A Union flag, and a European Union (EU) flag fly as protesters march during a Unite for Europe march to protest Brexit in central London, U.K. (Photographer: Luke MacGregor/Bloomberg)

May Insists on 'Bespoke' Trade Deal in Face of EU's Rebuttal

(Bloomberg) -- Prime Minister Theresa May is sticking to her guns and pushing for a made-to-order trade deal with the European Union -- despite the bloc’s insistence such a scenario is out of the question.

May presided over a discussion with her Cabinet on Tuesday morning to flesh out her vision of an end state, aiming for a "significantly more ambitious deal" than that between the EU and Canada. It sets the stage for a contentious year of talks given that the Canada model -- seven years in the making -- is exactly what the EU has to offer given May’s red lines.

The meeting lasted almost two hours, and comes on the heels of a round of interviews by EU’s chief negotiator, Michel Barnier, where he underlined the bloc’s determination not to let the U.K. enjoy the benefits of membership after Brexit. Strategically, it’s not in the EU’s interest to encourage others to quit so departure from the bloc cannot be seen to be pain-free.

Barnier explicitly ruled out a special deal for Britain’s financial services sector and said the decision to leave the EU single market rules out passporting arrangements which allow British financial services companies to trade in the EU. This will be a blow for banks that are already eyeing alternative cities like Frankfurt to move some of their staff and offices.

Cherry Picking?

The EU has frequently chided the Brits for trying to “cherry pick” but the U.K. point of view continues to be that a unique agreement in record time can be struck. Banks are unlikely to respond positively to a Canada-style Brexit because it strips out many services that form the backbone of the U.K. economy. Other models, such as Norway, seem to be out of the question because of May’s determination to leave the single market and customs union.

Time is of the essence, with the U.K. set to leave on March 29, 2019 with many issues still unresolved, not least what to do with the border between Northern Ireland and the Republic of Ireland -- an issue that was essentially parked to allow the broader discussion to progress to an implementation period of two years to allow businesses to adapt to the new reality.

May, according to a statement by her office, thinks “we should be creative in designing our proposal” and that the U.K. “would also be seeking a significantly more ambitious deal than the EU’s agreement with Canada.” The Cabinet will meet to discuss the matter further in early 2018.

Best Interests

To counter Barnier’s point, May wants an “an economic partnership that will include getting a good deal for financial services which we’ve always been clear will be in the EU’s best interests as well as ours,” according to U.K. government spokesman James Slack.

May’s government is seeking to put up a united front after months of infighting almost scuppered negotiations and raised questions about her ability to lead the country. Her top ministers, Slack suggested, were united in wanting "that deep and special relationship with the EU in terms of trade and security."

Whether that is the case behind the scenes is another matter. There have been clear division in her Cabinet between those like Chancellor of the Exchequer Philip Hammond who favor closer ties with the EU and those led by Foreign Secretary Boris Johnson who want a cleaner break.

While Barnier’s specific comments weren’t discussed, the EU’s position on not giving the U.K. a special deal was dismissed as a negotiating tactic. "You’d expect the commission to be setting out its position," Slack said. "You’d expect to hear more from them before you hear less."

©2017 Bloomberg L.P.