July 03, 2020
What needs to happen for EU and UK to agree a deal
In diplomacy one often encounters a situation where the outcome of a conflict or an agreement is clear, but the difficulty is all about getting there. This is why diplomacy is a profession. The Brexit trade talks fall into that category. We have a fairly good idea about the contours of a trade deal. But we can't predict that it will happen. If it does, these are the first three of many bullet points:
- it will be relatively small, if only because there is not enough time to negotiate a big one;
- the EU will drop the demand of territorial annexation through the ECJ;
- the UK needs to respect what it agreed to in the political declaration of the withdrawal agreement, in particular robust commitments to the level playing field.
As is always the case with complex and politically-charged negotiations, one party's ire can erupt over something that may be out of our focus right now. With that preamble, we take note that the first round of person-to-person trade talks since the lockdown ended early with no progress. Ending early means that the negotiators are stuck. Negotiators have to go back to their principals and get more leeway. David Frost is now almost a principal himself, after his appointment to become Boris Johnson's national security adviser. Both sides agreed that they are still too far apart.
The EU has three red lines, according to Michel Barnier's statement: robust level-playing-field guarantees; guaranteed access to UK fishing waters; and dispute-settlement procedures. We find these are perfectly reasonable demands, in contrast to the EU's opening bid from February which we can only presume must have been premised on the expectation that the UK would agree to a very long extension.
The spectre of extension is gone now, though we still note some rather silly discussions on this point. Clever lawyers may find a tricky procedure. If Johnson and Dominic Cummings understand one thing well, it is that extensions are toxic.
The trade talks between the two sides have for this reason effectively only started this week and, on our calculations, they have until end-October to conclude. Parliamentary ratification procedures can be squeezed a little. But, even if the final rounds go beyond October, this will not leave much time for anything other than a relatively unambitious deal.
The best thing to read on this subject is Andrew Duff's sober analysis on the contours of the emerging deal. Like us, he has been critical of both sides' opening negotiating positions. And, like us, he is also moderately optimistic that a deal is possible, with the usual caveats.
He notes that the UK is asking for a lot more than Canada, including judicial cooperation in civil and criminal matters. The UK wants to be part of various EU law-enforcement procedures: on passenger-name recognition; on criminal records; on the Prum convention, in which a subset of EU members agreed extensive sharing of law-enforcement data, like fingerprints and DNA information; on the European arrest warrant; and on the Schengen information system. The UK wants to have access to Europol and Eurojust, the latter relating to judicial co-operation. Duff points out that the UK will not get everything it wants, and that the EU will extract a price. Of course it will.
The EU will expect everyone who exports into its markets to adhere to European state-aid rules. As we reported this week, the EU is extending its state-aid regime to third and fourth countries. in a case involving subsidies paid by China to an Egyptian subsidiary of a Chinese company.
Duff also gives an outline of the deal he expects beyond the three bullet points we listed in the beginning. One suggestion he makes is for the UK to claim a right to diverge from EU, coupled with a political commitments not to do so now. And, of course, if the UK were ever to violate EU state-aid rules, then surely the EU would have the right to impose the usual remedies, like tariffs and quotas.
One important and not much-discussed issue relates to product standards. EU standards committees agree type approval and make conformity assessments. The committees are private-sector quangos, in which UK companies have often played a leading role. This complex area is far removed from the public eye. We are not sure whether UK representatives will continue to play any role in those regulatory groups. Maybe a reader with deeper knowledge than ourselves will update us on this matter. What we do know is that the scope for regulatory divergence in existing export markets is extremely limited.
None of that, of course, applies to digital services and financial services, areas in which the UK hopes to carve out lucrative niches. We should remember that trade deals are always backward-looking by definition. They deal with stuff that has already been invented and turned into a product: yesterday's widgets.
And finally, we agree with Duff's most important point. The whole raison d'être for the trade deal is not to produce the final word in the bilateral relationship. It should be flexible enough to handle big shifts in politics, and also to make it possible for the UK to align itself much more closely with the EU in the future.