Johnson and Barnier clash over who sets rules for Brexit trade

[BRUSSELS] The Brexit battle between the UK and the European Union resumed as British leader Boris Johnson clashed with the bloc's chief negotiator Michel Barnier at the start of 11 months of talks on a future trade deal. The pound fell.

Mr Barnier said in Brussels that a "highly ambitious" trade deal is on offer for the UK - but only if  Mr Johnson signs up to strict rules to prevent unfair competition. Speaking minutes later in London, Mr Johnson rejected Mr Barnier's demand and insisted the UK will thrive even if negotiations fail.

He said instead the UK would be happy with a relationship based on Australia's far looser arrangements with the EU. Australia doesn't have a formal trade deal with the EU and faces World Trade Organiation tariffs and barriers in many areas.

The rival speeches - which took place almost simultaneously on Monday morning - represent the first formal exchanges between the two sides in what looks certain to be a hard-edged and tense negotiation.

"The question is whether we agree a trading relationship with the EU comparable to Canada's or more like Australia's," Mr Johnson told an audience of business executives and EU ambassadors in Greenwich, east London. "I have no doubt that in either case the UK will prosper mightily."

After three years of bad-tempered talks and last-minute breakthroughs over the UK's political withdrawal, early signs indicate that the parties could struggle to avoid a cliff-edge when it comes to agreeing their future trading arrangement.

Sterling fell as much as 1.2 per cent and traded 1.1 per cent lower at $1.3056 at 12:06 pm in London.

The EU's draft negotiating mandate said the UK needs to make "robust commitments" to ensure it doesn't undercut the EU. On climate change, the UK is expected to maintain a system of carbon pricing and consider linking its domestic emissions market with that of the bloc.

In a document released to Parliament, Mr Johnson published his negotiating framework, which is at odds with much of the EU's plan.

In it he made clear businesses must prepare now to leave the EU customs union and single market at the end of the year.

He said British and European financial services regulators should cooperate and allow for a predictable environment for business, including "structured" withdrawal of operating rights under a so-called "equivalence" regime.

Crucially, the British document rejected the idea of aligning with EU rules and standards, and insisted the European Court of Justice will have no role over British laws.

Mr Johnson's government thinks that the 11-month time frame is sufficient to get a full deal, one at least as good as the deal that Canada reached with the EU. The EU's leadership has said this will be impossible.

"We now have to address the consequences of the choices the UK has made." said Mr Barnier. "Because of those choices the UK will no longer be able to benefit from the rights and advantages of the EU."

Mr Barnier said the "exceptional offer" is conditional on commitments to ensure a level playing field in areas such as taxation, labour rules and environmental standards.

"We need to make sure competition is and remains open and fair," he said. Mr Barnier said the EU isn't looking for "alignment" of rules, but "consistency" from the UK. He added that he wants "mechanisms to uphold the high standards we have."

In his speech, Mr Johnson insisted the UK was not leaving the EU to "undermine European standards" and promised to keep higher standards in many areas, including environmental protections. Britain will do this "without the compulsion of a treaty," he said.

"The anxiety should really be on our side of the Channel, not yours," Mr Johnson told the bloc. "Look at state aid: France spends twice as much on state aid as the UK," he said. "Who is using subsidies to undercut? Not the UK."

The Canadian deal that Mr Johnson cited as a model removes tariffs on 98 per cent of goods trade, raises tariff-free quotas, opens up public procurement so Canadian and EU companies can bid for each other's governments' contracts, and protects intellectual property. The EU and Canada negotiated for seven years before signing that accord in Oct 2016.

One unknown factor is how much Mr Johnson really wants an agreement with the EU. Many Brexit purists in his Conservative party would be happy without one.

BLOOMBERG