U.K., EU Reach Deal on Brexit Divorce Terms -- Update

By Laurence Norman Features Dow Jones Newswires

The U.K. and the European Union have reached an agreement on Brexit divorce terms after six months of tense talks, opening the way for negotiations to advance on a trade deal but leaving big challenges still ahead.

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The deal eases pressure on U.K. Prime Minister Theresa May, but if approved by leaders next week it still remains only a door-opener to difficult negotiations. Britain is pushing for an ambitious trade deal that EU officials have warned could be much more restrained and take years to hammer out.

After a brief meeting Friday morning with Mrs. May to finalize the agreement, European Commission President Jean-Claude Juncker said his negotiating team was now formally recommending that EU leaders agree to advance the talks when they meet next week.

"I believe we have now made the breakthrough we needed," Mr. Juncker said.

The deal includes a Brexit financial settlement and guarantees on the future rights of EU citizens in the U.K. There was some give-and-take on both issues although the EU secured the lion's share of its demands of Britain. The most contentious issue--how to avoid a hard border on the island of Ireland--was somewhat papered over in Friday's text although Britain accepted Irish demands of hard commitments to resolve the problem.

Mrs. May, who has been under pressure from competing factions of her party since losing her parliamentary majority in June, hailed the deal and said that both sides had to make concessions.

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"Millions of jobs depend on the future trading relationship we will determine and I am optimistic about the discussions ahead," she said.

British Foreign Secretary Boris Johnson, who has differed with Mrs. May on her Brexit approach, cheered the prime minister, saying the country would remain close to the EU while "taking back control of our laws, money and borders for the whole of the U.K."

But a cadre of strong Brexit backers argued she had given too much away, including agreeing to pay a financial settlement to the EU for previous spending promises it has made. A Downing Street spokesman said the U.K. expects a final net bill of EUR40-45 billion which will be paid for in euros in the coming years. Some liabilities may only come due decades from now.

Nigel Farage, the former leader of the UK Independence Party and a leading proponent of Brexit, said on Twitter the advance in Brexit talks simply meant Mrs. May's government "can now move on to the next stage of humiilation."

The British pound initially traded 0.2% higher against the dollar before falling to trade 0.1% lower at $1.3460, while the U.K.'s blue chip FTSE 100 index was up 0.35%.

There have been major disagreements over the past few months on the U.K. financial settlement and citizen rights, but the Irish border emerged as one of the major hurdles in the divorce deal--and is likely to remain a huge stumbling block.

The U.K. plans to quit the EU single market and customs union, effectively creating two economies on Ireland and requiring a border between the U.K. and the Republic of Ireland, which will remain in the EU.

A draft agreement between the EU and the U.K. was scuttled Monday after Northern Ireland's Democratic Unionist Party, which Mrs. May's Conservatives depend on for a parliamentary majority, objected.

Friday's agreement retains strong commitments from Britain that it will do what is necessary to avoid customs checks on the border between Northern Ireland and the south. To achieve this, Ireland had been calling for Britain to allow a broad swath of EU rules to continue to operate in Northern Ireland.

The agreement is ambiguous on specifics, saying the U.K. remains committed to its "guarantee of avoiding a hard border." It also says that unless other arrangements are worked out to avoid a hard border, "the United Kingdom will maintain full alignment" with EU rules needed to maintain economic and political cooperation between Northern Ireland and Ireland.

"We have got a cast-iron guarantee from the British government that under no circumstances will we see a hard border. That was at the core of what we wanted," Ireland's Foreign Minister Simon Coveney told state-owned broadcaster RTE.

EU chief negotiator Michel Barnier warned that if Britain's red lines remain the same--leaving the EU's single market and customs union and being fully independent of EU court rulings--a future trade deal would likely be based on the goods-heavy Canadian model.

British officials have explicitly said they are looking for a more ambitious deal than that, one which includes financial and other services.

Britain voted in June 2016 to leave the EU. The planned exit date is March 2019. Mrs. May has said Britain will request a two-year transition period after Brexit to avoid a hard landing for the British economy. A trade agreement can only be signed after Britain leaves the bloc.

European Council President Donald Tusk said he has now circulated the EU's draft guidelines--the key principles of its approach--to the future trade relationship. EU leaders will need to agree and sign off that text next week.

He also said the EU and the U.K. should move quickly to start negotiating the transition period to provide certainty for businesses well in advance of Britain's departure.

However, Mr. Tusk said the U.K. would need to agree to continue to make budget payments, respect the decision of EU courts and apply current and new laws during the period. EU officials said discussions on a transition could start in early January.

In the deal, the EU and U.K. agreed that EU citizens in the U.K. will be able to pass on their rights to their children and to ease entry for the spouse or partner of an EU citizen in the U.K. Britain will enshrine the rights of EU citizens in its own laws.

Paul Hannon, Wiktor Szary and Jenny Gross in London and Emre Peker in Brussels contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com

(END) Dow Jones Newswires

December 08, 2017 09:13 ET (14:13 GMT)