EU eyes softening key state aid demand in Brexit talks – sources

BRUSSELS (Reuters) – The European Union is ready to compromise to save problematic Brexit talks by easing its call for Britain to comply with EU state aid rules in the future, diplomatic sources told Reuters.

FILE PHOTO: European Union chief negotiator for Brexit, Michel Barnier, and UK Prime Minister David Frost 5’s European advisor will be at the start of the first round of EU-UK trade agreements after Brexit on 2 March 2020 in Brussels, Belgium, seen Oliver Hoslet / Pool via REUTERS / File Photo

They said Brussels could seek a compromise that would provide a dispute settlement mechanism for future UK state aid to its companies, rather than requiring London to comply from the outset with the bloc's own rules.

Fair competition provisions are the biggest stumbling block in the negotiations, which aim to seal a new trade agreement in 2021 after Britain's exit from the EU in January after 46 years of membership.

The 27 EU countries have long called for so-called guarantees of a level playing field from Great Britain if they want to continue to sell goods freely in the lucrative domestic market of the bloc with 450 million inhabitants – after the transition phase of the UK standstill after Brexit has ended at the end of the year.

Without an agreement, trade and financial ties between the fifth largest economy in the world and its largest trading bloc would collapse overnight and likely spread chaos between markets, businesses and people.

However, Prime Minister Boris Johnson's government has refused to be bound by EU rules on state aid, environmental standards, or labor laws. The essence of Brexit was to let Britain decide on its own rules alone.

"The room for compromise is in something that leaves the UK free to decide, since regaining sovereignty is such a big deal of Brexit," said an EU diplomat close to the Brexit talks.

"We reserve the right to decide the consequences for UK companies of access to the internal market."

Another diplomatic source said such a dispute settlement mechanism could be a way to reach an agreement.

CAREFUL OPTIMISM

A third diplomat, who also spoke on condition of anonymity, admitted that the EU was ready to ease its earlier demands that Britain would agree to "dynamically align" its competition rules with those of the bloc in the future.

However, the person said that the UK must continue to agree with the EU on a comprehensive overview of corporate subsidy policies – not specific laws or cases – for the bloc to seek such a solution. EU Brexit negotiator Michel Barnier has repeatedly asked London to announce to the block its future plans on the subject.

“There has to be a solid framework with independent supervision. If they agree to lay down comprehensive state aid rules and have this independent body, then we have a deal, ”said the diplomat.

The other important sticking point is fishing rights in sea channels between the EU and Great Britain. The bloc previously signaled that it was ready to compromise in this area if London moved too.

The negotiations have been difficult, but in the past few weeks they have brought the sides closer to some other aspects, so that the EU is cautiously optimistic about the chances for an overall agreement.

"Fishing will not ruin the whole thing … it is just a matter of waiting for the right time for the UK to move," said a fourth EU diplomat.

Others have warned that the talks could still end.

Reporting and writing by Gabriela Baczynska with additional reporting by Philip Blenkinsop; Edited by Mark Heinrich

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