MNI SOURCES: Italy Officials Remain Optimistic on EU/UK FTA

--Norwegian Model Best Fit For Soft Brexit, WTO Rules "Catastrophic"

--Keeping UK "Close" to Common Market Paramount

By Silvia Marchetti

     ROME (MNI) - Italy's government continues to hope for a "soft" Brexit and

is confident, despite the wearing negotiations underway, London will eventually

come to terms with the European Union and strike a balanced trade partnership

that will benefit both sides, senior officials tell Market News.

     Giampaolo Galli, Democrat member of the Lower House budget committee,

believes the best solution would be for the UK to remain as "close to the EU's

common market as possible," through the creation of a free trade area with a set

of clear rules regulating commercial ties with Brussels.

     "It would be catastrophic and unimaginable if the UK ultimately opts to

abide to international trade rules within the World Trade Organization. This is

the worst case scenario of a very hard Brexit," said Galli.

     It would not just translate into higher import duties for London, but it

would be like if Europe were trading with distant, and deeply different,

countries such as China and Australia," he added.

     A government source sees as a "probable" soft Brexit scenario with the UK's

adoption of the 'Norwegian model', whereby an non-EU country takes part in the

common market with all the commercial advantages this entails, but is not

formally part of the European institutions nor is it represented at EU level.

     London would thus become a new member of the European Free Trade

Association (EFTA) that already regulates commercial relations between Brussels,

Norway, Iceland, Switzerland and Liechtenstein.

     However, Prime Minister Theresa May has repeatedly said the UK is looking

for a bespoke deal and not an off-the-shelf arrangement.

     For Rome, were London to opt for the WTO model, it would mean deleting the

UK's 43-year heritage of EU membership. But, above all, London would be the

biggest loser, with a drastic impact on its economy.

     The government source noted that the UK stands alone against a united front

of 27 member states that are pushing a "resolute, tough stance without

compromises" and that London will sooner or later acknowledge that the best "way

out" is through a "soft exit".

     The road ahead though is long and bumpy. "It will take 3 to 5 years before

a UK-EU deal could ever be realistically implemented," said the source. 

     "First, the UK has to formally exit the union and pay back, in terms of

financial resources, what it owes Brussels".

     The future of EU/UK commercial relationship will largely depend however on

the political decisions taken in the long run by the UK government, warned

Democrat deputy Marina Berlinghieri, head of the Lower House EU Affairs

committee.

     "The ongoing negotiations between London and Brussels continue to face ups

and downs, and the frequent stalemates are currently making it hard to envisage

what kind of trade deals there will be at the end of this long process, which

will take years," said Berlinghieri.

     PM May's uncertain stances, the rising clashes within her government along

with its growing instability, are not making London a strong interlocutor with

the EU negotiators right now, she added.

     "It's not yet clear what May's domestic policy is, therefore it is hard to

predict how such policy can affect her foreign and commercial policies,"said

Berlinghieri.

     Yet despite the current obstacles, Berlinghieri said she is confident that

London will eventually come to terms with Brussels, driven by its commercial

background, its track record of economic power on the world stage, but, above

all its decades-long membership of the union.

     "The UK will understand that it is always best to pre-define trade rules

with the EU rather than opt for 'wild' regulation by abiding to the WTO's

'international schemes'," she said.

     The Norwegian model however envisages that the "outsider", in the case the

departed UK, must also abide by EU rules and regulations, financially contribute

to the EU budget and ensure the free circulation of people, too, a crucial point

and perhaps one too far for a Westminster government.

     Galli noted that it is important to quickly reach agreement on citizens

rights, or what will happen to European residents in the UK to UK residents in

the EU.

     "That's why keeping the UK close to the common is a matter of reciprocal

interests," he said.

     But there is one other major critical factor in replicating the Oslo model.

     "London has already said it does not want to abide by the decisions of the

European Court of Justice, which rules over the common market, so this may be a

deal breaker for a Norwegian-style relationship," observed Galli.

     Another possible post-Brexit trade model seen by Italian officials is

Switzerland. The Swiss model is regulated by roughly 120 different bilateral

agreements in specific sectors, less "inclusive" and binding than the Norwegian

one.

     "There really are dozens of already, successfully experimented trade deals

that could be put in place with London. Even the failed EU-US Transatlantic

Trade and Investment Partnership (TTIP) could work," said Berlinghieri.

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

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