MNI INSIGHT-2: Run-Up To March EuCo Meet To Side-Step Pitfalls

--Although Ireland Troublesome, Few Obstacles Seen To Transition Deal

By Kevin Woodfield

     LONDON (MNI) - Pitfalls are strewn across the road to the March 22-23

European Council, when the UK and the European Union are scheduled to finalise

the terms of a transition deal that will ease the path to a post-Brexit trading

relationship, but MNI understands that none are expected to see the negotiations

fail at this stage.

     Three main sticking points remain in the path to a final deal, ranging from

largely-solved to intractable.

     The Irish border question looms largest. The level of trust in Brussels

with the UK took a dive when David Davis, Secretary of State at the Department

for Exit the EU, made light of the carefully ambiguous wording aimed at avoiding

a hard border in Ireland that salvaged December's 'divorce agreement'. The

Brexit Secretary dubbed it no more than a political 'statement of intent'.

     The EU-27, with Ireland in the vanguard, now want to pin the UK down in the

drafting of legal text to enshrine the divorce terms with a watertight agreement

on regulatory alignment to ensure no hard Irish border. The EU is understood to

want a return to more precise language in the legal contract than seen in

December's fudge. For the UK, such a commitment would be tantamount to accepting

a customs union -- or giving up trading autonomy which is now crystallising as

one of Prime Minister Theresa May's four red lines.

     Civil servants may once again have to be creative in fashioning ambiguous

language to push back the Irish border question to a time when the broader issue

of the UK's 'end-state' trading arrangements with the EU finally take shape. The

alternative may well mean a bust-up before trade talks have had a chance to

start in earnest.

     --TRANSITION ON TRACK

     A key reason why a collapse in negotiations on the path to next month's

summit is unlikely is,MNI understands, that no such problems appear to stand in

the way of agreeing a transitional deal.

     May can claim a victory of sorts with immigrants having to register their

arrival in the UK after the UK formally departs the EU next March, but otherwise

their rights are expected to be largely unaffected, as is free movement for the

duration of a transitional period expected to see out 2020, a must for the EU.

     Environment Secretary Michael Gove's insistence on the return of UK fishing

rights upon EU departure next year is likely to dissolve into accepting that the

UK will be consulted on such matters in the transition period before the EU

meets to decide.

     --BREXITEERS' LONG GAME

     But it is understood that the hard Brexiteers in the Conservative ranks

will swallow the hard reality of the UK as an interim EU rule-taker because they

have their eyes on the main prize of an 'end-state' trading relationship with

the EU that adheres to May's four red lines. These are what the champion of the

Brexiteers, Conservative MP William Rees-Mogg, refers to as government policy:

UK control over its borders, sovereignty (or jurisdiction), money and freedom to

agree trade deals around the world.

     The EU-27, faced with these red lines but determined to stick to its own

rules, are expected to go through with tabling an off-the-shelf Canada-style

trade deal with the UK at the March summit. While aiming to ensure almost no

tariffs on goods it would still be subject to detailed and lengthy talks on

machinery to handle regulatory divergence, mutual recognition, inspection

procedures and rules-of-origin restrictions.

     Services would be very largely excluded, financial and otherwise.

     Canada-dry is not a straightforward 'end-state' option, let alone

Canada-plus-plus or Canada-dry with hooks.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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