Barnier Voices Caution as Brexit Negotiators Race to a Deal

(Bloomberg) -- British and European Union officials are racing to strike a post-Brexit trade deal before the start of next week, with EU chief negotiator Michel Barnier telling envoys the outcome is still too close to call.

While intensive, round-the-clock talks in London are making progress, genuine disagreement remains on fisheries and a level playing field, meaning it’s impossible to predict an outcome with any certainty, people with knowledge of the discussions said. A third issue -- how a deal would be enforced -- can only be overcome at the end. However, two officials said the general mood on both sides is one of optimism.

Barnier told diplomats from the bloc’s 27 member states on Wednesday that the three disagreements, which have long bedeviled the talks, are still unresolved. There has been some movement, Barnier added, but it had mainly come from the EU side, according to one diplomat. The pound fell as much as 0.6% on the news.

The next few days are crucial, with the U.K. and EU teams hoping an agreement can be reached on Friday or over the weekend, officials said. One said that while a final picture is beginning to emerge, the situation remains incredibly delicate.

It is typical in the last days of a negotiation for assessments of the likelihood of a deal to swing wildly as both sides try to make each other blink. Markets are jumpy, showing how eager traders are to react to signs an agreement is in reach.

EU Summit

People familiar with the EU position said negotiators are trying to avoid talks running into next week to prevent them having an impact on preparations for a summit of EU leaders starting on Dec. 10. Barnier told ambassadors talks could continue until that date, officials said.

Not only are European governments occupied with a row over the EU budget, but the bloc’s negotiating team, led by Barnier, is also concerned presenting leaders with anything other than a signed-and-sealed deal would leave an agreement vulnerable to being unpicked at the last moment.

The EU has outsourced its negotiating to Barnier and the European Commission, and some countries -- especially France and the Netherlands -- are uneasy about what sort of compromises are being made in their name, one EU official said.

Barnier’s briefing on Friday was an exercise in calming those countries’ nerves, one diplomat said. But another said member states are concerned the EU might sign a deal that isn’t in its favor, and not signing one would be better than making too many concessions.

While deadlines have come and gone throughout the negotiating process, this period is being seen as the real endgame, officials on both sides said. The talks, which have been going on since March, need to finish within days if the U.K. and EU parliaments are to have time to ratify any agreement before Britain leaves the EU’s single market on Dec. 31.

If the two sides fail to reach an accord by then, businesses and consumers will be left facing the cost and disruption of tariffs and quotas, while relations between the U.K. and EU risk being poisoned for a generation.

Prime Minister Boris Johnson’s Press Secretary Allegra Stratton told reporters on Wednesday he is “feeling optimistic” over Brexit, whether there is a trade deal with the European Union or not.

But officials in Brussels said that planned U.K. legislation giving the government powers to unilaterally rewrite parts of the Brexit Withdrawal Agreement could yet prompt the EU to balk at ratifying any deal. They expressed hope that Britain will delete the most controversial clauses from the bill if a deal is reached. Johnson’s spokesman, Jamie Davies, told reporters on Wednesday the government has no plans to remove them.

Macron Warning

The two biggest obstacles to a trade deal remain what access EU boats will have to British fishing waters and the level competitive playing field for business, but progress has been made on both in the last few days, officials said. A third disagreement -- how the overall deal is enforced -- is tied to the first two.

On fisheries, the U.K. is holding out for greater control over its stocks, something it sees as a matter of sovereignty. An agreement on the issue is a precondition for any wider accord, but President Emmanuel Macron has warned that France won’t allow a deal that fails to respect its interests.

Barnier said the U.K. now wants to keep around 60% of catches in British waters, according to a diplomat briefed on the meeting. That’s less than the 80% previously demanded but some way short of the 15%-18% offered by the EU.

Compromises being discussed include delaying any changes to quota allocations and phasing them in gradually over time. But efforts to reach an agreement on the subject are being hindered both by EU countries’ claims to historic rights to fish in certain areas, and the U.K.’s demand to make access conditional on annual negotiations, one official said.

On the level playing field, the two sides are trying to establish a system in which U.K. environment and labor standards can evolve in a similar way to the EU’s but which allows the British government to have full control over them. Barnier also said the two sides are still at odds over a resolution mechanism for state aid disputes, a diplomat said.

©2020 Bloomberg L.P.