By Guy Faulconbridge, Elizabeth Piper and John Chalmers
LONDON / BRUSSELS (Reuters) – Britain and the European Union were on track to reach a close trade agreement on Thursday, swinging away from a chaotic final to a Brexit split that has shaken the 70-year-old project to create European unity from the ruins of World War II.
While a deal at the last minute would avoid the most violent end to the divorce on January 1, the UK is ready for a far more distant relationship with its largest trading partner than almost anyone expected at the time of the 2016 referendum.
Sources in London and Brussels said an agreement was close – but possibly still hours away – after British Prime Minister Boris Johnson held a conference call late in the evening with senior ministers and negotiators in Brussels pored over legal texts.
Johnson was expected to hold a press conference just seven days before Britain turned its back on the EU’s internal market and customs union at 1 p.m. 2300 GMT on 31st December.
“Certain momentum and expectation is that we will get a Brexit deal on Christmas Eve and I can tell you it will be a huge relief,” Irish Foreign Minister Simon Coveney told RTE radio.
However, haggling over how much fish such as sole, sand eel and herring EU boats should be able to catch in British waters delayed the announcement of one of the most important trade agreements in recent European history.
“There is a kind of last-minute move” related to “small text” in the fisheries agreement, Coveney said.
A British source said the negotiations in Brussels could still have “a few hours to run” and an EU official agreed that it could take several hours to fight for fishing rights.
News that an agreement was imminent, first reported by Reuters on Wednesday, triggered a 1.5% rise in the pound against the dollar. Bond yields rose worldwide. [GBP/] [US/] [GB/] [FRX/] [GVD/EUR]
The United Kingdom formally left the EU on 31 January, but has since been in a period of transition where trade, travel and business rules remained unchanged until the end of this year.
If the sides have reached a zero-tariff and zero-quota agreement, it will help smooth trade in goods, which make up half of their 900 billion. It would also support peace in Northern Ireland – a priority for US President-elect Joe Biden, who had warned Johnson to uphold the 1998 Good Friday peace agreement.
Even by agreement, some disruption is certain from January 1, when Britain ends its often-filled 48-year relationship with a French-German-led project that sought to bind the devastated nations of post-World War II Europe together into a global power. .
After months of talks that were at times undermined by both COVID-19 and rhetoric from London and Paris, leaders across the EU’s 27 member states have reached an agreement as a way to avoid the nightmare of a “no-deal” exit.
But Europe’s second – largest economy will still leave both the EU’s single market of 450 million consumers, which the late British Prime Minister Margaret Thatcher helped create, and its customs union.
When the UK shocked the world in 2016 by voting to leave the EU, many in Europe hoped it could remain closely aligned. But it should not be.
Johnson, the face of the pro-Brexit campaign, claimed that when 52% had voted to “take back control” of the EU, he was not interested in accepting the rules of the internal market or the customs union.
The EU did not want to give unlimited privileges to a freewheeling, deregulated British economy off the block and thus potentially encourage others to leave.
The result was a twisted negotiation of “equal terms” in competition – which the EU demanded in return for access to its market.
An agreement will ultimately be a narrow free trade agreement surrounded by other pacts on fisheries, transport, energy and co-operation on justice and policing.
It does not cover services that make up 80% of the UK economy, including a banking industry that positions London as the only financial capital competing with New York.
Access to the EU market for UK banks, insurance companies and asset managers will be uneven at best.
JPMorgan (NYSE 🙂 said that the EU had reached an agreement that would allow it to retain almost all of its benefits from trade with the UK, but with the possibility of using rules to “cherry pick” among sectors where the UK had benefits – such as services.
Brexit campaigner Nigel Farage said the deal would keep the UK too close to the EU, adding that he hoped this would be the beginning of the end of the bloc.
Despite an agreement, retail will have more rules, more bureaucracy and more costs. There will be some disruption in ports. Everything from food safety regulation and export regulations to product certification will change.
The United Kingdom, which imports about $ 107 billion more a year from the EU than it exports to it, has been fighting until the end for fish – important for Britain’s small fishing fleet but worth less than 0.1% of GDP.
In essence, what was the EU’s most ambivalent member was to leave the bloc’s track on New Year’s Eve in an uncertain future with a trade relationship that, at least on paper, is distant.
At the midnight battle of Brussels, both sides will be diminished.
The EU is losing its primary military and intelligence force, 15% of GDP, one of the world’s two largest financial capitals and a champion of free markets, which served as an important control over the ambitions of Germany and France.
Without the collective strength of the EU, the UK will be largely alone – and much more dependent on the US – when negotiating with China, Russia and India. It will have more autonomy, but be poorer, at least in the short term.
With an economy only one-fifth the size of the rest of the EU, Johnson needs a trade deal to minimize Brexit disruption, as the new coronavirus has hurt the UK economy more than it has hurt other major industrial powers.
The Bank of England has said that even with a trade deal, Britain’s gross domestic product is likely to suffer a 1% hit from Brexit in the first quarter of 2021. And Britain’s budget forecasts have said the economy will be 4% less over 15 years than it would have been. if Britain had stayed in the block.