June 03, 2020
Brexit is back
The big political issue of the summer will be Brexit, not the EU budget or the recovery plan. We expect a watered-down deal on the multi-annual financial framework 2021-2027 to emerge in the autumn, or possibly in December. But we will probably get clarity over the future bilateral relationship with the UK before we get clarity on the EU budget. Technical talks have now resumed and will continue for another week or so. Boris Johnson will travel to Brussels at the end of the month, after the EU summit.
There has been almost no progress in any of the areas in dispute. The probability of a WTO Brexit is non-trivial but it is also incalculable.
Most of the Brexit reportage in the UK is a noisy extension of the Brexit wars of 2016-2019. We noted an exceptionally level-headed and informative piece on the state of play by Jill Rutter. She monitored comments from David Frost and Michael Gove in front of a parliamentary select committee, and from Stefaan de Rynck, the spokesman for the EU’s UK taskforce, who spoke at the Institute for Government. The big picture from those comments is still the same as we reported before: a breakthrough will depend entire on whether both sides accept shifts they have previously ruled out. But there was some interesting granular detail.
Rutter’s account left us more pessimistic, especially given De Rynck’s comment that Brexit will not play a big role at the European summit in June. This tells us that there is unlikely to be a big shift in the European negotiating position. The summit is likely to be occupied by discussions on the details of the recovery fund and the EU’s future own resources that are linked to this decision.
What was interesting is that both sides seem to have indicated room for compromise in some areas. Frost has acknowledged that the UK’s demands are somewhat selective - for example on the mutual recognition of qualifications. And de Rynck noted that there has been some progress on fishing rights, with four scheduled negotiating sessions to discuss zonal attachment.
The more difficult issues all relate to the powers the EU requests to have over UK laws and rules. Rutter notes that the problem is not the substance of the trade agreements in various sectors, but the underlying principles. One is the EU’s insistence to oversee the application of the European convention on human rights in the UK.
The really difficult issue will be regulation - again not the content but who decides in case of conflict. We think the following section reflects the nature of the debate better than much of the more technical jargon:
"David Frost explained the UK’s objections to the EU’s ratchet on labour and environmental standards to the Lords in painstaking terms – if both start the transition at ‘five’ but then the UK moves to ‘eight’ and the EU to ‘seven’ the UK would not be allowed to go below what the EU judged to be seven. But de Rynck stressed he could not see why this was a problem since the UK stressed it only wanted the freedom to move up. More threateningly, de Rynck explained that keeping the UK in line with the EU’s state aid rules was a major concern for EU businesses."
We know that the state aid rules are a big deal for the Johnson administration too. We can just about see a fudge on fish and human rights, but not on this one. The EU has become more political over the years in its application of state aid rules. The lockdown has made it worse, as the Commission is supportive of member states’ efforts to keep businesses alive. A big case right now is Lufthansa’s bailout, and the minimalist conditions applied by the European Commission. It is clearly conceivable that the EU would use an activist competition policy that discriminates against non-EU companies.
The two sides also disagree over whether there should be one or many deals as the UK suggests. The EU says a singular framework has the advantage that it offers room for expansion later on. The problem is that it also allows cross-sectoral retaliation in case the EU registers a breach of the rules.
The UK’s position on a negotiating extension is unchanged. We do not think the government will ask for one. If the talks reach a partial breakthrough this month, the UK will want to keep the pressure on to reach a conclusion by October. If not, the UK will have six months to prepare for a WTO arrangement. The EU said that costs for an extension would not be entangled with the EU budget talks. This is good news, and will placate those in the UK who fear to get plugged for the recovery fund. We don’t think, however, that money is going to be issue, one way or the other. Rutter also notes that the atmosphere of the talks is cordial. The rancor of previous negotiations is gone. But this is not necessarily a good sign. The two sides see each other’s position very clearly. The problem is not the negotiators, but the negotiating mandates. They both will have to change for there to be a deal.