EU set to offer ‘super-charged’ free-trade deal to Britain

Bloomberg

The European Union is set to offer the UK a free-trade deal deeper than any agreement that’s gone before, but will reject Prime Minister Theresa May’s demand for “frictionless trade,” according to EU diplomats.
The EU’s vision for future ties with Britain will contain “about 30-40 percent” of May’s pitch for a wide-ranging trade and security deal, according to two of the diplomats. Chief negotiator Michel Barnier’s team gave European ambassadors an outline of his proposal, and will formally present it to them — at least in part — on Wednesday. Talks are accelerating — and work is expected to continue through the weekend — as both sides are racing to clinch a deal next month. The pound strengthened.
The offer falls short of what May wants, potentially making it harder to get the deal approved in the UK Parliament, where she faces opposition on all sides. However, the document is expected to be vaguely worded, and with as much positive language as possible to help her sell it at home. Hardline Brexit-backers in her party might find it easier to vote for the EU’s offer instead of the tighter ties sought by May, since they have been pushing for a regular free-trade deal all along.
The risk is that because the EU’s plan doesn’t include frictionless trade across the EU-UK border, it will focus more attention on the most controversial part of the divorce deal — how to keep the Irish border open. It will make it even more important that the so-called Irish backstop is acceptable to the UK government and its Northern Irish allies. The offer will be in the form of a non-binding declaration that will form part of the Brexit deal that officials want to wrap up by mid-November. It would offer the UK an unprecedented “super-charged” free-trade agreement, in the words of one of the diplomats.
Negotiators are making progress on the other part of the deal — the legally binding terms of the divorce — but agreement on that hinges on the specifics of a solution on the Irish border. That could yet derail the process, the diplomats said. The UK is expected to present a new solution next week. Both sides are hoping for a breakthrough in time for a dinner of EU leaders on October 17. If all goes well, another summit will then be called for mid-November. The European Commission is “working day and night” to make progress, President Jean-Claude Juncker said.
Juncker told a group of Austrian newspapers he is optimistic that a deal can be reached and the EU’s “will is unbroken to achieve an understanding with the British government,” according to a report of the interview. He reiterated that a “no deal” scenario would be bad for both the UK and the EU.
The EU’s draft on how Britain and the bloc will trade in future will probably run to fewer than 10 pages, three diplomats said, leaving negotiations for the full-blown trade deal to take place after the UK leaves in the bloc in March. UK officials say it will be much longer.
While it falls short of what May wants, it will be broader and deeper than any FTA the EU has struck with other countries and will include “add-ons.” Some frictions in trade will be inevitable, diplomats said. Otherwise, it would undermine the integrity of the single market. To help May sell the deal at home, formulations like “as frictionless as possible” might work, however, according to one diplomat.
The document is likely to say that there should be no trade tariffs or quotas with the UK, diplomats said. In return the EU will demand stronger “level playing field” conditions to ensure the UK doesn’t gain a
competitive advantage in areas such as regulatory standards, labor law and state aid. This is the battle ground between the two sides, according to one of the diplomats.
The add-ons will include counter-terrorism cooperation, foreign policy and defense coordination, and other ways in which Britain and the EU will work together, such as on recognition of each other’s social security and qualifications systems, agreements on transport connectivity and some reciprocal arrangements to allow people to work in each other’s territories.