EU, UK still have ‘fundamental’ differences in trade talks

BRUSSELS — With the European Union’s chief negotiator Michel Barnier in quarantine, trade talks with the United Kingdom continued by videoconference this week, though the optimism expressed last week seemed to have faded.

Barnier stressed today that negotiators were running out of time to make a Jan. 1 deadline and that “fundamental divergences still remain.”

The talks were shifted to a videoconference last week when an EU official tested positive for the coronavirus, forcing Barnier into a quarantine until at least Thursday. Both sides have indicated that to reach an agreement on key issues the negotiators need to meet in person.

On Friday, EU Commission President Ursula von der Leyen issued one of the most upbeat assessments of the state of post-Brexit trade negotiations in several weeks, saying the EU had seen “in the last days better progress, more movement on important files.”

But on Monday, EU Commission spokesman Daniel Ferrie said that “while some progress has been made in drafting legal texts, significant fundamental divergences remain in the three key areas” that negotiations have centered on – the fishing industry, how to check compliance with the deal and the standards the U.K. must meet to export into the EU.

Though the U.K. left the EU on Jan. 31, it remains within the bloc’s tariff-free single market and customs union until the end of this year. A trade deal would ensure there are no tariffs and quotas on trade in goods between the two sides, but there would be technical costs, partly associated with customs checks and non-tariff barriers on services.

Both sides have expressed hope of securing a deal in time to protect hundreds of thousands of jobs that could be affected if the trade agreements lapse with no deal on future ties. Though both sides would suffer economically from a failure to secure a trade deal, most economists think the British economy would take a greater hit, at least in the near-term, as it is relatively more reliant on trade with the EU than vice versa.

Bank of England Governor Andrew Bailey warned that the long-term impact of a no-deal Brexit on the British economy would be greater than the long-term impact of the coronavirus pandemic. The bank expects the British economy to end the year around 12% smaller and to not recover its virus-related losses until early 2022.

“I think it’s in the best interests of both sides for there to be a trade agreement and for that trade agreement to have a strong element of goodwill around it on how it’s implemented,” he told British lawmakers on the Treasury Select Committee.

Any deal brokered by Barnier and his British counterpart, David Frost, would need to be approved by the individual EU countries and the European Parliament. The legislature is even considering meeting around Christmas, when it is usually enjoying a long recess, to make any deadline.

The bloc accuses Britain of wanting to retain access to the EU’s lucrative markets, much like any EU country, without agreeing to follow all its rules. The EU fears Britain will slash social and environmental standards, and pump state money into U.K. industries, becoming a low-regulation economic rival on the bloc’s doorstep.

Britain says the EU is making unreasonable demands and is failing to treat it as an independent, sovereign state, especially when it comes to the control of its fishing waters.

If the talks resume in person from Thursday, they would be held in London.