EU Reward to Britain for Brexit Concessions May Prove Meager

U.K. Prime Minister Theresa May appears ready to offer politically painful concessions to the European Union in coming days to advance Brexit negotiations, but the eventual reward for doing so -- moving talks onto the future trade relationship and a post-Brexit transition -- may prove meager.

EU officials are setting out tough principles for shaping a future trade relationship, signaling Britain may have to apply broad swathes of European rules and standards to gain privileged access to the single market. There appears to be little flexibility for Britain to escape the full force of EU rules during a transition period after it leaves the EU, and it's not clear that EU leaders will be ready to adopt guidelines for future trade talks even if they say in December that enough progress has been made on the major divorce issues.

At the last EU summit in October, leaders of Britain's 27 EU counterparts ordered officials to start "internal preparatory discussions." The idea was that the bloc would ready in the new year to start negotiations on future ties if sufficient progress was made in December on divorce issues. These include citizen's rights, the EU's financial settlement demands and the Irish border issue.

However, with Britain and the EU still bogged down in talks on how much of its past spending promises Britain is prepared to stand by after leaving and how to assuage Irish demands for greater clarity on avoiding the return of a hard border on the island of Ireland following Brexit, those discussions were rudimentary.

The EU27 held three seminars looking at future ties, diplomats said, but that work has now been frozen. The seminars were essentially a scoping exercise taking a detailed look at agreements the EU already has with other third countries that are nonmembers, like Norway, Canada and Switzerland.

Officials were looking at "what are the limitations and possibilities of different models," one participating diplomat said.

European officials say it isn't clear if EU leaders will adopt formal guidelines for the talks in December. The chances they will do so are better if Britain offers concessions on the financial settlement and Ireland well ahead of the Dec 14-15 summit. But even so, it's not guaranteed.

Even if they do agree on guidelines, these may offer only a set of fleshed-out principles, not detailed prescriptions, since the EU27 are still waiting for London to spell out what it wants as part of a deep and special future relationship.

EU officials have been sketching out ideas on what the EU's opening positions on the transition and future trade talks are likely to be.

On the transition, EU officials and diplomats say the bloc has limited room for flexibility to relax the obligations Britain currently has as an EU member, including respecting decisions of the European Court of Justice, paying its membership fee and allowing free movement of people. The U.K. will be a rule-taker after its March 2019 exit, losing its vote on EU decisions.

There may be some carve-out allowing Britain not to apply new post-Brexit EU laws, "but only if those bits of legislation have no material impact on the" key rules of the EU single market, said Simon Tilford, deputy director of the Center for European Reform.

It's not just a question of willingness. British and European governments both want to provide certainty as soon as possible about what happens after March 2019 -- preferably by next spring, officials say. That suggests largely sticking to current rules.

In a speech in Brussels on Monday, chief EU negotiator Michel Barnier fleshed out his thinking of what a future trade deal would -- and wouldn't -- allow.

He said Britain "will lose the benefits of the single market" of goods and services once a transition is over, saying that is the "legal reality" once Britain decides to curtail free movement of people and disregard the rulings of EU courts.

He suggested there was little willingness to agree to Mrs. May's appeal for a deal on financial services, saying that in this sector, too, "Brexit means Brexit." British financial firms will lose their passport rights to provide services across the EU, he said.

British officials took encouragement from Mr. Barnier's statement that the EU could offer the U.K. "its most ambitious" free-trade approach. However, the former French foreign minister tied this to the U.K.'s staying on a "level playing field" by pledging not to undercut EU environmental, tax, food safety, state aid rules and competition rules to win business. That's a far more demanding regulatory match-up than even Canada. U.S. officials have also warned that sticking to EU rules could jeopardize a future U.S.-U.K. agreement.

Mujtaba Rahman, managing director, Europe for Eurasia Group, said this week that all indications are that Mrs. May's government "will find it very difficult to deliver anything other than a Canadian-style bilateral FTA that is robust on tariffs and quotas but weak on services and nontariff barriers."

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

(END) Dow Jones Newswires

November 23, 2017 14:23 ET (19:23 GMT)