The United Kingdom has nominally ‘left’ the European Union to start a transition period for completion of a bilateral trade deal with the Union. Prime Minister Boris Johnson has declared that a ‘Canada-style trade deal’ must be negotiated by the end of this year and that any future partnership must not involve any kind of regulatory alignment or European Court of Justice jurisdiction.
The EU Commission President has made clear that Britain will find it impossible to negotiate a comprehensive and close future relationship with the Union by the December deadline. Moreover, “no alignment means no deal”. The price of a ‘no deal’ would result in a distant partnership between the EU and Britain and new barriers to trade.
Formal negotiations are not expected to begin until after EU ministers have signed off on the bloc’s negotiating mandate at the end of March. To stand any chance of meeting Boris Johnson’s target to complete the trade deal by December 31, negotiations must in essence be completed by the early-autumn. Trade experts have questioned whether it will be possible to conclude an agreement covering all sectors of the British economy in that time.
In parallel, it is thought Boris Johnson might try to maximise his leverage in trade talks with the United States and the EU by publishing plans shortly for both sets of negotiations to happen at about the same time. It seems highly unlikely, however, that Britain has the capacity to take on two of the world’s most formidable negotiating powers simultaneously.
The stage is set for a tense and rocky few months of negotiations. What will be the key EU/UK issues in the talks ahead?
The critical issues arise from the need to reach agreement on five interlocking areas: financial service regulations; fishing; the unfettered transfer of data; an outline deal for goods to prevent disruption after the end of the transition period; and regulatory alignment. After the end of the transition period, Britain will have the right unilaterally to exclude European boats in favour of British boats from its fishing waters – a promise made during the referendum campaign.
But giving Britain’s troubled fishing industry the lion’s share of fishing rights – which generates less than one per cent of Britain’s GDP and employs just 12,000 people – while politically symbolic for the British government, would devastate European coastal fisheries communities, especially in France, Spain, Belgium, the Netherlands and Denmark.
On the other hand, financial services companies in Britain will lose their automatic right to operate in the single European market at the end of this year. UK negotiators will be pressing the EU to make a so-called ‘equivalence ruling’ to allow those firms to continue trading with the Union.
It is highly likely, therefore, that the fate of the UK’s financial services (UK-based banks, insurance firms and other financial services companies), which generate exports to the EU of £26 billion (almost €31 billion) a year – by far the largest part of the British economy amounting to around half the value of total UK exports – will inevitably be made conditional on the EU retaining ‘access to waters and quota shares’ in Britain’s fisheries.
EU negotiators will undoubtedly use the threat of restricting or limiting access across each sector of the financial services industry to force concessions on fishing, as well as other demands for Britain to align with EU regulations to create a level playing field.
The issue of ‘data flows’ might sound dry and rather esoteric to the layman, but it will be one of the most critical issues in the trade talks. At present, Britain automatically follows EU data protection rules that allow the unfettered transfer of personal data across the trading bloc. This will fall away after Brexit.
Failure to strike an agreement would be deeply disruptive to business especially services including finance and telecommunications, many of which rely on central data centres and large volume information flows. It would also damage Britain’s growing digital industry as well as jeopardising security and cooperation on crime intelligence.
The price in the long and medium term for the UK “taking back control” and finding “Brexit liberation” may prove high
It seems possible that to retain access to UK fishing waters, the EU will trade some concessions to Britain on financial services and data flows on a wider trade deal.
But the balance of negotiating advantage in these fields lies with Europe where, economically, these two areas outweigh Britain’s leverage on fishing.
Brutal trade-offs will be inevitable. The stakes are high for both sides.
Moreover, affecting all these key areas, the fundamental question will be regulatory alignment. Britain will be seeking the maximum space to diverge from EU regulations, especially in terms of setting new standards in key sectors such as artificial intelligence and technology. The EU will try to hold the British economy in a close regulatory orbit. Talks on how a level playing field is enforced will be central to any trade agreement.
The prospect of the second largest economy in Europe creating ‘Singapore-on-Thames’ on Europe’s doorstep will not be acceptable to the EU. The weaker the degree of alignment, the more restrictions and potential tariffs will be placed on UK goods entering Europe, posing significant challenges and possible job losses in Britain’s manufacturing industries.
Food safety is political dynamite. EU farm regulations are seen as gold standards in global trade. If Britain departs from present and future so-called ‘sanitary and phytosanitary measures’, significant new trade barriers will be placed on British farming and food products.
But alignment is also fundamental to any future trade deal between Britain and the United States, as American negotiators will demand access to Britain for ‘hormone- enhanced’ beef and ‘chlorinated’ chicken. Food safety highlights the difference between the EU’s and America’s regulatory regimes and poses a difficult choice for the UK government’s plans for ‘global’ Britain.”
Caught between the Scylla and Charybdis of the EU and the US, it therefore seems quite possible that parts of the transition negotiation will be extended beyond December 2020 if complete agreement in key areas has not been reached.
These negotiations will inevitably be fraught. It is difficult not to conclude that, except on the issues of fisheries and of putting in place a security cooperation deal – a field in which Britain is a major player – the European Union holds most of the best negotiating cards.
The price in the long and medium term for the UK “taking back control” and finding “Brexit liberation” may prove high.