Brexit trade negotiations approach first key deadline

Overview

Having been drowned out by the peak of the coronavirus pandemic in Europe, Brexit-related issues are once more gaining attention.  This is due in part to the rapid approach of the June deadline for extending the transitional period, but is also attributable to a growing awareness that the timetable for agreeing a new trade agreement is looking increasingly tight, if it is to be concluded by the end of the current transitional period, which expires on 31 December 2020.

In this briefing we assess what progress has been made to date in the talks, and the main issues of interest to UK businesses that still need to be addressed.

Still talking, but little to show for it so far

It had been hoped that by now the UK and the EU would have agreed at least a broad framework for a future trading relationship, but that has not happened so far.  There are still a number of important sticking points, including the nature of the UK’s obligations to match EU single market standards in a number of areas, the position of Northern Ireland and fisheries (which has a political importance to both sides out of proportion to the economic significance of the sector).

The gap between the opposing sides was vividly illustrated by a somewhat tetchy exchange of letters between the UK’s chief negotiator David Frost and his EU counterpart Michel Barnier last month.  David Frost’s letter observed, given the UK’s demands were based closely on agreements other countries had reached with the EU, that his team found it:

“perplexing that the EU, instead of seeking to settle rapidly a high-quality set of agreements with a close economic partner, is instead insisting on additional, unbalanced, and unprecedented provisions in a range of areas, as a precondition for agreement between us.”

The EU’s response was to the effect that this “pick and mix” approach has never been regarded as appropriate for an immediate neighbour who wants to retain “high quality access” to the single market.

What happens next?

The fourth round of talks is due to be completed on 5 June and the EU Council will assess progress at its next summit on 19 June, though this is still likely to be dominated by its response to the coronavirus crisis.

A meeting between Boris Johnson and the new EU Commission President Ursula von der Leyen is also planned this month.  It is hoped that this encounter can inject some momentum into the stalled talks.  It is also expected that the 30 June deadline will come and go without the UK requesting an extension to the transitional period.

Preparing for leaving the single market without a trade deal

The Johnson Government has consistently stated that it would not countenance any extension of the transitional period, which is available under the Withdrawal Agreement if the UK requests it by 30 June.

That position, combined with the lack of progress in the talks, means that, once more, a “no-deal Brexit” is a real possibility – indeed an arguably stronger possibility than it was during the final stages of negotiating the EU Withdrawal Agreement.  Such an eventuality would be more accurately described as a no-deal exit from the single market, but it would be equally damaging for UK organisations and businesses which are dependant, directly or indirectly, on access to the single market.

In order to minimise the disruption that the absence of a trade deal would cause, the Government faces a daunting list of tasks which it will need to complete in conjunction with its response to the coronavirus.  Tasks left over from its no-deal Brexit preparations last year include scaling up border infrastructure and staffing, finalising a completely new immigration system and passing a raft of other new legislation in areas such as agriculture, customs and the environment.  It also needs to complete the task of rolling over EU trade agreements with third countries: some progress has been made with this, but agreement has not yet been reached with some larger economies including Japan and Canada.

What are the other possibilities?

If a new trade deal is not in place by 31 December, the UK does not necessarily face a binary choice between a politically unpalatable extension of the transitional period and an economically damaging exit from the single market.

Possible alternatives include negotiating an implementation phase as part of continuing negotiations on a future trade relationship, or even negotiating a new and different transitional period, perhaps some kind of half-way house between full membership of the EU single market and a trading relationship based solely on WTO terms.

A high degree of political will on both sides will be required to reach some kind of agreement.  Experience of previous Brexit negotiations tells us that this tends to be in short supply until closer to the deadline.  In the meantime, in the absence of an unexpected breakthrough, businesses on both sides of the Channel will, regrettably, soon need to consider dusting off their no-deal Brexit preparations.