MNI SOURCES: EU, UK Politics Point To FTA-Lite, No FTA End '20

By David Thomas and Kevin Woodfield

     BRUSSELS/LONDON (MNI) - Political and economic pressures in the European

Union next year could combine with the priorities and timetabling of a Boris

Johnson-led UK government to produce a very basic free trade agreement or no

deal at all, sources in Brussels and London tell MNI.

     Factors that could lead to the EU turning inward include fiscal battles to

ward off or emerge from recession. The EU-27 will also be mired in internal

negotiations over the bloc's multi-annual financial framework, one of the last

major battles German Chancellor Angela Merkel is expected to fight before she

steps down.

     Despite the UK government's continuing setbacks in Parliament over its

Withdrawal Agreement 'divorce' from the EU, the central scenario in Brussels is

that they will be dealing with a re-elected Johnson next year and his

inclinations will continue to be disentangling from the EU trading bloc and

light regulation.

     With the timetable tight even for the most rudimentary FTA, the prevailing

view among the EU-27 is that failure to agree a deal is a very real prospect.

There is no appetite for a second instalment of the Brexit crisis when a Dec. 31

2020 deadline for an FTA looms under the deal negotiated with Johnson.

Well-placed sources say it is highly unlikely the EU-27 will agree even a

mandate for their European Commission negotiators before Easter, leaving only

nine months for negotiations.

     --TIMING IS EVERYTHING

     Any extension to FTA talks - permissible for two years up to 2022 - would

have to be signed off by next June under the terms of the Johnson deal. But

sources tell MNI that Johnson may already have promised the hard Brexiteer wing

of his party that he will sign up in an election campaign not to extend. He

would want to dodge accusations of protracted UK 'vassalage' under EU rules

including further payments into Brussels coffers, understood to be a minimum Stg

10 billion per year.

     MNI hears that Johnson continues to struggle to keep his Cabinet together

over what a "strap line FTA" should include. Ministerial bickering was made

worse in recent days when meetings with top representatives of key industrial

sectors complained about the jettisoning of elements of Theresa May's failed

deal.

     But sources expect an aggressive Johnson FTA mandate on 'level playing

field' exemptions that is already irritating Berlin and Paris. They note how he

has already succeeded in the deal he is trying to steer through Parliament in

moving commitments on environmental standards and workers' rights out of the WA

legislation to the nonbinding 'political declaration' intended to frame the FTA

negotiations.

     "If one gets a majority Johnson administration pushing a low-regulation

agenda that will, of course, make agreement a lot more difficult," a well-placed

Brussels source told MNI. "That was behind the Merkel comments about competition

the other day."

     ---LOW-AMBITION

     The source outlined two routes to an FTA offered to third countries by the

EU. A barebones agreement, covering goods but probably not services, could be

negotiated under 'union competence' - directed and managed by the European

Commission with minimal interference by member states.

     The second route would be a 'mixed competence' FTA which would involve the

much more complicated process of ratification - and therefore close involvement

in negotiations - by all 27 member states.

     To the extent Johnson walks away, in the short time available, from 'level

playing field' provisions to boost UK competitiveness and strike trade deals

with other parts of the world, the EU-27 will push towards a barebones FTA - or

no deal at all.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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