EU Raises Prospect of Brexit Chaos as Transition Talks Stumble

The European Union’s chief Brexit negotiator raised the prospect of the U.K. crashing out of the bloc next year into a legal limbo. The pound fell.

After a round of negotiations in Brussels, Michel Barnier said there were “substantial” disagreements over the terms of the two-year transition period that is the top priority for business. If disagreements persist, a transition deal can’t be taken for granted, he told reporters on Friday.

“Transition today is not a given,” he said. Still, he hopes the disagreements will be solved in the next negotiating round. “Time is short, very short, we don’t have a minute to lose if we want to succeed.”

Transition is crucial for business as the future trade deal between the two sides almost certainly won’t have been completed on the day Britain leaves the bloc, so businesses on both sides would plunge into a legal and regulatory limbo in March next year. That would mean tariffs would be slapped on goods, and in the worst case, data transfers, air travel and food supplies could also be disrupted.

Hardline Pressure

Businesses have set a deadline of late March this year to get a deal pinned down before they activate their contingency plans -- moving jobs and business out of the U.K. While many banks have already taken steps to protect their business and aren’t relying on a transition deal, they are still hoping to have the time to rewrite contracts and prepare for the future setup.

A senior U.K. official countered that it was not a given that Barnier could keep all EU member states on board, as EU businesses also want a transition deal. The official also pointed out that the 39 billion-pound financial settlement would be off the table without an agreement, predicting that the EU is talking tough now and would eventually give ground.

Prime Minister Theresa May, under pressure from hardline Brexit backers in her party, has toughened her stance on the transition in recent weeks. Initially, the U.K. was expected to accept the EU’s conditions wholesale, but amid accusations that the arrangement will leave Britain a “vassal state” of Brussels, she has raised a series of objections.

Transition will preserve access to the single market and Britain will have to keep abiding by all the rules, while having no say in making them and no voting power in the bloc. The U.K. doesn’t want to have to accept new rules that are made during the transition amid fears the EU could adopt rules that would hurt British interests.

Toughening Up

The EU has also toughened its stance, and has threatened to unilaterally suspend the U.K. from the benefits of the single market if it breaks rules during the two-year period. Barnier said the EU is defending the integrity of the single market.

Both sides have also raised the prospect of the timetable slipping for the withdrawal agreement from an initial target of October, which was intended to allow the deal to go to U.K. and EU parliaments for approval in time for exit day in March 2019. U.K. Brexit Secretary David Davis has said year-end may be a more realistic deadline, while Barnier mentioned November on Friday.

The U.K. didn’t provide the EU with an update on the future relationship on Friday as planned. That was because of scheduling issues, Barnier said. May’s Cabinet is yet to decide on what kind of future trade deal it will seek.

The longer transition takes to pin down, the less time available to discuss the future relationship. That makes it more likely that the U.K. will leave the bloc without a clear idea about the future ties it will be able to maintain with its largest trading partner.

— With assistance by Tim Ross

Let's block ads! (Why?)