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Needle Still Points North

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
[TOPICS: M$B$$$,M$E$$$,MC$$$$,MT$$$$,MX$$$$,MGB$$$]