March 20, 2018 / 7:33 PM / a month ago

EU primes UK trade offer, seeks Brexit transition endorsement

BRUSSELS (Reuters) - EU governments agreed on Tuesday to offer British banks and airlines hope of good market access after Brexit but kept London waiting for confirmation it will get the transition deal it wants to avoid disrupting business.

An Anti-Brexit protestor waves EU and Union flags outside the Houses of Parliament in London, Britain December 5, 2017. REUTERS/Simon Dawson

European Council President Donald Tusk, who chairs a European Union summit on Friday, has yet to secure assent from all 27 leaders to the status-quo transition accord that British Prime Minister Theresa May struck with EU negotiator Michel Barnier on Monday.

EU officials and diplomats said some countries had further questions for Tusk, including Spain, which was looking for assurances over Gibraltar.

However, two senior officials said there was little chance of holding up the transition deal which pushed the pound higher on Monday as it gives businesses an extra 21 months to prepare for full Brexit.

Barnier and the Bulgarian minister who chaired Tuesday’s ministerial talks to prepare the summit told reporters the EU27 fully backed Madrid’s insistence that it have a veto on any Brexit terms for Britain’s territory on its south coast.

British ministers have said that bilateral negotiations with Spain over Gibraltar were going well.

The ministerial meeting approved a first set of negotiating guidelines by which the 27 governments will bind Barnier to seek a free trade deal with Britain after Brexit, due next March, and the end of the transition period at the end of 2020. Talks should start in the coming weeks.

The text blunts May’s hopes of getting a uniquely close relationship with the EU’s single market.

It says her refusal to accept single market or customs union rules will mean “frictions in trade”, but voices the EU’s willingness to seek a close free trade agreement.

A TEST OF UNITY

In a sign of how negotiating future trade ties with what is still one of the bloc’s three biggest economies will test the unity of the 27, member states are already pushing their own interests on some issues.

Two elements attached to the guidelines highlight that.

In one, the EU agrees that Barnier’s instructions to arrange a fix for the airline industry that will avoid major disruption when Britain leaves “do not preclude” a future EU-UK aviation deal giving British-owned airlines special freedoms in the EU, similar to those offered to the United States and Canada.

That reflects discussions among member states, including Spain - concerned its British-owned national flag carrier Iberia might suffer on intra-EU routes - and Finland and others, who have raised worries about their airports’ role as layovers between London and Asia.

On financial services, Luxembourg, home to many British-based fund operations, has been pushing for generous access for London firms to the EU, something France, which hopes to draw banking business to Paris, has resisted.

The result was a compromise drafted by Luxembourg and France that offers British banks “improved equivalence” treatment in the EU, reflecting plans to streamline procedures for letting firms in non-EU states operate in some markets if their home supervision regulations are seen as matching EU standards. [L8N1R255J]

The offer, however, is sharply circumscribed by underlining that the EU will have “unilateral” control over how that would work, and also puts an end to London’s hopes of any system close to its existing open “passports” to EU business.

Barnier repeated his view that Monday’s interim accord on the withdrawal treaty was a key moment, raising hopes that a deal can be struck later in the year to ensure an orderly Brexit next March followed by a status-quo transition of 21 months.

But, he warned, there were outstanding issues over treaty oversight and how - despite assurances by May - to avoid a disruptive “hard border” on the island of Ireland.

“My experience of negotiations... is that what remains at the end is often the most difficult,” Barnier told reporters.

Reporting by Alastair Macdonald; @macdonaldrtr; editing by John Stonestreet

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