There will have to be compromises by both sides over Brexit – and the UK is looking for a “unique and unprecedented partnership” with the European Union.
That was the message from British prime minister Theresa May in a long-awaited speech in London on Friday.
But she warned the UK had every right to “cherry pick” what it wanted to sign up to, saying that was the basis of any free trade agreement.
She talked tough, saying “we will not accept the rights of Canada and the obligations of Norway”.
The speech managed to satisfy both Brexiteers and Remainers in her Cabinet after months of wrangling and division over the right approach, allowing her to recover some of the standing she had gained at the end of the successful ‘divorce bill’ negotiations in December.
However, even EU chief negotiator Michel Barnier – who has come under fire for threatening to ground British aircraft if the UK failed to toe the line during the post-Brexit transition phase – praised May’s speech.
Welcome from Barnier
“I welcome PM Theresa May’s speech,” he tweeted. “Clarity about UK leaving Single Market and Customs Union & recognition of trade-offs will inform EU guidelines re future FTA [free trade agreement].”
Some European politicians were more sceptical, with Manfred Weber, a key ally of German Chancellor Angela Merkel, saying: “I don't see how we could reach an agreement on Brexit if the UK government continues to bury its head in the sand like this.”
Overall, however – and especially at home – the message was well received, although sterling did drop below the €1.12 mark even before the PM started her speech, and continued to fall to €1.1175 before staging a recovery.
By 12.30pm (GMT) today, the pound had bounced back to €1.1236 as markets digested the overall positive response to her comments.
The FTSE 100 of leading companies, which had been losing ground all week, saw little change, ending the day at around 7,082, although it staged a mini recovery this morning, reaching 7,099 at 11am before falling back slightly.
The FTSE 250 also saw little change on the day, and was also down on the week, but has shown a strong recovery this morning from 19,386 at open to 19,501 at 2pm.
What did May promise?
So just what did May promise? On that all important trade deal, she defended the UK’s right to “cherry pick” – a favoured phrase of EU negotiatiors.
She pointed existing EU agreements with non-EU countries were not uniform.
“The EU’s agreement with Ukraine sees it align with the EU in some areas but not others,” she said. “The EU’s agreement with South Korea contains provisions to recognise each others’ approvals for new car models, whereas their agreement with Canada does not.”
May said the EU itself was “rightly taking a tailored approach in what it is seeking with the UK”. She said the EU had been clear that no precedents exist for the sort of access it wants from the UK on fisheries – with (other) EU countries currently taking 70% of the total quota for UK waters, and concerns this could plummet when the UK takes back full control.
“The fact is that every Free Trade Agreement has varying market access depending on the respective interests of the countries involved. If this is cherry-picking, then every trade arrangement is cherry-picking,” she said.
“What would be cherry-picking would be if we were to seek a deal where our rights and obligations were not held in balance.”
She added: “I think it is pragmatic common sense that we should work together to deliver the best outcome for both sides.”
European Court of Justice
The prime minister managed to make a concession to the EU on the European Court of Justice (ECJ) that didn’t alienate hard-line Brexiteers.
She admitted “the hard fact is that even after we have left the jurisdiction of the ECJ, EU law and the decisions of the ECJ will continue to affect us”.
Although the UK will no longer be under the jurisdiction of the ECJ – a key issue in terms of sovereignty – she said that “where appropriate”, UK courts would “continue to look at the ECJ’s judgments”.
She added: “If, as part of our future partnership, parliament passes an identical law to an EU law, it may make sense for our courts to look at the appropriate ECJ judgments so that we both interpret those laws consistently.”
Trade in goods
On a free trade deal for goods, the prime minister said a fundamental principle in the UK’s strategy was that trade at the UK-EU border should be as “frictionless as possible”.
“That means we don’t want to see the introduction of any tariffs or quotas. And… we must ensure that, as now, products only need to undergo one series of approvals, in one country, to show that they meet the required regulatory standards.”
She said the UK would make a “strong commitment” that its regulatory standards would remain as high as the EU’s. “That commitment, in practice, will mean that UK and EU regulatory standards will remain substantially similar in the future,” she admitted.
When it comes to financial services, so critical to the UK economy, the prime minister said the Chancellor Phillip Hammond would set out this week how they “can and should” be part of a “deep and comprehensive partnership”.
However, in a major concession that would have dismayed many in the City of London, she said the UK was not looking for passporting rights.
She said she understood this was “intrinsic” to the single market, which the UK would be leaving, and it would leave Britain subject to a rule book “over which we would have no say”.
“The UK has responsibility for the financial stability of the world’s most significant financial centre… so it would be unrealistic for us to implement new EU legislation automatically and in its entirety,” she said.
But she pointed out that with UK-based banks underwriting roughly half the debt and equity issued by EU companies, and providing more than £1.1tn of cross-border lending to the EU in 2015 alone, “this is a clear example of where only looking at precedent would hurt both the UK and EU economies”.
Talk of borders took the prime minister on to the vexed issue of potential customs barriers between the north and south in Ireland – one of the main arguments for staying in a customs union with the EU.
She reiterated the UK would leave the customs union, saying that staying in the union would prevent Britain from striking independent trade deals with other countries. “It would mean we had less control than we do now over our trade in the world. Neither Leave nor Remain voters would want that."
But she said the government wanted as “frictionless a border as possible” in Ireland, and set out a wide range of measures as to how that might be achieved.
She said the Britain would continue to waive the requirement for entry and exit declarations for goods moving between the UK and the EU.
She also set out a number of measures that could be used, ranging from the EU and the UK accepting each other’s ‘trusted traders’ schemes for larger carriers, combined with tracking systems using advanced technology.
The prime minister said smaller traders – who make up 80% of cross-border traffic – would be allowed to continue to operate as now, with no new restrictions.
Summing up, the prime minister said Brexit should not be seen as an end in itself, but the “means by which we reaffirm Britain’s place in the world and renew the ties that bind us here at home”.
She said the UK could “emerge from this process a stronger, more cohesive nation… A global Britain which thrives in the world by forging a bold and comprehensive economic partnership with our neighbours in the EU, and reaches out beyond our continent, to trade with nations across the globe.”