GP Insights

GP Insights # 273, 29 February 2020

New Trade Talks in Europe: UK cautions a ‘No Deal’ to EU
Sourina Bej

What happened? 
The UK on 27 February unveiled its negotiating strategy for a trade deal with the EU and threatened to walk away from trade negotiations if sufficient progress is not made by June, thereby raising its stakes before the country begins crucial talks from 2 March. The Downing Street’s document titled “The Future Relationship With the EU” lays out negotiating terms on fishing, financial services and the “level playing field” rules that will limit the extent to which the UK must align to EU regulations in exchange for market access.
 
The tough negotiation stance entailed in the document is consistent with Boris Johnson’s promises of no alignment after the Brexit transition period and that the European Court of Justice will have no oversight of UK laws. As the UK negotiates, it's position during this transition period that ends on 31 December 2020, the trade deal with EU will be crucial in laying the roadmap for UK’s global economic and political position. 
 
What is the background? 
The UK’s approach towards a level playing field rules remains in line with the Political Declaration on the future relationship, agreed in October 2019 with EU. However, the UK which understands on a level playing field, stands apart from what EU has interpreted it as the “provisions ensuring a level playing field for open and fair competition.” It would tantamount to the UK’s compliance with EU’s legal policies. More than discussing the economic terms of the trade, the negotiation between the EU and UK will also alter the extent of the UK’s coastal fishing rights.

The UK government is seeking a Norway-style deal on fishing, and the mandate says that the UK will no longer accept the ‘relative stability’ mechanism for sharing fishing quotas in place since the 1970s. The fishing agreement will rather be based on the “principle of zonal attachment, which better reflects where the fish live, and is the basis for the EU’s fisheries agreement with Norway.” The mandate by the UK comes in the backdrop of an equally tough question on Northern Ireland. By turning Northern Ireland as the dual border with EU, the mandate sets the stage for preparation of border checks, custom rules and different tariffs that UK will have to install with Northern Ireland and EU.    
 
What does it mean? 
First, the UK with the trade mandate has put its tough foot ahead and it will not come as a surprise if both sides accuse each other of backing away from commitments made in the non-binding political declaration in October 2019 that laid the ground for UK’s Brexit Withdrawal deal. Even though both the UK and the EU agreed in principle on a free-trade agreement, the mandate signifies the beginning of how difficult it will be for both EU and UK to implement it. French President Macron has already agreed that the EU’s tough days with the UK are more than just over. He is echoing the EU’s equally fatigued and tough negotiating stand against UK on the trade deal. 
 
Second, the possibility of the government leaving without a trade agreement looms large under the terms of the Withdrawal Agreement, with a range of mini-agreements on other areas. The UK has already put in place some border infrastructure. The UK trade mandate is so distant from the EU position that it increases the chance of a breakdown in EU-UK negotiations. Even if the EU were to assent to the UK proposal, this will represent a significant backsliding from the existing open economic exchanges between the UK and the EU. 
 
Last, by putting the face of a tough negotiator UK’s trade talks with EU will set a precedent of isolationism for itself. The US has already put its trade talks with the UK on hold after the UK allowed a partial investment by Huawei in developing its 5G technology. It remains to be seen in the next week how EU-UK transits its trade talks without a breakdown.  

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