May Says Financial Offer is Conditional on Trade: Brexit Update

(Bloomberg) -- The U.K. and European Union reached a breakthrough deal last week to get Brexit talks moving on to the future trading relationship. Now the U.K. needs to decide what kind of trade deal it’s pitching for and the next stage in talks will be hashing out the transition arrangements that businesses say will provide a crucial grace period to get used to the new regime.

Here are the latest developments, updated throughout the day. Time-stamps are London time.

May Says Financial Offer Conditional on Trade Deal (5:30 p.m.)

Theresa May said the financial settlement of between 35 and 39 billion pounds agreed with EU negotiators last week is dependent on a successful second phase of negotiations.

“This offer is on the table in the context of us agreeing the partnership for the future,” May told lawmakers in the House of Commons on Monday. “If we don’t agree that partnership, then this offer is off the table.”

May said the transition period after leaving the EU on March 29, 2019, and the role of the European Court of Justice during that time will be the subject of talks and she hopes to reach agreement early in the new year. “The details of the implementation are to be negotiated,” she said.

Meanwhile Labour lawmakers indicated that the party will vote against a government amendment to include the date of leaving the EU in the withdrawal bill that’s now going through Parliament. May said the amendment would not be withdrawn because it is important for there to be clarity about the date.

May Concedes to Rebels on Henry VIII Powers (1.32 p.m.)

Theresa May has caved to critics who want Parliament to have more power to scrutinize the government laws that are needed as part of the Brexit process.

May’s official spokesman James Slack said the prime minister has accepted a change to the EU Withdrawal Bill, the crucial draft law that’s preparing the way for the U.K.’s exit from the bloc.

The amendment enables lawmakers to form a panel to sift through regulations that ministers propose in a move intended to increase the potential to scrutinize the government’s actions.

Updating reporters in London, Slack said May’s cabinet discussed Brexit for 30 minutes on Monday morning. Despite rumblings that some Brexit-campaigning ministers are not happy with plans to align U.K. regulations with those of the EU, no one in May’s team objected during the discussion, Slack said.

Slack confirmed that the deal reached in Brussels on Friday was “political” rather than immediately legally binding. He also said the Cabinet will discuss what the U.K. wants for the future trade partnership and transitional arrangements at a meeting next week, expected to take place on Tuesday Dec. 19.

“We want to get an ambitious trade deal as part of that deep and special partnership,” Slack said. “That will be a bespoke deal. We are very well placed to do this.”

U.K. bonds headed for the biggest gain in a week and the pound weakened.

Breakthrough Was Gentlemen’s Agreement, EU Says (12:05 p.m.)

The deal on the first phase of the Brexit negotiations reached on Friday isn’t legally binding but it is “a deal between gentlemen,” the European Commission said.

There is a “clear understanding that it is backed and endorsed by the U.K. government,” and Theresa May shook hands on it, Commission spokesman Margaritis Schinas told reporters in Brussels. He said he would not speculate when asked whether the Commission could revoke its recommendation for “sufficient progress” in the negotiations which allows the start of future trading relationship discussions.

He was speaking following signals from London over the weekend that the U.K, isn’t fully committed to what it’s signed up to, with Brexit Secretary David Davis saying the deal was “more a statement of intent than it was a legally enforceable thing.” He distanced himself from this remark this morning (see 9:45 a.m.)

Transition Talks to Get Green Light in January (10:30 a.m.)

The EU will agree on its negotiating position for the transition arrangement -- the post grace period that businesses want -- in January, according to draft guidelines obtained by Bloomberg.

The EU is proposing that the U.K. will stick to all European rules during the transition, while losing its say in the rule-making process. It will maintain full access to the single market in exchange.

The U.K. hasn’t made clear yet if it’s prepared to accept this version of transition and the Cabinet has been divided on it. Businesses are clamoring for a standstill deal that would maintain the status quo and they want it nailed down fast -- in the first quarter at the latest. That may increase the pressure on the government to take what it’s being offered without too much negotiation.

Brexit Secretary David Davis said the EU is looking at offering a 21-month transition. That would leave existing rules in place until the end of 2020.

Davis Tries to Heal Irish Spat Over Deal Terms (9:45 a.m.)

