Brexit Breakthrough Slips Further Out of Reach After Virus Delay

(Bloomberg) --

Crucial decisions about the U.K.’s future relationship with the European Union are set to be crammed into a dramatic final few weeks of the year after the coronavirus ate into vital negotiating time and Britain ruled out extending the deadline.

Officials with knowledge of the negotiations are predicting little meaningful progress on the most important disagreements before a key summit of political leaders in June.

Even that meeting may not provide a turning point. Officials don’t expect either side to walk away from negotiations -- and even if the U.K. did, some in Brussels speculate it would return to negotiate before the year-end as the disruption of leaving without a deal becomes clearer.

Prime Minister Boris Johnson, though, has repeatedly ruled out extending the deadline to reach a deal beyond Dec. 31, when negotiations are due to end. He has signaled he is prepared to leave the transition period without a trade deal and accept the return of quotas and tariffs rather than the EU’s demands.

The protracted disagreement means business and investors are likely to be robbed of any certainty about what sort of trading relationship Britain will have from 2021 until the very last days of this year, hampering their efforts to prepare for the biggest shift in the terms of trade for a generation.

Deadlocked Talks

Since the U.K. left the bloc on Jan. 31, talks on the future relationship have barely got off the ground, despite both sides starting the process saying they wanted to be well on the way to a deal by a June summit. With only two more rounds of negotiations due before then, the sides are deadlocked.

Britain has accused the EU of not treating it as a sovereign equal and making demands it has never sought from other independent countries in similar trade deals.

That disagreement has poisoned the talks, with the two sides at odds over giving EU fishing boats access to U.K. waters, what role European courts will have in settling disputes, and preventing British firms from unfairly undercutting EU peers.

Unless it recognizes the U.K.’s red lines, Brussels risks putting the deal in jeopardy, a person familiar with the British position warned on Thursday. It may take some time for the reality of London’s position to sink in with the EU, the person said, warning that there may be more noise before an accord is reached.

Meanwhile, the EU’s chief negotiator, Michel Barnier, has accused London of running down the clock on the discussions. While he denied not treating the U.K. as a sovereign country, he noted that “the reality of this negotiation” is that it is between a market of 66 million consumers and the EU’s 450 million.

‘Time Is Short’

Adding to the distrust between the two sides is the suspicion in Brussels that the U.K. is seeking to back out of commitments it made in the original Brexit agreement to prevent the return of a hard border on the island of Ireland -- one of the most sensitive aspects of the whole accord. On Thursday, the European Commission warned Britain that “time is short” and talks need to be “followed up by tangible measures.”

Both sides believe political leaders will now have to step in to re-energize the process. One senior official predicted a bumpy summer, with either side likely to conclude a agreement is improbable, followed by an intense end to the year as the realities of leaving without a deal come into view.

The British government believes that the EU needs to change its position if the stalemate is to be unblocked. For the U.K., a free trade arrangement, similar to the one Canada has with the EU, would represent a success. But the EU wants a broader deal encompassing areas such as fishing and aviation -- with conditions on fishing and competition policy attached.

Change would require the agreement of all 27 European leaders. But they have barely been thinking about the U.K. since the Withdrawal Agreement was signed late last year and, with the pandemic absorbing nearly all of their political energy, there is no guarantee they will want to recalibrate their demands.

Last-Minute Compromise?

Faced with forecasts of the euro zone’s deepest ever recession, leaders could be tempted to double down on the conditions they want to put on the U.K. to prevent it from undercutting the European economy as they both struggle to recover from the pandemic, according to several EU officials. Others suggest that the pandemic could persuade leaders that it’s in their interests to sign a quick free-trade deal, more in line with the British government’s ambitions.

U.K. negotiators may also be tactically avoiding giving any ground too early. Led by Johnson’s European adviser David Frost, the team is playing hardball and refusing to offer concessions to keep discussions going, a contrast with the approach of Theresa May’s team when negotiating the U.K.’s withdrawal from the bloc, according to one British official.

So far, London has done little more than explain its positions, Barnier told reporters last Friday. “If we want to make tangible progress,” he said, “we need to move beyond clarifications and put more political dynamism into proposals aimed at building compromises.”

©2020 Bloomberg L.P.