Brexit Bulletin: Pushing Evolution

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The European Union dropped a strong hint on Wednesday of what its Brexit strategy might be: force Theresa May to rub out her red lines and keep Britain as close to the bloc as possible.

The draft negotiating stance on the future trading relationship contained a clause that states that if the U.K. changes its mind on certain key issues, then the EU “will be prepared to reconsider its offer.” EU officials call this the “evolution clause,” and leaders may look at whether the U.K.’s position has evolved when they meet for a summit in June. As it happens, those are issues that are taboo for the Brexit enthusiasts in May’s party.

The timing is key. The prime minister is facing increasing pressure from pro-EU rebels within her own party to shift her stance and keep the U.K. in a customs union with the bloc, something businesses also want to ease trade. They have been emboldened by a shift in the opposition Labour party’s position on the customs union, which means there’s now a majority in parliament that backs such an arrangement.

Former Prime Minister John Major put steel in the spines of the rebels with a recent speech, and anti-Brexit lawmakers are actively thinking about how they can keep the U.K. close to the bloc to avoid the economic damage they expect the divorce to bring. The latest idea is to seek an extension of the deadline for Britain’s exit, to give lawmakers and voters more time to weigh up if they really want to leave.

And if May doesn’t shift her stance, then the EU is clear what’s being offered: a regular trade deal that keeps tariffs and quotas off goods, but does little for service industries such as finance. The EU rejected May’s ideas that certain industries could opt back into the single market or that the two sides could agree to recognize each others’ regulations. Being outside the customs union and single market “will inevitably lead to frictions,” and have “negative economic consequences,” the draft said.

EU Council President Donald Tusk was even clearer: “I fully understand, and of course I respect, Theresa May’s political objective to demonstrate at any price that Brexit could be a success and was the right choice,” he said. “Sorry, it’s not our objective.”

Brexit Latest

Stocking Up | U.K. manufacturers are considering whether to build up stocks to ease the risk of Brexit-related trade delays, the head of one of the country’s biggest business lobby groups said. Firms are looking at whether to expand their storage capacity to accommodate increased stockpiles, British Chambers of Commerce Director General Adam Marshall told Alex Morales. Airbus SE has also said it may have to stock up on parts it needs to build wings at its U.K. plants to avoid the risk of delays.

What About Organic Cheese? | The uncertainty that Brexit generates extends as far as making an organic cheese farmer who sells his product in the U.S. wonder whether he’ll still be able to label as organic come next March. Bloomberg’s Agnieszka De Sousa has been reporting from Somerset as farmers are laying down cheese to mature that will be ready to eat in the post-Brexit world.

Estonia Wants U.K. Firms | The President of Estonia will visit London this month to try to encourage media companies that use the U.K. as their European broadcasting hub to choose his country as their new base, Joe Mayes reports. Companies including Discovery Communications Inc. and Time Warner Inc.’s Turner International use the U.K. to broadcast across the union, but the setup that allows them to do that will end after Brexit. 

Strengthening Transition | The transition deal that the U.K. hopes to reach this month will be a political statement rather than anything legal, and EU officials have repeatedly warned that it doesn’t become a sure thing until the final withdrawal agreement is approved early next year. But Chancellor of the Exchequer Philip Hammond floated the idea on Wednesday that regulators could add some certainty to the arrangement: 

“For the implementation period to deliver the smooth transition we all want to see, it needs to be effective. That means our regulators working together so that businesses – especially regulated businesses – are able to plan on the basis of it.” 

Undeterred | Hammond’s London speech was a couple of hours after the EU had set out its negotiating guidelines. That didn’t deter him from pitching exactly what the bloc had just rejected: mutual recognition of regulations so that the City of London can continue to be Europe’s banker. He made the case that it’s in both sides’ interest and that if London loses, the winner will be New York or Singapore rather than a European city. One line stood out: A deal that doesn’t include services would be hard to consider a “fair and balanced” settlement.

Coming Up | May meets business CEOs at Downing Street and Environment Secretary Michael Gove takes questions in Parliament at 9:30 a.m. Trade Secretary Liam Fox speaks at a conference at 10 a.m., Labour’s John McDonnell at noon and Democratic Unionist Party leader Arlene Foster at 12:20 p.m.

And Finally...

Luxembourg Prime Minister Xavier Bettel cracked a joke at Britain’s expense on Wednesday as Tusk presented his negotiating guidelines, and it sums up sentiment on the continent to Britain’s approach, past and present.

“They were in but had a lot of opt-outs. Now they are out and they want a lot of opt-ins.”

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