May offers EU fine words, but pushes British interests

By Alastair Macdonald BRUSSELS (Reuters) - Theresa May's Brexit letter to European Union President Donald Tusk will please EU leaders by sounding constructive and acknowledging Britain must settle obligations before leaving. But the prime minister also made some tougher demands. In the six-page document delivered on Wednesday to the EU summit chair to trigger a two-year countdown to withdrawal, she called for parallel negotiations on not just divorce terms but a new trade pact and special deals in key sectors. She also made a veiled threat on security cooperation if talks break down. "We should engage with one another constructively and respectfully, in a spirit of sincere cooperation," May wrote. She referred -- twice -- to London's "obligations as a departing member state", in a nod to Brussels' demands that a "Brexit bill", possibly of the order of 60 billion euros, be paid to cover outstanding commitments before Britain leaves. She echoed the EU's own language in acknowledging that there could be "no cherry-picking" to retain the best bits of EU membership and acknowledged that Britons doing business with the Union would have to abide by rules they no longer help to set. In response, the other 27 governments said Britain could be a "close partner": "We will approach these talks constructively and strive to find an agreement," they said in a statement. Some of May's demands, however, run counter to what at least some of them want, setting up the kind of disagreements among the 27 that Britain may exploit, despite Tusk's call for unity. EU negotiators say they want as far as possible to agree a withdrawal treaty, if possible by the end of this year, before opening negotiations on the free trade deal Britain wants. But May made clear her insistence trade talks should start now. "We believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal," she wrote. Practically, EU officials acknowledge that elements of the withdrawal, such as arrangements on the new UK-EU border and notably on the land frontier across the island of Ireland, can not be settled without some idea of the future trade relations. But they want to resist getting too deeply into that until Britain has settled other issues, including the bill, but also how to treat the four million Europeans who will find themselves living as foreigners on either side of the new cross-Channel frontier -- something May agreed was a priority. AVOIDING THE "CLIFF-EDGE" May also suggests quickly opening "technical talks" on how to avoid disrupting key economic sectors that are closely intertwined, mentioning finance and "network industries", a term for sectors with strong linkages to other ones. EU negotiators, determined to avoid giving Britain such a sweet deal that Brexit could encourage imitators, want to avoid moving quickly to cutting special agreements on certain sectors -- though they acknowledge that is likely to happen eventually. May's acknowledgment that two years is a tight schedule for negotiating all she wants will be welcomed in Brussels. She said it was likely that to avoid a disruptive "cliff-edge" of changed regulations any deal would need "implementation periods" beyond 2019. That echoes EU assumptions of a "transition phase". Also chiming with continental thinking, at the risk of displeasing some of her own supporters at home, May also said negotiations would have to look at how trade disputes would be settled. Escaping the jurisdiction of EU courts was a key demand of Brexit campaigners, but the EU will insist that Britain be subject to some outside supervision if it wants free trade. One section of May's letter, echoing a passage of a speech on the Brexit proposals in January, may hit a sour note. Though she did not repeat the same "no deal is better than a bad deal" language, she explicitly referred to the possibility that Britain may leave on March 29, 2019 "without an agreement". That, she suggested, would be fine in London because it could "default" to trading under World Trade Organisation rules. But, she added, it would weaken Britain's cooperation against "crime and terrorism". When she said as much in January, that was seen as an unwelcome threat -- if perhaps an empty one -- to deprive the EU of the undoubted prowess of British intelligence. Tusk's response assured Britain of cooperation to ensure an "orderly exit". But he too offered a hard edge. Negotiations were about "damage control", he said. But in the end, he and the EU negotiators would "protect the interests of the 27". (Editing by Mark John)