U.K. Seeks `Canada Plus Plus Plus' EU Trade Deal, Davis Says

(Bloomberg) -- Britain wants a trade deal with the European Union that includes the best parts of the bloc’s agreements with Japan, Canada and South Korea, along with financial services, Brexit Secretary David Davis said, showing optimism a pact can be struck within a year.

The chances of the U.K. leaving the EU without a deal, defaulting to World Trade Organization rules, have “dropped dramatically,’’ Davis said in a BBC TV interview on Sunday. Still, he signaled the painstaking agreement struck on Friday to end the first phase of Brexit negotiations isn’t binding, and that Britain’s exit payment of as much as 39 billion pounds ($52 billion) is contingent on reaching a free-trade agreement. Doing so, he said, “is not that complicated.”

“We start in full alignment: we start in complete convergence with the EU, so we then work it out from there,” Davis said on the Andrew Marr Show. “What we want is a bespoke outcome: We’ll probably start with the best of Canada, the best of Japan and the best of South Korea and then add to that the bits that are missing, which is services,” he said. “Canada plus plus plus would be one way of putting it.”

One Year

The Brexit secretary’s bullishness belies the noise coming from his counterparts in the EU. It’s taken eight months of at times bitter haggling to make sufficient progress on what was supposed to be the easiest part of the talks -- resolving Britain’s exit payment, its future border with Ireland, and the rights of EU and U.K. citizens living in each other’s territories.

European Council President Donald Tusk spoke on Friday of the challenges ahead: “So much time has been devoted to the easier part of the task and now to negotiate a transition arrangement and the framework for our future relationship we have, de facto, less than a year," he said in Brussels. “We all know that breaking up is hard but breaking up and building a new relation is much harder.”

Davis cited his EU counterpart, Michel Barnier, in describing the next phase as being about “how we manage divergence so it doesn’t undercut the access to the market.” He said Prime Minister Theresa May’s cabinet has discussed a vision for “an overarching free trade deal, but including services, which Canada doesn’t, with individual, specific arrangements for aviation, for nuclear, for data, a whole series of strands which we’ve worked out, most of them based on where we start now.”

Labour’s Position

May’s office has said her cabinet hasn’t discussed the “end state” it wants as an outcome of the Brexit talks, but will do so before year-end. She’ll face pressure to pursue a “hard” Brexit from Environment Secretary Michael Gove and Foreign Secretary Boris Johnson, who have also recruited Defense Secretary Gavin Williamson to their cause, the Sunday Times reported. 

Gove and Johnson will demand a “bespoke” transition deal, and a trade agreement that allows the U.K. to write its own laws without seeking EU approval, the paper said. Gove will also demand the U.K. is allowed to leave the common fisheries policy and take back control of U.K. sovereign waters even during the transition, it said.

By contrast, the opposition Labour Party, leading in the polls, wants as little change as possible, including participation in what its Brexit spokesman, Keir Starmer, called “variants” of the single market and customs union.

“We want a partnership that retains the benefits of the single market and the customs union,” Starmer, told the BBC on Sunday. “You would have to sign a new agreement. You can’t stay in exactly the same agreement you’re in.”

Staggered Payment

Starmer added the U.K. should have “full participation” in the single market. He agreed the deal he’d like is akin to a Norway-style treaty, which may entail budgetary payments that are up for negotiation. Asked if he thought May’s deal means Britain “in perpetuity” will stay “very very close” to both the single market and customs union, he agreed.

“Yes and I think that is the right thing and I think we should hold her to that because that goes to the heart of the question of what sort of Britain do we want to be,” he said. “Do we see Europe as our major trading partner in the future or do we want to rip ourselves apart from that?”

For his part, Davis said May’s deal will allow Britain to achieve “similar outcomes” to the EU using “different methods,” rather than a “cut-and-paste” approach. 

He said the Treasury has estimated the commitments on payments the U.K. has signed up to are in the range of 35 billion pounds to 39 billion pounds, about 20 billion pounds of which will come during the 2-year transition period. “The rest will probably be in a long tail,” he said. “It may go on for many, many years, but quite small sums.”

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