May faces tougher transition stance from EU amid Norway pressure

Theresa May has been hit with a double Brexit blow as the EU toughened up its terms for a transition period and Norway privately warned Brussels that giving in to the UK’s demands for a “special” trade deal could force it to rip up its own agreements with the bloc.

A paper on Michel Barnier’s demands for the transition period, leaked to the Guardian, reveals that the EU plans to insist on the free movement of people throughout the period and the inclusion of people moving to the UK before 31 December 2020 in any post-Brexit agreement on citizens’ rights.

The UK had at one time wanted the agreement on citizens to be limited to people who moved to the UK before 29 March 2017, when Theresa May triggered article 50.

The EU also insists that the UK will only continue to enjoy the benefits of trade agreements with non-EU countries if “authorised” by Brussels. The UK will also effectively be kept to the terms of the common fisheries policy, as previously revealed by the Guardian.

It is understood that the EU is not willing to commit to settling the terms of a transition deal by March, as hoped for by the UK.

The four trade options

If the UK has a change of heart, it could sign up to all the EU’s rules and regulations, staying in the EU’s single market and customs union. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election.

Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but  is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules.

A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far.

Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organisation rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish  bilateral agreements to deal with the consquences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

Senior EU officials told the Guardian they were only cautiously confident of getting agreement by “the first half of the year – if we don’t run into substantive difficulties”.

EU sources said May was nevertheless likely to accept the terms, knowing that the greater victory lies in making ground on the UK’s demands over the future relationship.

However, the Guardian has learned that repeated representations have been made to EU officials by Oslo over their fears that an overly generous offer to the UK will fuel calls in Norway to renegotiate its ties with the bloc, according to senior diplomatic sources.

The Nordic intervention presents a fresh hurdle for Theresa May’s aim of delivering a “deep and special partnership” with the EU that goes beyond the scope of a Canada-style free trade deal, an arrangement under which significant barriers to trade in goods and services remains.

Norway makes larger financial contributions to the EU per capita than the UK and accepts free movement of people in order to have access to the single market. But it has no decision-making role in Brussels’ institutions.

Norway’s Eurosceptic Centre party, which wants to pull the country out of the European Economic Area in favour of a free trade deal, doubled its vote in last year’s election. Although there is a general consensus in favour of EEA membership among the other main parties, the junior member of the current coalition government, Progress, has pushed for a renegotiation in the past.

A senior official said: “[The Norwegians] are following this very closely to make sure that we are not giving the UK a much more favourable deal.”

EU officials fear, in the first instance, Norway could become more demanding in future talks over a fisheries arrangement once the UK pulls out of the common fisheries policy and tri-lateral negotiations over access to seas and quota sizes begin.

A spokesman for the Norwegian government declined to comment.

With officials on both sides of the Channel gearing up for a year of tough negotiations on a transition period and future relationship, positions are being crystallised in EU capitals and in Brussels about the future. The Guardian can further reveal:

  • France is fighting off attempts by Luxembourg, among other countries, to allow UK-based financial services a “backdoor” to single market access post-Brexit by allowing City of London firms to gain so-called “passporting” rights through continental shell companies allowing real operations to continue in the UK. The internal row is viewed by EU officials as a precursor to a more divisive debate within the 27 over what to offer London on financial services, with senior officials warning that, as it stands, the EU will “not go very far”.
  • Brussels is not making preparations for a second UK referendum, with senior officials regarding it as highly improbable. In the event of a remain vote, however, key member states would probably seek to legally bind the UK into not calling a third referendum in the foreseeable future, officials believe.
  • Member states have ruled out allowing British carriers the freedom to fly passengers and luggage between destinations on the continent post-Brexit, with UK carriers to be permitted only four of the nine “freedoms” to operate they currently enjoy. There are also plans in the negotiations on fisheries to link access to British waters for EU vessels with access to the European market for UK importers.
  • EU leaders are taking control of the talks on the future trading relationship and are expected to incorporate stricter enforcement mechanisms than in any trade deal previously signed to ensure a “level playing field” in terms of levels of tax and state aid.

The EU’s tough stance, largely led by France and Germany, will cause dismay among UK ministers. During a visit to Berlin last week, the chancellor, Philip Hammond, beseeched leaders to signal “a willingness to work together” and described the EU as “paranoid” about the consequences of giving the UK a special deal over the weekend.

However, in Brussels it is the mood music coming from London that is causing concern ahead of talks on the transition period that will come once the European council has adopted negotiating directives on 29 February.

Downing Street’s Brexit adviser, Olly Robbins, suggested in a recent cabinet meeting that the UK would operate on three levels post-Brexit with the EU, with some sectors being entirely free from Brussels regulation while others were fully converged to allow frictionless trade. In a third “basket” of sectors, the two sides could share the same goals but “achieve them through different means”.

One senior EU official said: “It’s what we always thought the UK would be going for and that’s why we have been quite clear that we don’t think that it is on.”

Powered by article was written by Daniel Boffey in Brussels, for The Guardian on Tuesday 16th January 2018 07.29 Europe/London © Guardian News and Media Limited 2010


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