Brexit Bulletin: The Fight’s Back On

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The Brexit mood became noticeably chillier on Wednesday. When Prime Minister Theresa May hosts European Union President Donald Tusk in Downing Street on Thursday, it heralds the start of a new chapter already marked by greater frustration and renewed distrust. March 2018 will go a long way to determine how Britain severs its membership in March 2019. So far, it's not looking great.

The draft Brexit treaty published by the EU on Wednesday was as bad as many on the U.K. side feared and led to some of the most heated clashes yet between London and Brussels. What in December was a rushed interim agreement between May and the European Commission on the Irish border that included a “fall-back” option to keep Northern Ireland abiding by EU customs rules, had become nine pages of excruciating legal detail. The alternatives, much more palatable to the British government, were barely mentioned.

May has no easy choices left, and the row could overshadow her speech on Friday setting out a vision for the U.K.'s future relationship with the EU. “No U.K. prime minister could ever agree to it,” May said of the EU's plan to deal with the Irish border issue, which would effectively keep Northern Ireland in the bloc's customs union and operating under different rules from the rest of Britain. It would undermine the integrity of the British constitution and economy, May said. Foreign Secretary Boris Johnson goes as far as to believe the border is being used as a “proxy war” by those who want to stop Brexit, according to Thursday's Daily Telegraph.

It's not just Brussels and London. The ripples are felt in Dublin, too. Leo Varadkar, the Irish prime minister, also weighed in on Wednesday. “It's not OK for people, whether pro-Brexit politicians in Britain or parties in Northern Ireland, to just say ‘no' now,” having reached the agreement in December, he said.

Ratcheting up the pressure, two former British prime ministers, both integral to the Northern Irish peace process in the 1990s, are making their own interventions. John Major, from May's own Conservative party, accused the current government of “bad politics” and called for a free vote in Parliament over whether to hold a second referendum on Brexit for the sake of the “wellbeing of the people.” Tony Blair, his Labour successor, will make a speech in Brussels on Thursday in which he'll call on the rest of the EU's leaders to help lead Britain “out of the Brexit cul-de-sac and find a path to preserve European unity intact.”

The bad blood looks likely to get worse before it gets better. Brexit Secretary David Davis says the U.K. will refuse to settle its divorce bill, estimated by the government to be about £39 billion ($53.7 billion), until the bloc backs down on Northern Ireland, the Times reported on Thursday.

And it's not just the Irish border. There were plenty of other issues in the 118-page draft treaty that the U.K. didn't like or hasn't agreed to, including granting the European Court of Justice power to rule on disputes arising from the Brexit treaty, and giving the EU the authority to sanction the U.K. during the transition period if it considers Britain has breached its terms. There's no agreement either on the length of the transition phase, a deal the U.K. still hopes to secure this month.

The first 21 days in March, before May visits Brussels for the first time this year for a summit with her 27 EU counterparts, will be crucial. She needs agreement on the transition, a way to stop the Irish border issue wrecking the negotiations and a clear enough vision of the U.K.'s post-Brexit path to ensure the EU takes her views on board when it begins work this month negotiating their future relationship. It hasn't started well.

Brexit Latest

Getting Closer | There was a glimmer of more positive news for the negotiations. Prospects for a transition deal improved after the U.K. and the EU appeared to converge on the thorny issue of citizens' rights. The government published a new offer, clarifying that it will allow EU citizens to move to the country during the transitional phase after Brexit and make the country their permanent home, meeting a key demand from the European side. “There will be no new constraints on working or studying in the U.K. in the implementation period,” the British government said in a policy paper.

Hatchback Backed | Toyota Motor will keep its plant in Britain as the sole European builder of its Auris hatchback in a bet the country can remain competitive after it negotiates an exit from the EU. The world's second-biggest auto manufacturer will make the third-generation Auris at its Burnaston factory near Derby in northern England, powered by engines from the Deeside facility in Wales, it said on its website on Wednesday. The decision will safeguard about 3,000 jobs. 

Trademark Position | Owners of EU-wide trademark and design registrations should automatically get equivalent rights in the U.K. after the country's withdrawal from the bloc is finalized, according to Wednesday's draft treaty. The text's section on intellectual property addresses a main concern for holders of EU-wide IP registrations, such as trademarks, designs and plant variety rights.

No Interference | Facebook said it found no more activity from Russian accounts using its advertising in the U.K. to influence the 2016 vote to leave the EU, after it was asked by lawmakers to probe more deeply. The company used the same method that uncovered Russian meddling in the 2016 U.S. presidential election activities, and found no comparable Brexit campaign, Simon Milner, Facebook's director of U.K. policy, wrote in a letter to lawmakers. The answer didn't completely satisfy the House of Commons' Digital, Culture, Media and Sport Committee, which had requested more information.

Shutting Up Shop | Brexit may have contributed to two more victims on the U.K.'s shopping streets. Toys “R” Us's U.K. unit and electronics chain Maplin collapsed into the British equivalent of bankruptcy protection, deepening a retail crisis prompted by the rise of online shopping and worsened by the pound's plunge after the vote to leave the EU.

Car Damage | Notwithstanding the reassuring news from Toyota, there's nothing good to come from exiting the EU for the U.K. auto industry, leaving the government only one option: limiting the damage. That's the view of an impact assessment from the Business, Energy and Industrial Strategy Committee published on Thursday, which urges Prime Minister Theresa May and her cabinet to take a “pragmatic” approach to negotiations with Brussels.

And Finally...

Many in the European Commission believe President Jean-Claude Juncker's chief of staff, Martin Selmayr, can do no wrong. The German hit the headlines when he was propelled into the job of Commission secretary-general, the body's top civil-servant post, after originally just applying for the role of deputy.

But nobody's perfect. As Brussels website EU Observer reports, a publicity photo of Selmayr sitting at his desk to mark the start of his new role reveals a long list of mobile-phone numbers of commissioners and their chiefs-of-staff on a sheet of paper pinned to the wall behind him.

Theresa May will be hoping confidential information remains more intact when it comes to Brexit. As part of his new role, Selmayr is in charge of drawing up contingency plans for a collapse in the negotiations.

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To contact the author of this story: Ian Wishart in Brussels at iwishart@bloomberg.net.

To contact the editor responsible for this story: Jones Hayden at jhayden1@bloomberg.net, Andy Reinhardt

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