GP Insights

GP Insights # 451, 13 December 2020

Brexit: The trade deal may not come through
Harini Madhusudan

What happened?
On 11 December, the UK's Prime Minister Boris Johnson chaired a meeting with Cabinet Officer Michael Gove and senior officials in Downing Street, to carry out a "stock-take" of plans for a no-deal scenario. On 10 December, the EU revealed its contingency measures to deal with the no-deal scenario, ensuring basic reciprocal air and road connectivity and fishing access for EU and UK vessels to each other's waters for up to a year. 

Both the EU and the UK have warned that a post-Brexit trade deal by the deadline is unlikely. This comes after Boris Johnson flew to Brussels on 9 December and met with European Commission President Ursula von der Leyen for three-hour discussions over dinner, in an attempt to save the deal. 

What is the background?
First, the failure of the last-minute efforts. After almost ten months of negotiations, the deadline of 15 October to reach a deal set by Boris Johnson has passed. The situation remains tricky because the two sides have been unable to reach a common ground. With the end of the transition period fast approaching, the UK and EU set another deadline for 13 December as a final attempt at a compromise toward the trade-deal. However, Ursula von der Leyen said no deal was the most probable end to "difficult" talks, and Boris Johnson argued that the EU needed to make a "big change" over the main sticking points. 

Second, the two sides have serious differences over certain issues, not just the sticking points. The primary reasons for the delay remain the fishing rights, business competition rules, and the future of dispute negotiations. However, the fundamental problem lies with the UK's argument in favour of retaining control over sovereign decisions, and the EU's expectations of the UK to abide by the common standards of the region. Through the process of the negotiations, the parties have ensured not to step away from these demands.

Third, agreement on Northern Ireland despite the impasse. On 9 December, the UK and EU reached an 'agreement in principle,' in relation to Northern Ireland. It includes border control posts and supply of medicines. It is expected to be signed in the following days. The new border arrangements will apply regardless of whether the two sides sign a trade deal. 

What does it mean?
The likeliness of a no-deal Brexit looms large, and statements by the two leaders should be seen as a forewarning of the worst case. At this point, the EU leaders are unlikely to intervene in their personal capacity to try and save the deal. The failure of the negotiations will allow the two parties to start imposing taxes and tariffs on each other. Although, the proposed measures of the contingency agreement would soften the impact of the failure, but would again depend on the reciprocity of the UK on critical terms. Given that the reasons for the deadlock are due to vast differences, the impasse shows a lack of political will from both sides to head toward a compromise. 

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