EU's Barnier Tells Britain: No Chance of Friction-Free Trade After Brexit -- Update

By Valentina Pop Features Dow Jones Newswires

The European Union's Brexit negotiator Michel Barnier on Thursday gave a stark warning to officials in London that the U.K. won't have "frictionless trade" with the bloc after it leaves.

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In an unusually blunt and detailed public discussion with trade unions and business groups here, Mr. Barnier said that he isn't sure that the EU position is "fully understood across the Channel."

"I have heard some people in the U.K. argue that one can leave the single market and build a customs union to achieve 'frictionless trade'---that is not possible," Mr. Barnier said.

Prime Minister Theresa May and several of her top officials in recent weeks had called for a deal enabling such "frictionless trade" after Brexit.

Mr. Barnier said that his British counterpart, David Davis, confirmed during their first round of talks last month that the U.K. wants to leave both the single market and the customs union. "I have to work with the U.K. government as it is today and based on what it's telling me," he said. Divisions within the U.K. government have emerged in recent weeks on this issue, with Mr. Barnier saying that "we are prepared for all situations," in case the British stance changes. A next round of talks is scheduled for July 17 in Brussels.

Mr. Barnier also made it clear that there will be no special deal for the British financial sector to keep its so-called passporting arrangement under which thousands of U.K.-based banks are operating in other EU countries. "On financial services, things are clear: The U.K. leaves the EU and the single market and therefore all financial institutions will lose the financial passporting, automatically, mechanically. There is no discussion and no negotiation on this topic," Mr. Barnier said.

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He warned that the U.K.'s future relationship will have to address concerns about "regulatory competition," meaning that standards and regulations ranging from environmental protection to consumer and social rights could be watered down in the U.K. to gain a competitive advantage over the EU. Mr. Barnier said national and regional parliaments on the continent will scrutinize the agreement underpinning the bloc's future relationship with the U.K. and recalled that a regional parliament in Belgium held up the EU's free trade deal with Canada due to similar concerns.

In terms of what the U.K. can expect from a free trade deal with the EU, Mr. Barnier said the options are clear, based on existing agreements with Norway, Canada or Turkey. "Each model has its own balance of rights and obligations. There will be no cherry picking, no a la carte access to the single market," he said.

Mr. Barnier also sought to dispel Mrs. May's idea that "no deal is better than a bad deal," which has been recently repeated by her ministers.

He explained that in the absence of a Brexit deal, trade between the EU and the U.K. would be based on World Trade Organization rules.

"There would be customs duties of almost 10% on vehicle imports, an average of 19% for alcoholic beverages, and an average of 12% on lamb and fish, for which the vast majority of British exports go to the EU," Mr. Barnier said.

"In practice, 'no deal' would worsen the 'lose-lose' situation which is bound to result from Brexit. And the U.K. would have more to lose than its partners," he said.

"That is why we want an agreement. To my British partners I say: a fair deal is far better than no deal," Mr. Barnier said.

Japanese Prime Minister Shinzo Abe, speaking at a press conference in Brussels, said he hoped the Brexit negotiations would help ensure predictability in the European economy. He said his government is focused on deepening cooperation between Europe and Japan, as evidenced by Thursday's announcement of a new EU-Japan trade pact, and that close cooperation between the EU and the U.K. is in Japan's interests.

"We support strong unity in Europe. We support this being robustly maintained," Mr. Abe said.

Laurence Norman contributed to this article.

Write to Valentina Pop at valentina.pop@wsj.com

(END) Dow Jones Newswires

July 06, 2017 07:34 ET (11:34 GMT)