Brexit Secretary David Davis backed away from his comment on Sunday that the deal Prime Minister Theresa May has just negotiated on Brexit isn’t legally enforceable. “Of course it’s legally enforceable under the withdrawal agreement,” he told LBC Radio on Monday.

He insisted that the clause in the deal that would see the U.K. keeping its regulations aligned with the EU’s after Brexit if there’s no solution to the question of the Irish border wouldn’t arise. “One of our absolute underpinning aims is to ensure that the Irish peace process is not harmed,” he said. “We are quite certain we can do that by technical and other means.” 

Davis floated the model of designating companies as “authorized economic operators,” who are trusted to keep border rules, though he conceded this would be a problem for small businesses, such as farmers. 

He said the EU has indicated the transition deal may last 21 months. “It brings it to the end of the seven-year financial round, which brings it to Christmas,” he said. “I don’t think we need longer than that.”

And if there’s any doubt on the U.K. side about how binding the deal reached last Friday was, the EU document is pretty clear:

“Negotiations in the second phase can only progress as long as all commitments undertaken during the first phase are respected in full and translated faithfully in legal terms as quickly as possible,” the EU draft says.

May’s Fragile Truce Tested as Pledges Unravel (7:45 a.m.)

The fragile truce Theresa May struck with her warring cabinet and the European Union last week was already being tested on Monday, as some of the promises made to clinch a breakthrough Brexit deal started to fray.

Brexit Secretary David Davis was among those sending signals over the weekend that the U.K. wasn’t really committed to what it signed up to last week after rushed four-way talks between London, Dublin, Brussels and Belfast. A bid to placate the pro-Brexit faction of May’s Conservative Party had the side effect of angering the Irish government, and with it, probably the EU.

Davis told BBC TV on Sunday that a fall-back provision in the agreement -- that Britain will maintain regulatory “alignment” with the EU in the absence of a deal to keep an open border with Ireland -- doesn’t mean Britain can’t set different rules. He also raised a question about how binding the deal is.

The deal “was much more a statement of intent than it was a legally enforceable thing,” Davis he said, referring specifically to provisions on the Irish border. Still, “if we don’t get a deal, we’re going to have to find a way of making sure we keep the frictionless border, as it were, an invisible border, in Northern Ireland.”

May is treading a fine line to balance the competing demands of Brexit supporters in her cabinet, such as Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, with the wishes of her divided backbenchers as well as those of the EU, EU member Ireland and the Northern Irish party that props up her government. With the clock ticking down to Brexit in March 2019, any number of obstacles could derail her plans.

Ireland’s Deputy Prime Minister Simon Coveney hit back against the claim that the deal isn’t binding with a Twitter message late Sunday pointing to a clause in the agreement that the commitments “are made and must be upheld in all circumstances, irrespective of the nature of any future agreement.”

The Irish government issued a statement saying “both Ireland and the EU will be holding the U.K. to the Phase 1 agreement” struck on Friday.

The Irish view matters because the final obstacle cleared by May before sealing last week’s deal was finding wording about the Irish border that kept happy both Ireland and Northern Ireland’s Democratic Unionist Party, which props up her minority government.

May will chair a Cabinet meeting today and then address lawmakers in Parliament. Her office gave a flavor of the ambiguity she will have to embrace to keep everyone on board.

“This is not about a hard or a soft Brexit,” she said. “Nothing is agreed until everything is agreed.”

Coming Up:

  • May holds a Cabinet meeting at about 11 a.m.
  • May addresses Parliament this afternoon
  • EU sherpas meet in Brussels to prepare for summit
  • Non-binding debate on whether there should be a referendum on final Brexit bill 4:30 p.m.
  • Dec. 12-13: lawmakers will debate the EU Withdrawal Bill
  • Dec. 14-15: EU summit, where deal reached last week is due to be formally approved

What Happened over the Weekend:

  • Labour’s Brexit spokesman Keir Starmer said he would champion close ties to Europe after the split and easy movement of people, in an apparent softening of the party’s stance
  • The Sunday Times reporting that May faces pressure from Gove and Johnson to pursue a “hard” Brexit. They’ll demand a transition deal and a trade agreement that allows the U.K. to write its own laws without seeking EU approval
  • Davis said the U.K. wants a "Canada plus plus plus" trade deal -- like the one Canada got with the EU but better, with services included

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