Future Relationship Talks Begin

Future Relationship Talks Begin

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The week in London

More than 100 British negotiators headed home from Brussels Thursday after the first week of talks with the EU over the future relationship with the UK kicked-off last Monday. The breadth of the talks is vast. They cover everything from trade in goods to internal security co-operation and fish. 

The two sides had a “constructive, good-natured” first round of talks, a UK source close to the negotiations said on Thursday, but stressed differences in a number of areas. The source said that despite there being “a degree of common understanding” in some areas, gaps remained on fisheries, criminal justice cooperation and the so-called level playing field provisions to guarantee fair competition.

The UK financial services industry’s access to the European market will not be settled at this stage of the talks. Britain has urged Brussels to honour a June deadline for granting market access rights that the City of London will rely on when the UK’s post-Brexit transition period runs out at the end of the year.

Britain has no plans to rip up the rulebook governing its huge banking sector, financial services minister John Glen said on Wednesday, hoping this will allow London to keep its access to EU markets. The EU is the largest export market for Britain’s financial firms, but their access will be cut off if no new trading terms have been agreed by January. Before granting some access, the EU must assess whether UK-based banks, insurers and asset managers comply with rules that are “equivalent” or as robust as those in the bloc.

British employers’ demand for staff accelerated in February, with a job vacancy index seeing the biggest monthly jump in more than six years, a survey of recruiters showed on Friday. The index of demand for staff from the Recruitment and Employment Confederation and accountants KPMG, which is monitored by the Bank of England, rose to 57.2 in February, its highest since January 2019. The increase in the index from 54.8 in January was the biggest since July 2013.

Britain’s long-term economic growth prospects are expected to be downgraded in next week’s Budget because of the impact of Boris Johnson’s post-Brexit crackdown on EU immigration. The UK’s independent fiscal watchdog, the Office for Budget Responsibility, will forecast that a smaller population will lead to a lower potential for economic growth and some detriment to the public finances, restricting new chancellor Rishi Sunak’s ability to spend more money on public services and infrastructure projects.

Britain’s Government has spent at least £4.4 billion of taxpayers’ money on preparations to leave the EU, the public spending watchdog said on Friday, in the first detailed estimate of the cost of Brexit. The National Audit Office said in a report that most of the money was spent on staff costs, building new infrastructure and paying for external advice. Although some ministries had to supplement their spending from existing budgets, the Government overall only spent about 70% of the £6.3 billion allocated to cover the cost of preparations, the report said.

The week in Brussels

EU and UK negotiators have knuckled down to detailed negotiations on their future relationship and after the first round ended in Brussels, Michel Barnier warned on Thursday of “very, very difficult” areas of disagreement. Mr Barnier, the EU’s chief Brexit negotiator, said this week’s meetings highlighted four areas of “very serious divergence” including fishing rights in UK waters, the role of the European Court of Justice, Britain’s determination not to align with EU rules, and how any future deal is policed.

Mr Barnier was particularly critical of Britain’s insistence that fishing rights to its waters are decided by annual negotiations with the EU, something the British Government says reflects its future status as an independent coastal state. Brussels has made any trade deal conditional on the two sides reaching an accord on fish. Making access subject to annual negotiations would be “impracticable” because it fails to “give the people involved in fisheries the predictability which they need,” Barnier said. 

While the EU hosted the first round of talks in Brussels this week, a three-day session is scheduled for London from March 18, before negotiators return to the Belgian capital on April 6, days before Easter. By that point, people close to both sides say, it will probably be clear whether a deal is possible.

The EU's Trade Commissioner has warned European companies that they need to do more to prepare themselves for the jolt of the UK leaving the bloc’s single market, saying businesses risked a “logistical nightmare” if they did not grasp the new reality. Commissioner Phil Hogan last weekend said that companies and public authorities should “reactivate” contingency plans they developed over recent years for coping with a no-deal Brexit, saying that the British Government’s decision to seek a more distant relationship with the EU meant there would inevitably be a big change to trading conditions.

The corporate week in Brexit

Peugeot maker PSA does not expect to make a call before the end of 2020 on whether to keep its British factory at Ellesmere Port running, depending on how Brexit talks evolve, Chief Executive Carlos Tavares said on Tuesday. Tavares said the most important factor for the company would be the preservation of “a free trade market on finished cars and car parts, which will tell us whether the viability of these factories is guaranteed or not.” Peugeot could only export cars to Britain and invest in local plants if the British Government helped to offset any potential tariffs imposed after the country’s exit from the EU, he added. 

Luxury carmaker Bentley said free trade with Europe not the United States was its priority and worse terms from the UK's negotiations with the EU could force it to do more work on its British-made cars abroad. Although eradicating the 2.5% tariff on the 22% of cars it sells to the US would be a boost, the firm would lose out overall if the EU imposed the maximum 10% tariffs on the 24% of vehicles to Europe and up to 4% on components, it said. Separately, McLaren Automotive said that if the EU imposed the highest tariff, the share of the company’s roughly 4,700 sales which go to the EU could fall from 18% to as low as 12%.