MNI EXCLUSIVE: Brexit Talks Near Tunnel, But Obstacles Remain

Free trade talks between the European Union and the UK could move into the more intensive and confidential 'tunnel' phase of negotiations by the end of this week, EU officials said, but while one cautioned that the UK must first make concessions there were signs Brussels' demands on the key issue of state aid were softening.

UK media stories in recent days indicating that the chances of a deal were rising may prove to have been optimistic, one EU source told MNI, though he added that neither side will want to be seen to be breaking off the process at this stage, raising the chances of entry into the Tunnel phase, in which officials negotiate in small teams without media briefings or other distractions.

"I think we kind of have to. Difficult to give the impression that we give up. Though rather pessimistic about the outcome," the source said, noting that "good will is short" following UK moves to pass legislation which would renege on promises over the Northern Irish border.

Another EU official was unsure the two sides would even get into the Tunnel.

"It will require genuine movement from the UK on the main issues, namely state aid, fisheries and judicial cooperation etc…," one official said.

"We can't say there has been significant progress in any of these areas," the same source said, adding that "this week will be the crunch week."

STATE AID

It could be Friday before any move to The Tunnel phase is announced, when EU Chief Negotiator Michel Barnier briefs member states on the latest developments in the talks, the second source said, pointing out that talks were always expected to become more intensive at this stage and that not too much should be read into any move into The Tunnel.

Questioned regarding a possible landing zone for an EU-UK deal on state aid, the thorniest issue facing the two sides, another EU official said any deal would require three elements: "a credible UK state aid management and enforcement system (i.e. an independent regulator); common principles on how we deal with state aid in the context of the partnership; and a robust dispute settlement mechanism. It can only work if you have all three."

The comments suggest that the EU may be prepared to take a somewhat more relaxed approach on the issue than the "dynamic alignment" it has insisted on in the recent past, under which the UK would be required to amend its industrial subsidy regime in accord with any future EU rule changes.