MNI INSIGHT: UK, EU Near Super-Gradual Brexit Deal

By Kevin Woodfield

     LONDON (MNI) - A deal between the UK and the European Union is

crystallising in which the key component is an extremely gradualist approach,

allowing the two parties many years to formulate their new trading relationship,

MNI understands.

     Talks between the two sides next week are aimed at confirming the deal UK

Prime Minister Theresa May will bring back from a special European Summit, which

could still be convened this month. Unstable political and economic developments

in Germany as well as Italy are thought to be concentrating minds in

     Brussels as well as London on trying to take the heat out of the Brexit

process.

     The biggest stumbling block is seen as May's capacity to get her fudged

deal through her Cabinet, with May calculating that key Brexiteer ministers,

fearful of risking an early election and a hard-left Labour government, will

ultimately yield for lack of any alternative. Number 10 is thought to see the

Parliamentary arithmetic as less of a problem, based on a similar realpolitik

assessment.

     The basic architecture of the deal is thought to involve:

     --The UK accepting the EU's insistence that it signs up to its December

commitment for a legally-binding backstop in the Withdrawal Agreement to ensure

no return to a hard border on the island of Ireland.

     --In return, overcoming French resistance and rushing a UK-wide 'Temporary

Customs Arrangement' (TCA) into the exit terms. This would avoid the need to

trigger the backstop and divorce Northern Ireland's trading status (regulations

as well as customs) from the rest of the UK. The language is expected to enjoin

the two sides to agree on an alternative Irish-border-proof free-trade agreement

but falling back on the TCA is seen as the likelier outcome, at least over the

medium term.

     --Despite the word 'temporary' there will be no specific end date to a TCA

that will be a customs union in all but name. Brussels refers to it as a

'Temporary Customs Union', or TCU, and will require a host of so-called 'level

playing field' (or regulatory alignment) provisions. One example would be the UK

having to swallow a deal on fishing rights that would be at odds with the

promises of Brexiteer Environment Secretary Michael Gove to take back control of

UK waters.

     --To thrash out the detail of the TCA and obviate the Northern Ireland-only

backstop, the Withdrawal Agreement is expected to contain an extendable

'implementation period' beyond December 2020, with the UK thought to have asked

Brussels not for a few months but an extension of a year, which could

potentially become rolling. During this transition phase the UK will continue to

comply with all Brussels' customs rules and Single Market regulations, including

continuing EU payments, but without a voice in setting them.

     --The UK would have no unilateral right to exit the TCA but would enter

into a complex agreement to define the circumstances in which both sides would

agree that the TCA could be dissolved without reverting to the Northern

Ireland-only backstop.

     Reports circulating today of a deal encompassing financial services are

seen as fanciful spin by a UK side heady with the prospect of an open-ended

Brexit agreement that will leave a great deal to play for - and have been

hastily rebuffed by Chief EU negotiator Michel Barnier.

     For their part, Tory Brexiteers are said to be switching their focus to

unseating May following the UK's departure from the EU on March 29, after which

they would try to unstitch her work. But the terms she will have signed up to

could see the UK remaining closely tied to the EU's customs and regulatory

arrangements for many years to come.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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