May's Brexit Compromises, Fudges and Red Lines: The Text Decoded

(Bloomberg) -- Theresa May gave her fourth big Brexit speech on Friday, and there was something for everyone. While setting out her vision for the most ambitious trading partnership the European Union has ever struck, she also recognized that compromises will lie ahead.

“We both need to face the fact that this is a negotiation and neither of us can have exactly what we want,” she said -- a line that looks aimed both at the EU and also at the warring factions of her Conservative Party.

Here are some key passages from the speech in London, and what they mean.

“We need to resolve the tensions between some of our key objectives.”

May’s divided Cabinet has so far only been able to agree on a proposal for the future relationship which the EU has already rejected. The EU says Britain’s “have your cake and eat it” approach to Brexit is still government policy. May is warning that compromises lie ahead.

“I want to be straight with people -- because the reality is that we all need to face up to some hard facts. We are leaving the single market. Life is going to be different. In certain ways, our access to each other’s markets will be less than it is now.”

It’s the clearest she’s been that leaving the single market will have a cost. This is an important line for the EU because it shows she’s understood their principles that you can’t cherry pick the best bits of membership. But other parts of the speech suggest she’s still trying to have it both ways:

“We want the freedom to negotiate trade agreements with other countries around the world. We want to take back control of our laws. We also want as frictionless a border as possible between us and the EU - so that we don’t damage the integrated supply chains our industries depend on and don’t have a hard border between Northern Ireland and Ireland.”

Proof that asking for it all is still very much the plan. May is rejecting a customs union with the EU because that would prevent it signing trade deals with other countries -- a key part of the Brexit backers’ narrative. There’s also a nod here to business that she understands supply chains and what’s at stake. But frictionless borders may not be possible outside the customs union. At least, that’s what the EU thinks.

“Even after we have left the jurisdiction of the ECJ, EU law and the decisions of the ECJ will continue to affect us. For a start, the ECJ determines whether agreements the EU has struck are legal under the EU’s own law -- as the U.S. found when the ECJ declared the Safe Harbor Framework for data sharing invalid.”

The European Court of Justice has totemic importance for Brexit campaigners, and this feels like a warm-up for the idea of signing key industrial sectors up to European regulators -- which are ultimately overseen by the ECJ. She also said that if U.K. and EU regulations were identical, “it may make sense for our courts to look at the appropriate ECJ judgments so that we both interpret those laws consistently.”

“We will also want to explore with the EU, the terms on which the U.K. could remain part of EU agencies such as those that are critical for the chemicals, medicines and aerospace industries: the European Medicines Agency, the European Chemicals Agency, and the European Aviation Safety Agency. We would, of course, accept that this would mean abiding by the rules of those agencies and making an appropriate financial contribution.”

Business will like this idea as it ensures continuity and, they hope, ensure continued access to EU markets. The EU may spot some cherry picking here though. There’s a hint that the U.K. had a role in writing the rules in the past and would quite like to keep doing so in the future. The EU may not be too keen.

“We may choose to commit some areas of our regulations like state aid and competition to remaining in step with the EU’s. The U.K. drove much of the policy in this area and we have much to gain from maintaining proper disciplines on the use of subsidies and on anti-competitive practices.”

The emphasis is on the U.K. choosing to sign up to the same rules. Parliament is sovereign.

“We must ensure that, as now, products only need to undergo one series of approvals, in one country, to show that they meet the required regulatory standards. To achieve this we will need a comprehensive system of mutual recognition.”

The EU has pretty much rejected this outside the single market.

“The U.K. will need to make a strong commitment that its regulatory standards will remain as high as the EU’s. That commitment, in practice, will mean that U.K. and EU regulatory standards will remain substantially similar in the future.”

The EU tends to be unimpressed by this approach, while Brexit hardliners want regulatory autonomy.

“We are clear that as we leave the EU, free movement of people will come to an end and we will control the number of people who come to live in our country. But U.K. citizens will still want to work and study in EU countries -- just as EU citizens will want to do the same here. Indeed, businesses across the EU and the U.K. must be able to attract and employ the people they need. And we are open to discussing how to facilitate these valuable links.”

The U.K. will take back control of immigration, but once it has control, it might decide to let quite a lot of foreigners in. It’s another nod to business that she’s listening to what they want. A similar theme to choosing to sign up to regulation.

“We have been clear all along that we don’t want to go back to a hard border in Ireland. We have ruled out any physical infrastructure at the border, or any related checks and controls. But it is not good enough to say, ‘We won’t introduce a hard border; if the EU forces Ireland to do it, that’s down to them.’ We chose to leave; we have a responsibility to help find a solution.”

A rebuke to Brexit hardliners such as Jacob Rees-Mogg, who say the U.K. should refuse to build a border and challenge the EU to do it if it wants one. Boris Johnson has also caused outrage in recent days by down the importance of avoiding a border and comparing the challenge to managing traffic charges in London.

“Just as it would be unacceptable to go back to a hard border between Northern Ireland and Ireland, it would also be unacceptable to break up the United Kingdom’s own common market by creating a customs and regulatory border down the Irish Sea.”

A line for the Northern Irish lawmakers who prop up her government. The EU wants to remove this pledge -- agreed to in December -- from the final Brexit deal, raising the prospect that in a bid to avoid a border bisecting the island of Ireland, the U.K. will end with a border between the British mainland and Northern Ireland.

“We will not be buffeted by the demands to talk tough or threaten a walk out. Just as we will not accept the counsels of despair that this simply cannot be done. We will move forward by calm, patient discussion of each other’s positions.”

May is putting to bed the rumors that dogged talks last year that Britain could simply walk away from the negotiating table. Hardliners in her own party have encouraged her to be prepared to walk away, and to spend money on contingency planning to make the threat credible.

“We recognize that certain aspects of trade in services are intrinsically linked to the single market and therefore our market access in these areas will need to be different. But we should only allow new barriers to be introduced where absolutely necessary. We don’t want to discriminate against EU service providers in the UK. And we wouldn’t want the EU to discriminate against UK service providers.”

This marks a change in tone. May has always put goods and services together when discussing the trade deal she wants. Now she’s recognizing that services will be trickier -- and mentioned by name that financial services will lose their passporting rights.

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“The fact is that every Free Trade Agreement has varying market access depending on the respective interests of the countries involved. If this is cherry-picking, then every trade arrangement is cherry-picking ... What would be cherry-picking would be if we were to seek a deal where our rights and obligations were not held in balance. And I have been categorically clear that is not what we are going to do.”

May is calling out the EU for accusing the U.K. of cherry picking while indulging in it itself. But at the same time, she’s trying to reassure the EU that while she does want to pick and choose, she doesn’t want a free lunch. The trouble is, her Cabinet’s stance suggests it does.

To contact the reporter on this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net.

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Heather Harris at hharris5@bloomberg.net, Stuart Biggs

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