Brexit trade talks are resuming in London on Thursday after negotiations hit a deadlock last week.
The decision to return to the negotiating table boosted confidence among investors that a post-Brexit trade deal will eventually be reached. Sterling saw its biggest one-day appreciation on Wednesday since March following bullish comments by Michel Barnier, the EU’s chief negotiator.
However, both sides have a lot of legal detail to overcome in the next few weeks if they want to bridge their outstanding differences. Negotiators have been stuck for months over issues such as fisheries, competition rules and governance of their future accord.
“It is entirely possible that negotiations will not succeed,” the U.K. government said in a statement on Wednesday, warning that exporters should prepare for the lack of a new trade deal with the European Union despite the restart of talks.
Without new trade arrangements in place by the end of the year, exporters on both sides will face higher costs and barriers when doing businesses. This would prove an additional financial burden at a time when many firms are already struggling due to the coronavirus crisis.
Nonetheless, the speech by Barnier on Wednesday was welcomed in Westminster and unlocked the impasse seen over the last week.
“Despite the difficulties we’ve faced, an agreement is within reach if both sides are willing to work constructively, if both sides are willing to compromise and if we are able to make progress in the next few days on the basis of legal texts and if we are ready over the next few days to resolve the sticking points, the trickiest subjects,” Barnier told European lawmakers.
During his speech, Barnier also said that the EU respects the sovereignty of the U.K.
The U.K. government had asked for renewed guarantees that the EU recognized that both sides need to make compromises and that it respected the U.K.’s sovereignty. As such, London decided it was time to negotiate again.
“We have agreed that a basis for negotiations with the EU and Michel Barnier has been re-established. Intensive talks will happen every day,” the U.K.’s Chief Negotiator David Frost said on Twitter.
The EU’s negotiating team is expected to stay in London until Sunday at least, but both sides decided talks will take place daily, including at weekends. The meetings will happen in Brussels, London and virtually.
No Canada-style agreement
When British Prime Minister Boris Johnson told U.K. businesses to prepare for a no deal last week, he argued that this was in part due to the EU ruling out a Canada-style deal — where the country would see a similar accord to the one the EU signed with Canada a few years ago.
However, during his speech to the European Parliament, Barnier reiterated that this will not be possible, due to the U.K.’s geographic proximity with the EU.
“The British often refer to the Canadian model in their speeches. We have, with the United Kingdom, both a unique geographical proximity, and an economic interconnection built with the British for 47 years that makes this situation unlike any other,” Barnier said.
He also added that the deal with the U.K. “has no precedent” as it would be the first the EU undertakes where both sides are looking to deviate from a regulatory point of view, rather than aligning their standards.
