EU prepares Canada-style trade deal due to lack of clarity over UK’s Brexit demands

The EU is preparing to present Britain with a skeleton, Canada-style trade deal by the early summer if the UK is unable to clarify its demands and remains in "Brexit La-La land", according to senior European officials.

The fallback plan considered by Brexit negotiators underlines the concern in Brussels, Berlin and Paris over Theresa May's approach to future relations, which they fear will be too muddled to allow for meaningful negotiations.

Such a proposal would fall far short of what Britain is hoping for, with limited access for services, which make up a large part of the UK economy.

At a summit last month EU leaders called for more clarity from Britain and in private discussions stressed the "framework for future relations" must clearly show the economic consequences of exit so that businesses can prepare. "It must be fairly precise so we all know where we are going," said Michel Barnier, the EU's chief negotiator.

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EU member states want Britain to take the lead in proposing a new basis for relations. But should UK negotiators push untested trade models, which combine regulatory freedom with single market benefits, the EU side is preparing to ultimately take the initiative.

One senior European government official working on Brexit said this would come in the form of a blueprint based on the EU-Canada trade deal, presented as a last resort by the European Commission in the late spring or early summer.

“If the commission sees that it’s not getting any clarity on this then it is preparing a ‘take it leave it’ proposal,” the official said. “This would be in case everything goes pear-shaped.”

‘Canada plus’ deal

Mrs May is expected to outline her vision for the future relationship early next year, based on an ambitious trade deal with “bespoke” arrangements combining the best of being inside and outside the bloc.

Britain is confident that some of the EU27's deep interests in maintaining close economic ties after Brexit will gradually reorientate the bloc's dogmatic opening stance in negotiations. David Davis, the UK's Brexit secretary, said he was confident of emerging with a "Canada plus, plus, plus" deal.

The EU side, meanwhile, have watched Mrs May’s first cabinet discussions on the plan with some alarm, fearing it will conclude with demands that Britain enjoy the economic upside of EU membership while diverging from the union’s rules and institutions.

One senior EU diplomat expressed concern the UK side “would still be in Brexit La-La land”, contemplating magical options for the future. They expected the first months of 2018 to involve some “unicorn slaughter” as Britain’s illusions were confronted.

Asked whether the EU would eventually draft a deal fitting Britain’s redlines on leaving the customs union and single market, the diplomat added: “There will come a time, I don’t know when. We will say: here is what we prepared earlier. Now read and sign on the dotted line.”

Such a plan is expected to be based on the Canada trade deal, with little or no privileged access on services added. The “plus” would come from linked agreements on fisheries, aviation, security and foreign policy co-ordination, which are not included in the Canada-EU agreement.

The EU side envisages this “future framework” agreement with Britain to be a non-binding political declaration, running to 20 or 30 pages, which would accompany the UK’s withdrawal treaty.

Senior French officials see Mr Barnier’s exploratory talks with London early next year as an important opportunity to help negotiations start on a more realistic basis. What has been communicated by the UK so far has “lacked details, was unclear and was at times contradictory,” the official said.

EU diplomats are working on more detailed negotiating guidelines for Mr Barnier to cover the future relationship, which are expected to be adopted in March. These would form the basis for draft texts presented to the UK in the summer. Mr Barnier wants the withdrawal agreement, transition and future framework agreed by October.–The Financial Times Limited 2017