Extending Transition to Fix Border Floated Again: Brexit Update

(Bloomberg) -- Prime Minister Theresa May heads into Brussels for a summit with fellow leaders with Brexit talks at an impasse over how to avoid a policed border with Ireland. With the U.K. scheduled to leave the European Union in March 2019, what’s become known as the “Irish backstop” has proven to be the biggest obstacle to a negotiated withdrawal deal.

May is scheduled to meet EU Council President Donald Tusk at 5:45 p.m, local time, in Brussels. At 7 p.m., she will address the bloc’s 27 leaders, who will then convene over dinner without her to discuss the next steps in the process.

Stretchy Deadline (5:15 p.m)

Earlier in the day, Environment Secretary Michael Gove spoke at a parliamentary committee. He is a key figure in May’s Cabinet and was a high-profile Leave campaigner. His voice matters in any government split.

“It might be the case – and we have seen how European negotiations work – it might be the case progress is made at the October council, progress is made at the November council, and it’s even as late as the December council before a deal is done,” he said.

Asked about the comments, a government spokeswoman said the plan is to get it done "in the Autumn." Officials have indicated that it needs to be done by year-end at the latest to allow time for legislation to go through Parliament.

Varadkar Says Extension No Replacement for Backstop (4:50 p.m.)

Irish Prime Minister Leo Varadkar said while he’s open to fresh thinking on how to break the impasse, any extension to a transition period “couldn’t be a substitute for the backstop.”
The Irish government thinks the grace period might need to run as long as five years, but is unwavering in its view that an insurance policy to avoid a hard border in Ireland is needed regardless. Before he headed to his meeting with U.K. Prime Minister Theresa May, he warned “time is running out ” for a deal.

Luxembourg Open to Longer Transition if Needed (4:15 p.m.)

Luxembourg’s acting Prime Minister Xavier Bettel says he ’s open to a longer transition if it helps to find “common solution.” Speaking to reporters in Brussels, he also said while a good agreement is needed, the EU can’t simply change rules just for the U.K. and he takes the prospect of Britain crashing out of the bloc without a deal “very seriously.” He also warned that Westminster could also block a deal.

Slovak Premier Puts Positive Spin on Hard Brexit (1:50 p.m.)

EU leaders probably won’t issue a joint Brexit statement at the summit, Slovak Prime Minister Peter Pellegrini told lawmakers in Bratislava.

A hard Brexit “doesn’t have to be a tragedy for member states,” Pellegrini said. “Slovakia may benefit from it, too. Slovakia could become attractive for companies currently residing in the U.K.”

Snap analysis (1:33 p.m.)

From the moment the Brexit talks began, the EU assumed the U.K. would need a transition period longer than the 21 months the two sides agreed on in March, and was quite happy to give one. That offer remains, the U.K. just needs to ask.

The transition -- or implementation phase as the British government calls it -- would effectively keep the U.K. in the EU in all but name and without any influence over decision-making. The idea is to give businesses more time to adapt as a full new trading relationship is being worked out.

While the European Commission, which leads the negotiations, takes a strict approach and thinks the transition phase should only last a year longer than the current proposal, many of the EU’s governments are more relaxed and are more flexible over the end date.

The EU thinks an extended transition would help May sell the Irish border plan to her skeptical lawmakers because the much-disliked "backstop" wouldn’t take effect as long as the transition lasts. The signs from London are that it will need more than that, but the fact the idea has resurfaced now is a strong hint that the EU is trying to be flexible.

U.K. Eyes Path Back to Public Procurement Market (1:23 p.m.)

In a bit of good news for May, members of the World Trade Organization’s Government Procurement Agreement didn’t completely dash the U.K.’s hopes of re-joining the group, which ensures access to a $1.7 trillion market of government projects.

While the U.S., New Zealand and Moldova blocked the U.K.’s bid to stay in the public procurement alliance on Wednesday, there is broad support to keep Britain in the pact, according to three officials. The U.K. will plead its case again to the WTO committee on Nov. 27.

May at Prime Minister’s Questions (1:12 p.m.)

