(Bloomberg) -- Follow @Brexit on Twitter, join our Facebook (NASDAQ:FB) group and sign up to our Brexit Bulletin.
U.K. Prime Minister Theresa May won a crucial victory over pro-Brexit cabinet colleagues on Friday, as her government backed a wide-ranging plan to keep close trade ties with the European Union after leaving.
The pound gained 0.5 percent against the dollar at 9 p.m. in London, edging up to $1.3282 as traders responded positively to the news of the consensus.
Following a day of talks in her country residence, May’s Cabinet signed off on a blueprint for a new U.K.-EU “free trade area,” with interwoven customs regimes, and identical regulations for industrial and agri-food goods.
There was no such plan for the country’s huge services sector, and London-based banks were warned they will lose their current levels of access to the EU market. New arrangements will seek to preserve the "mutual benefits of integrated markets.”
“Collective Position”
“Today in detailed discussions the Cabinet has agreed our collective position for the future of our negotiations with the EU,” May said in a statement released by her office, with talks ongoing. “Now we must all move at pace to negotiate our proposal with the EU to deliver the prosperous and secure future all our people deserve.”
After weeks of speculation about Cabinet resignations and leadership plots against her, the deal marks a significant milestone for May and for Brexit. She will meet with all her Conservative lawmakers on Monday to address concerns among some of the hardliners.
The plan represents a closer relationship to the EU single market than many pro-Brexit campaigners hoped for when May first set out her plans in January last year.
“Essentially it seems like May won, with some minor throwaway lines to placate the Brexiters,” said Sam Lowe, a senior researcher fellow at the Centre for European Reform.
The EU’s chief Brexit negotiator Michel Barnier welcomed the discussions on Twitter, saying he looks forward to the so-called White Paper.
Michel Barnier@MichelBarnier#Chequers discussion on future to be welcomed. I look forward to White Paper. We will assess proposals to see if they are workable & realistic in view of #EUCO guidelines. Next negotiations w/ #UK on WP, & Withdrawal Agreement, w/c 16 July #Brexit
Sent via Twitter for iPhone.
View original tweet.
There is now a chance that the negotiations between the U.K. and EU -- which have been stalled for weeks -- will be able to move forward toward concluding the divorce terms and mapping out a future trade deal by October. Lowe thinks: “The EU will not go along with this, but I’m interested to see if they string it out so as to get withdrawal agreement over the line.”
But the premier still faces battles to come. First she must ensure that EU leaders at least agree to discuss her latest proposals, and don’t reject them out of hand. She’ll almost certainly face a backlash from Brexit true believers inside her Tory party in Parliament, with Jacob Rees-Mogg’s European Research Group likely to raise grave concerns over the proposals.
The details of the government plan were released while ministers were still locked away in May’s Chequers manor house, 40 miles west of London.
No More Dissent
An immediate test will be what is said about the deal by euroskeptic ministers such as Brexit Secretary David Davis and Foreign Secretary Boris Johnson. They have been vocal in their concerns over May’s move towards a softer departure -- particularly her plan for keeping EU rules on goods, and a close customs partnership.
This time she seems determined to face down critics. The Times reported that she is prepared to fire Johnson if he seeks to undermine the peace deal. She told her Cabinet colleagues, according to letter tweeted by The Times, that while she has allowed them to “express their individual views” in the past, that privilege is now revoked.
In her statement, May outlined what the Cabinet had agreed, and her office released a three-page document providing more detail. The details include:
- A new U.K. - EU free trade area which establishes a “common rule book” for industrial goods and agricultural products. This will ease the flow of trade in goods between the U.K. and the EU, but has the significant downside for Brexit supporters of tying the country to to European regulations
- The British Parliament will be free to reject new EU rules on goods when they come, but this will have consequences for the level of access the country’s businesses will have to the the European market
- Financial services will lose access to the EU market, and new arrangements will "not replicate the EU’s passporting regimes”
- U.K. will seek regulatory flexibility for services, according to the plan, which makes no mention of an earlier proposal for “mutual recognition” of financial regulation
- U.K. government to step up preparations for failure of Brexit talks and a “no deal” exit
- New customs regime will see U.K. collecting EU tariffs to “remove the need for customs checks and controls between the U.K. and EU as if a combined customs territory”
- U.K. courts will pay “due regard” to European Court of Justice rulings on goods trade but new joint working between British and European judges will need to be set up
- Free movement of people will end but government proposes new “mobility framework” so Europeans can travel to apply for work and study opportunities in the U.K.
- New free trade area will ensure “fair” trading environment with “strong reciprocal commitments related to open and fair trade,” including deals on state aid and cooperation between British and European competition regulators
- In her statement, May said the proposal for a free trade area with coordinated customs rules will resolve the thorniest issue of the negotiations -- how to avoid a hard border between the U.K. and Ireland. Next week, May’s government will set out the policies in full, in a so-called “white paper” that’s said to stretch to more than 100 pages.
- U.K. will maintain high regulatory standards on isssues from the environment to employment, acknowledging a key demand from the EU that the U.K. Shouldn’t try to undercut the bloc by slashing regulation
(Adds pound, quote and meeting of May with her lawmakers, Barnier Tweet.)