The UK election held on December 12, 2019 delivered a strong mandate for Boris Johnson’s Conservatives and a week later MPs approved a Bill endorsing the Withdrawal Agreement that Johnson negotiated with the EU. This was hailed as the move to finally get Brexit done. The UK will now be leaving the EU on Friday, January 31.
Yet the Brexit saga is far from over. Much of the EU-UK negotiating drama we have seen since the referendum mainly concerned how the UK will be leaving the EU (i.e. the Withdrawal Agreement). The bigger negotiations will now concern the permanent relationship between the two sides.
Beyond political declarations of intent on both sides, these tough negotiations have barely even started. When it comes to trade in particular, the negotiations will be facing many challenges. Due to the importance of trade it is pertinent to shed some light on the two most significant ones.
The first challenge relates to the tight deadline within which the permanent trade agreement has to be negotiated. The trade agreement should be up and running on January 1, 2021 as the transition period foreseen by the Withdrawal Agreement expires on December 31. According to the Withdrawal Agreement, this deadline can be extended by one or two years. However the Bill adopted by MPs ditched this possibility.
Trade agreements usually take years to negotiate. To take an example, the EU-Canada Comprehensive Economic Trade Agreement (CETA) took approximately seven years. In this regard negotiating a trade agreement that reflects the UK’s ambitions within an 11 month period will be extremely difficult. Before the negotiations commence, EU member states will need to agree amongst themselves on which priorities to focus upon in the negotiations and then provide a mandate to the European Commission to negotiate accordingly. Taking this into consideration, the actual negotiations with the UK might not even start before March.
The second challenge will especially concern the UK as it will need to square out its ambitions on international trade. The UK has called for a ‘best in class’ trade agreement with the EU that will give it ample access to the EU’s single market. At the same time it wants to go its own way when it comes to standards and regulations and also wants to have ambitious trade agreements with countries such as the US.
Unfortunately for the UK, all these options cannot co-exist and something will have to give. In order to have good access to the EU single market, the UK will have to keep its regulations aligned with the EU’s, especially when it comes to environmental, food and social standards as well as rules on state aid and taxation. The EU has made it clear that it will not be giving the UK privileged access to the single market to sell goods and services that are more competitive only because they are produced through inferior standards.
The Brexit saga is far from over
This element will also have an effect on the UK’s margin of manoeuvre to negotiate trade agreements with other countries. One can take food standards as an example. In the context of a prospective UK-US trade agreement, the US would expect the UK to open its market for chlorine- washed chicken or genetically modified products, both of which are mostly not tolerated in the EU.
Should the UK change its standards to accept such products, it will then find it much more difficult to export foodstuffs to the EU. So a gain for the UK in the US market would translate in a loss in the EU one. In view of these two challenges, it will be extremely difficult for the UK to achieve all it wants on trade by December 31.
It is more likely that one of these three eventualities will unfold: (1) The UK will fall out of the EU with no permanent trade agreement in place on January 1, 2021. This will be immensely problematic for EU-UK trade as a raft of trade barriers will automatically come up overnight; (2) The UK will somehow end up accepting an extension to the transitional period to avoid the first cliff edge eventuality; (3) The UK and the EU will buy time by agreeing on a simple trade agreement whereby the UK will play it safe by maintaining its regulatory alignment with the EU, while temporarily renouncing its intentions to go its own way on key standards and rules and catering for the difficult requests of countries such as the US.
Whichever way it goes, the road will be an arduous one, especially for the UK for which the EU market is of crucial importance. 2020 will be a year where Brexit’s political promises will be subjected to the test of reality.
Jan Micallef is a lawyer specialising in European and international trade law.