May took questions from her political rival, Labour Party leader Jeremy Corbyn. By and large the prime minister stuck to her Monday statement when she struck a dovish tone by highlighting that “good progress” has been made. By repeating that she intends the trade agreement to be ready for Jan. 1, 2021, the implication was that she didn’t want an extension on the transition. The question is, if she is offered it, will she decline it?

Pencil in Nov. 18 for next summit (12:50 p.m.)

Finnish Prime Minister Juha Sipila, speaking to reporters in Helsinki on Wednesday, said there is a tentative date set for an emergency summit for Nov. 18: “that date is now needed, that much is clear.”

“90 or 95 percent of issues are agreed, but until everything is agreed, there is no deal.” Sipila said. “There’s a lot of pressure on Britain to get this completed. Large industries, the financial industry, the automotive industry, are anxious about reaching a deal.”

Of the meeting today and the briefing there by Barnie, he had this to say: “It will be interesting to hear what the problem is and whether Barnier remains as hopeful that a deal will be reached than he was a few weeks ago.”

U.K. Tax man’s view (12:35 p.m.)

Jon Thompson, chief executive of HM Revenue and Customs, told a parliamentary committee that the country’s tax collector has already taken on 2,300 more staff to prepare for Brexit and that in the event of “no deal” it would need 5,300 more.

The cost of preparing for Brexit stood at 260 million pounds a year and could rise to 450 million pounds next year if there is no deal. There are media reports that his previous warnings have led to death threats. How to give Barnier more flexibility (12:31 p.m.)
The EU might consider “redefining” the mandate given to chief negotiator Michel Barnier to help him show flexibility to solve the Irish border issue -- the biggest obstacle by far to a Brexit deal, according to an EU official. Extending the U.K.’s post-Brexit transition period is just one of the ideas being thrown around, the official said.

There’s no lack of imagination, creativity or goodwill on the EU side to help make the backstop more palatable to May, the official added, but much will depend on what she brings to the table tonight or in the coming weeks.

Summit in November, please (12:23 p.m.)

A group of countries want a Brexit summit in November irrespective of the outcome Wednesday tonight, according to an EU official speaking on condition of anonymity. Many of them want that to be about ‘no deal’ planning if there’s not much progress in the negotiations, the official said. The date that was originally suggested -- Nov. 17 or Nov. 18 -- is now no longer definite. If the talks drag into 2019 and look like failing, the EU might think about publishing its no-deal plan in January or February, according to the official.

Many EU member states are now looking to the scheduled December EU summit as the moment when the Brexit deal will be signed. That is, if all goes according to plan.

Extend Article 50? (11:40 a.m.)

An official from one of the 27 EU countries, briefing journalists on the state of play, said that if push comes to shove it would be possible to agree on a longer transition period, or -- and this is intriguing -- extend the two-year deadline in Article 50 of the Lisbon Treaty. May set the clock on the departure by invoking the clause that set the process in motion. Some say that May committed a tactical error in triggering it when she did when she could have given herself more time. Either way, the official stressed it’s too early to consider such ideas.

Brexit purists make their feelings clear (11:30 a.m.)

Before she gets to Brussels, May will have another reminder at her weekly question-and-answer session of the strength of feeling from some of her Tory colleagues.

“If we go one second beyond the end of 2020 we fall into the money pit of the EU and the gold mine of Germany - if so it will cost us no less than net 10 billion pounds a year and worst still, our rebate will be up for grabs,” Tory lawmaker Bill Cash tweeted. "Money money money. ABBA gets it...”

EU Official Says November Summit Still Possible (11:25 a.m.)

Maria Asenius, head of cabinet for EU Trade Commissioner Cecilia Malmstrom, said that an emergency summit in November was not out of the question.

“It would be a mistake not to take care of the time that is left,” she said. “The sooner the better. If we would start talking about December, then nothing will happen until December. So it would be a mistake to already now push the goal line forward."

Trump Prepares for Trade Talks With U.K. (11:25 a.m.)

