aviation Safety Agency.

What the relatively brief and broadly-worded draft guidelines don’t specify is how the framework of the future relationship with the U.K. will be drawn up and agreed during the negotiations.

Officials have said they expect the future agreement will be described in a written “political statement” that will accompany the formal withdrawal treaty, which must be approved by the U.K.’s official March 29, 2019 exit date.

That political statement — perhaps best described as a “disassociation agreement” — might mirror the association agreements that the EU signs with partner countries seeking eventual EU membership. In those cases, of course, the overarching goal is entry into the EU, whereas the agreement with the U.K. will set the parameters for the first-ever departure of a country from the bloc.

London has been adamant that it wants many aspects of the future relationship agreed, at least in principle, before its formal departure. However, EU law makes clear that a trade agreement can only be completed once the U.K. becomes a third country.

The lack of any specific detail on these points in the draft guidelines suggests that a fierce debate could still lie ahead of how, if at all, the two sides might be able to commit to aspects of their new arrangement.

Theresa May’s official spokesman said: “This is a draft text that has not been formally published, but has been circulated to the EU27 for comment. We look forward to seeing the final guidelines when published and hope they will provide the flexibility to allow the EU to think creatively and imaginatively about our future economic partnership.”

The debate over the draft guidelines among the EU27 is expected to be intense, finally bringing to the forefront some sharp differences in national interests based on which countries will be affected most by Brexit.

Among the most electric topics will be the question of potentially expanding the language on services to specifically address financial services — a position favored, for instance, by Luxembourg, which has substantial business ties to the City.

A Luxembourg official noted that while there was a potential fallback, to World Trade Organization rules, in the event that no agreement is reached on the trade of goods between the U.K. and EU, there was no such fallback for services.

“If we don’t include financial services in the trade deal, then we need something else,” the official told POLITICO, “because we’ll continue to make business with London.” The official added, “France thinks this is an opportunity for her to lure business for Paris, but we doubt that. It could go to other places.”

Original Article