Brexit: EU rejects Theresa May's trade plan and warns UK will suffer 'negative economic consequences'

'This will be the first free trade agreement in history that loosens economic ties', says Donald Tusk

Jon Stone
Wednesday 07 March 2018 12:53 GMT
EU rejects Theresa May's Brexit trade plan and warns UK will suffer 'negative economic consequences'

The EU has rejected Theresa May’s vision for a post-Brexit trade relationship, laying out its own plans and warning that her choices will have “negative economic consequences” for Britain.

In draft negotiating guidelines unveiled on Wednesday, the bloc ruled out the “mutual recognition” of standards between the UK and EU as proposed by the Prime Minister in her Mansion House speech last week.

The six-page document, which will instruct EU chief negotiator Michel Barnier on how to deal with the UK in the next phase of talks, also rules out British membership of EU regulators such as the European Medicines Agency after Brexit – directly rebuffing the Prime Minister.

Presenting the guidelines at a press conference in Luxembourg, Donald Tusk, the president of the European Council, warned that the future relationship “will only be a trade agreement” because Ms May had refused to stay in the customs union and single market.

“One thing must be absolutely clear, and I’m not sure that we are on the same position here: there is no possibility to have some sort of exclusive form of single market for some part of our economies,” he said.

“I hope that during our negotiations and debates among the 27 EU leaders that we will make my position more clear for our partners in London.

“I fully understand and respect Theresa May’s political objective: to demonstrate, at any price, that Brexit could be a success and is the right choice. But sorry, it is not our objective.”

He added: “This will be the first FTA in history that loosens economic ties instead of strengthening them. Our FTA will not make trade between the UK and EU frictionless or smoother … this is the essence of Brexit.”

Other provisions in the draft include a stipulation that the future relationship should be overseen by the European Court of Justice, a red line for many Brexiteers. Ms May has previously suggested an independent regulator made up of representatives from both parties with a neutral chair.

The EU expects there to be no tariffs and quotas on goods traded between the UK and EU, but customs checks for rules of origin are likely to apply – adding "friction" to trade. The EU says it wants to limit this, but that "checks and controls" are "inevitable". The EU also envisions continued cooperation on fishing policy and access to each others' waters.

The text states that if the UK position should “evolve” – likely to refer to membership of the single market and customs union – then the EU would reconsider its offer.

What could the sticking points be in the Brexit trade deal?

The guidelines say: “The European Council has to take into account the repeatedly stated positions of the UK, which limit the depth of such a future partnership. Being outside the customs union and the single market will inevitably lead to frictions.

“Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU Single Market as well as of the UK market. This unfortunately will have negative economic consequences.”

The guidelines are subject to approval by the EU27 at the March summit of the European Council, but previous similar guidelines have been approved in literally minutes with very little discussion by member states, in a show of EU unity. A senior EU official however said the document “will change” in some way before its adoption, after scrutiny from EU27 ambassadors.

The official said that while Ms May was being more “realistic” in her speech last week, there were still “contradictions” in the UK position that meant the scope of the deal offered by the EU had to be limited.

Ms May’s proposal “sounds like something like ‘single market light’ or ‘customs union light’, which does not exist and cannot exist,” the official said.

The official added that “repeated reference in the Brexit debate to outcompeting the union and lowering standards” meant that the agreement to be bulletproof.

EU leaders will convene in Brussels on 22 March for the two-day European Council summit where they will be asked to sign off the guidelines, as well as consider issues relating to the transition period which is currently being negotiated.

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