The Trump administration has notified Congress that it could start trade negotiations with the U.K., the EU and Japan as soon as three months from Tuesday.

“We will continue to expand U.S. trade and investment by negotiating trade agreements with Japan, the EU and the United Kingdom,” U.S. Trade Representative Robert Lighthizer said in a statement.

The notification is a procedural step under U.S. trade law that is required 90 days before the U.S. enters into negotiations with other countries.

Lofven Says November Meeting Undecided (11:25 a.m.)

Acting Prime Minister Stefan Lofven said the European Council hasn’t yet decided on a possible extra summit in November.

“It’s not decided,” Lofven told reporters at parliament in Stockholm. “We said at the last meeting that we may need to hold an extra meeting in November. But in order to know that it’s meaningful, we need to know that we can reach the target then, it should be ready. It may be that it can be decided during this meeting, but it may also be decided at a later date.”

Ireland likes the sound of extending the transition (11:03 p.m.)

Irish Foreign Minister Simon Coveney urged May to take up the EU’s suggestion of extending the transition period: “There needs to be a backstop unless or until something better can be agreed’.”

“You take out insurance on your home, you don’t ever expect it to burn down,” Coveney said. “It’s an insurance method.”

“Nobody is suggesting Northern Ireland stay in the European Union,” he said, dismissing concerns that the proposal would mean Northern Ireland staying in the EU indefinitely. He said it was more likely some dates for a November summit would be suggested in Brussels if enough progress is made in talks. He said that would avoid a “build-up” to another summit.

France Sees Hope After U.K. Concessions (10:38 a.m.)

French Economy and Finance Minister Bruno Le Maire says there is hope for a Brexit deal in the “coming weeks” after the U.K. has made concessions to the Chequers blueprint.

“I hope, perhaps not at this European Council meeting that starts in a few hours, but in the coming weeks we can find an agreement with the British,” Le Maire said in an interview on Radio Classique on Wednesday.

“There is a clear objective: we want a deal. A deal is in everyone’s interest and I think we are not far from an agreement,” Le Maire said.

Pound Falls Ahead of Brussels Meeting (10:30 a.m.)

The pound slipped in early trading, with sterling falling as much as 0.3 percent to $1.3141. It weakened 0.24 percent to 88 pence per euro.

Fox Doesn’t Back Longer Transition (8:45 a.m)

Liam Fox doesn’t back a longer transition period, according to a government official, knocking down a report in the Times that he does.

An official with knowledge of the U.K.’s position said the nation’s stance on extending the implementation period hasn’t changed. The U.K. is not calling for an extension to the implementation period.

Strictly speaking, that wouldn’t rule out accepting an extension. Remember that the U.K. initially wanted to keep the transition period a bit more open ended but then changed tack, probably out of fear of a Brexiteer-backlash.

Extend the Transition? (8:01 a.m.)

Could an extension to the transition -- the 21-month grace period that’s due to follow Brexit day -- be the answer?

The EU’s chief Brexit negotiator, Michel Barnier, has raised the possibility of a one-year extension, according to a person familiar with a briefing to the EU’s European affairs ministers.

The idea is that it would buy more time to sort out the Irish border issue. However, Barnier’s offer was conditional on the U.K. accepting that a customs union would be the basis for future relations, the person said. And that’s so far impossible for the Brits to accept.

This idea started being kicked around last week, when Bloomberg reported that both sides were considering it.

In an interesting development, the idea seems to have one possible supporter in May’s Cabinet: International Trade Secretary Liam Fox. He is an ardent Brexiteer and his voice is an important one. His camp have been unhappy about May’s latest Brexit plans and some have indicated they could be willing to resign if she cedes too much ground to Brussels.

The Times reported that Fox suggested extending the transition period for a few more months past the end of Dec. 2020 to give more time for a free trade deal to be concluded. The paper cited an unidentified person familiar with the situation.

Coming Up:

  • May engages in some verbal sparring with Labour leader Jeremy Corbyn at noon
  • She is then due to address her 27 counterparts Wednesday at the start of dinner. They will then continue to talk Brexit without her. It could go late.