U.K. Poised to Continue EU Trade Talks Past Johnson Deadline

(Bloomberg) — The U.K. signaled it will let trade talks with the European Union continue beyond Boris Johnson’s deadline of Oct. 15 as long as the bloc’s leaders signal they are prepared to make a final push toward an accord.

The prime minister will decide whether to carry on or walk away from negotiations after a meeting of EU leaders on Thursday and Friday, according to a person close to the discussions. Johnson is likely to be told by his advisers that an accord is possible if officials can begin intensive talks in coming days. The pound rebounded from a one-week low.

Both sides now consider the end of October or first few days of November as the real deadline for getting a deal, people familiar with the negotiations said. The U.K. will leave the bloc’s single market and customs union with or without a deal when the 11-month transition period expires on Dec. 31 — but any agreement has to be approved by the British and European parliaments before then.

While the rhetoric has heated up this week, with the British government deriding the EU for its hard-line stance on fisheries and the EU calling for the U.K. to cede ground in other key areas such as business subsidies, there has been little progress around the negotiating table as each waits for the other to blink.

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von der leyen johnson duo.jpg

Ursula von der Leyen and Boris Johnson

Source: Bloomberg

Efforts to break the deadlock are set to continue on Wednesday evening when Johnson, European Commission President Ursula von der Leyen, and European Council President Charles Michel discuss the situation on a video call. The prime minister previously said he would walk away from the negotiations if there was no clear progress by Thursday.

German Finance Minister Olaf Scholz hinted that he expects the two sides will seal a deal — even if talks may go down to the wire.

“It is always the right way to discuss questions that are difficult up to the last moment,” Scholz in an interview with Bloomberg Television. “My experience is that sometimes in the last moment you will find a solution.”

On Wednesday, three of the EU’s main business lobby groups called for a deal. In a joint statement, France’s Medef, Italy’s Confindustria and Germany’s BDI said negotiators should “do their utmost to conclude an ambitious and comprehensive agreement.”

Failure to do so would leave businesses and consumers grappling with additional costs and potential delays at the border — and hurt the U.K. economy.

Johnson Decision

Johnson will decide his next steps following his conversation with von der Leyen and the European Council, and after taking advice from his negotiating team, a U.K. government spokesman said. “We cannot prejudge that decision,” he added.

At the two-day meeting in Brussels, the 27 EU leaders will say that “progress on the key issues of interest to the union is still not sufficient for an agreement to be reached,” according to draft conclusions seen by Bloomberg. They will also increase preparations for a no-deal split.

One of the key obstacles to a deal remains what access EU boats will have to U.K. fishing waters. France is seeking the same rights it enjoys today under the EU’s Common Fisheries Policy — something the British government has rejected.

In a sign that Paris is likely to come under pressure from other EU members to compromise, a German government official said that when European coastal countries realize that they won’t have any access to British waters without a deal, perhaps they will be more flexible.

Some Progress?

An EU official said it was for the U.K. to offer further concessions. The bloc says that before it can contemplate making any compromises on fish, the U.K. has to back down on the so-called level playing field for business, including setting out what its state-aid policy will be. The bloc is anxious to prevent British firms from gaining an unfair advantage over their European competitors.

The two sides have made some progress on state aid and technical matters such as aviation cooperation and road haulage in recent days. But key disagreements remain on the level playing field, fisheries, as well as trade in goods and services, according to a person familiar with the talks.

Leaving without a deal would heap further pain on the U.K. economy, which has already suffered its biggest-ever quarterly contraction in the midst of its coronavirus lockdown and now faces a second wave of restrictions that threaten to choke off its sluggish recovery.

Near-term, a no-deal Brexit could deliver a shock equivalent to about 1.5% of gross domestic product and leave the U.K. economy’s annual potential growth rate 0.2 percentage points lower in the future, Bloomberg Economics’ Dan Hanson said on Wednesday.

“With the economy’s ability to grow impaired, the gap between the economy’s path with and without a trade deal would continue to widen over time,” Hanson wrote in a report.

(Adds call from business groups in eighth paragraph.)

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