1/ As Brexit talks enter what might be their last few hours, the key hurdle to overcome is how to agree on what the EU calls 'managed divergence' and the UK has dubbed 'lightning tariffs'. Despite the doom and gloom, there are signs the sides aren't quite as far apart as appears.

2/ The EU has dropped its insistence on a 'ratchet clause' which would have formalised the principle both sides should keep up with each other's standards. It's now ready to cater for divergence in the future so long as there are strong safeguards to rebalance unfair competition.
3/ This is a shift from the EU, which previously rejected managed divergence as too messy and risky for its economies. They worried it would create constant uncertainty for them. It thus represents a fair departure from the EU's opening position on LPF.
4/ There is a difference between having a commitment to match standards hard-wired into the deal, failure to comply with which would be a breach of the agreement, and a mechanism written into the text catering for a decision to diverge and accept rebalancing measures in return.
5/ What the sides are now trying to thrash out is how unfair competition would be defined, the process for triggering rebalancing measures, and how extensive they'd be. The EU originally wanted the Commission to have the unilateral right to apply them - hence 'lightning tariffs'.
6/ That demand angered the UK, and has now been diluted by Brussels which accepts there needs to be due process based on evidence. One EU proposal is for a 'distortion test' that could be triggered by either side. They're also open to setting up an independent arbitrage system.
7/ The EU stresses this would only apply in cases of 'significant divergences' in standards - it wouldn't be used to scrutinise the minutiae of every British law. 'At a certain stage the competitive advantage might become so big you have to do something. How do you manage that?'
8/ Key for the EU is speed of response. UK is open to these ideas but is concerned about the size and scope of rebalancing measures. It wants unfair competition in specific sectors to be addressed with tariffs in those sectors. On LPF, the EU has been wedded to cross-retaliation.
9/ But cross-retaliation is for *breaches*. So could a middle-ground be found here? Some don't think it's worth sacrificing a deal over. 'Is either side going to collapse an entire trade deal over what would be a very sectoral issue, over which you could impose sectoral tariffs?'
10/ It's not impossible to see a way through that ticks UK red line on sovereignty & EU one on protecting the Single Market. That's what negotiators have been hammering away at. Risk of No Deal is still 'very high'. But if so it'll be over 'a very minimal subset of open points'.

More from Brexit

End of week 2 thread on post Brexit food trade

There is continued growing unease. The main picture remains one of depressed/tentative trade (c50% down y-o-y) and some high profile logistics business have taken the rational step to stop and regroup.

The big worry here is that ‘not-trading’becomes a habit. We can’t/won’t carry on at half the volumes of before, but as volumes claw back we may only reach something like 80% of previous volumes and that is a disaster for a food industry already battered by a recession.

Lots of focus has been on the idea of EU businesses stopping serving the UK. Worries about how we feed ourselves has trumped worry about our exporters at every stage. Even though it is the collapse of our export businesses that is (and has always been) the greater threat.

To reassure the mainland British shopper that feels like less of a risk. UK is a large market of wealthy consumers, and UK gov has shown it will do anything (however unfair) to ensure stuff gets in - even letting supermarkets have access to the fast track lane to Dover.


I am not as close to this but it feels like shortage on the shelves is more of a genuine immediate threat for the island of Ireland. The types of innovative solutions we have discussed this week can help but will they come in quick enough?

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