January 08, 2020
What to expect from Boris and Ursula
One of the things we keep noting is that political commentators in particular have a tendency to double down - confounding their own sentiment on Brexit with their analysis and predictions. We noted a couple of comments in the Guardian and the Wall Street Journal written in the same spirit as those articles in 2019 predicting that the EU would under no circumstances reopen the withdrawal agreement. Fanboys often get disappointed when their own team changes course.
We do not want to minimise the complexities of a future trade relationship between the UK and the EU. Boris Johnson and Ursula von der Leyen are due to meet today to discuss the framework of the agreement. The end-of-year deadline is tight, but not impossible in our view. The most important change that has taken place in the last few years is the change in EU’s trade policy regime that result from the European Court of Justice's 2017 ruling. This follows a request by the European Commission to the ECJ to clarify the competences between the EU and member states in connection with the EU-Singapore trade deal. The court ruled that only provisions relating to non-direct foreign investment and dispute settlements were of a shared competence nature. In other words, only those categories require the whole charade of ratification procedures by national parliaments. All the other stuff can be negotiated at EU level. This ruling makes it possible for the EU and the UK to strike a multi-tiered trade deal, starting with a core trade deal that can be agreed at EU level, followed by subsequent agreements.
We conclude from this that it is perfectly possible for the UK to leave the transitional period either at the scheduled date of end-2020, or shortly thereafter if an extension were agreed before July.
What about the negotiations themselves? We noted that Michel Barnier insisted that any type of trade deal - even a minimal tariff-only deal - would require regulatory alignment and EU access to UK fishing waters. We consider that to be an unreasonable position because it is simply not a sustainable negotiating position as we approach the cliff-edge. There are massive EU interests at stake as well. From a UK perspective, the relative benefits of a tariff-only deal would be comparatively small when set against the need for full regulatory alignment, subjugation to EU jurisdiction, and EU access to fishing waters.
We can, however, see compromises in all of these areas. What the UK could agree, for example, is a contractual undertaking to comply with international standards on the environment and on labour market regulation to address French concerns of environmental dumping. We think the latter is a non-issue if only because France is more likely to have issues with Germany than with the UK.
We think that it should be perfectly possible for the EU and the UK to strike a trade deal facilitating the free flow of goods by the end of this year - to be followed by other agreements later. We cannot rule out a WTO-Brexit, but note that the EU does not have to proceed with unanimity on this issue. The UK parliament will also this time not pass legislation to force the government to seek an extension, thus indirectly colluding with the EU as happened previously. The political environment has changed as a result of both the 2017 ECJ ruling and the 2019 UK elections. We expect that the interests of industry are going to play a more prominent role in this round of the negotiations, in contrast to the discussions on the withdrawal agreement itself.