A new row over the UK’s future trading relationship with the EU has broken out - though neither Brussels nor London has clarified what that relationship should be.
UK chancellor Philip Hammond’s comments in Davos - that the UK would move only “very modestly apart” from the EU in trade terms after it leaves - has spooked Eurosceptic Tories, who fear they are being backed into a softer Brexit.
Hammond was forced to clarify his remarks on Twitter yesterday, insisting the UK would be leaving the customs union and single market after 2020 and simply “wants to minimise any reduction in access” to the EU single market post-Brexit.
Brexit secretary David Davis tried to reassure hard Brexiteers about this in a speech in Middlesbrough on Friday afternoon (see other news), but UK media reports say the issue has put extra pressure on prime minister Theresa May’s position as leader of the party.
The row shows the danger of putting any position, however vague, to a divided Tory party.
But the EU side has not said what kind of relationship it wants, either, pointing only to the fact that the UK’s options fall somewhere between a Canada-style free trade deal and Norway-style membership of the European Economic Area.
EU diplomats discussed on Thursday how to maintain a “level playing field” with the UK post-Brexit, whether it moves “modestly apart” or goes for wholesale regulatory divergence.
The main concern for the EU is state aid - the prospect that a post-Brexit UK would have the freedom to pump public money into its domestic industries (the automotive sector, for example) and undercut its EU counterparts.
“The fear is, given the economic power of the UK, it would be able to give much more subventions to companies than it does now,” said one EU diplomat close to the talks.
There are also fears the UK will seek to backtrack from EU rules on workers’ rights (the working time directive has long been a bone of contention for the Tories).
To counter these two concerns, the EU will seek to insert stringent “safeguards” into a future free trade deal, which would close off market access if the UK diverges too far from EU rules.
“No level playing field means less market access,” said one senior EU official who is participating in the talks. “The whole point of Brexit is divergence, of course, so we need to manage that.”
Non-regression clauses?
One option is to include “non-regression clauses” in a future trade deal with the UK. Such provisions are common in EU employment law to prevent a lowering of workers’ rights.
No decisions have yet been made, with EU diplomats still to be briefed by the Commission next week on the services sector and international agreements, including trade.
These are only internal discussions, with the UK due to be brought into talks after March, when the EU agrees its new mandate on the future relationship.
Before that, the EU wants the Conservative government to provide more clarity on that relationship.
“For us it would be of big importance to have as much clarity as possible, and specific positions on all the specific policies that are to be discussed and decided on the possible agreement on future relations,” said a senior EU official directly involved in the negotiations.
Theresa May is due to give a third major address on Brexit next month after her 2017 speeches at Lancaster House (see EUROPE 11705) and in Florence (see EUROPE 11868), but it is unclear whether this will shed any light on the UK’s position.
Until then, EU officials are concentrating on signing off on their mandate for a time-limited transition phase that would run until the end of 2020 - which Europe ministers will do on Monday at the General Affairs Council - putting a preliminary deal on citizens, money and Ireland into legal language (see EUROPE 11947).
Transition talks with the UK could then begin in mid-February, sources say, though what format they will take is unclear. The UK is keen to avoid the monthly negotiating rounds (and corresponding media circus') and stick instead to “continuous negotiations” at official level.
Until then it's continuous confusion, at every level.
(Sarah Collins)