Deal or No Deal?

Long, long ago, at a time for which Britons are unexpectedly nostalgic, there existed something called Brexit. Although it was formally completed on 31 January 2020, when the UK left the European Union, the process is only partly complete – and the second stage is on track to be just as bumpy as the first. Oliver Lamb explores what Brexit could look like in the wake of the COVID-19 pandemic, as a trade deal between the UK and the EU becomes increasingly unlikely.

Under the withdrawal agreement struck last year, the UK is no longer represented in the EU’s political institutions, but for now remains subject to EU law and part of the customs union and single market. (The customs union ensures that its members charge the same import duties on goods and services brought in from outside, while eliminating duties on goods and services traded between members. The single market is more far-reaching; it provides for the free movement of goods, services, capital and labour between members, and sets common rules for everything from working hours to environmental standards.) This ‘transition period’ will last until 31 December, after which date the UK will leave the customs union and single market.

Between now and then, the two sides must decide what their future trading relationship will look like. Both the UK and the EU want a free trade deal which removes import duties on goods and services. Achieving one would boost both sides’ economic outlooks: in 2018, 49% of the UK’s trade was with the EU, and in 2016, 18% of the EU’s trade was with the UK.

But both sides’ chief negotiators – David Frost for the UK and Michel Barnier for the EU – are constrained by the negotiating mandates drawn up by their respective governments. Those mandates are irreconcilable and three rounds of discussions have failed to bring them closer. There are two major areas of contention.

The first is the ‘level playing field’, whereby the UK aligns with EU laws on workers’ rights, environmental protections and other issues to ensure that British businesses do not gain a competitive advantage over European ones. Under the withdrawal agreement, such an arrangement is a condition for a trade deal. The British government, however, wants to be able to diverge from EU laws, which it considers the whole point of Brexit. It points out that other countries with whom the EU has free trade deals, such as Canada and Japan, do not have to agree to maintain a level playing field; but the EU counters that the amount of trade it does with the UK makes the UK a special case.

The second serious disagreement is fishing. When the UK was an EU member, EU states had access to British fishing waters under the Common Fisheries Policy; the EU wants a trade deal that guarantees it the same rights. But the UK insists that fishing agreements should be negotiated separately, perhaps on an annual basis as the EU’s agreement with Norway is.

There is little sign that either side will budge on these issues. Speaking to the Brexit Select Committee in Parliament on 27 May, Frost said that the EU would have to give ground on the level playing field and fishing rights. Two days earlier the fisheries committee of the European Parliament had threatened to veto any deal that did not include a satisfactory agreement on fishing.

The fourth round of negotiations will begin next week. After that there is a summit where the two sides will assess the progress of the talks. If a deal looks possible, discussions will continue; if not, the UK may follow through on its threat to walk away. In that scenario, both sides would prepare for the UK to leave the customs union and single market on 31 December and thereafter trade with the EU on World Trade Organisation terms, meaning import duties will be imposed. The British government calls this an Australia-style deal, but this is a mere linguistic obfuscation of which Sir Humphrey Appleby would be proud: Australia has no deal with the EU. Most economists agree such an outcome would damage both the British and European economies.

The coronavirus pandemic makes the road ahead look even rockier. Firstly, governments dealing with the disease and its economic fallout cannot devote as much time and energy to the negotiations. Frost believes his opposite number wants to make concessions, but Barnier cannot do so unless all 27 EU governments agree to change his mandate – which is hardly at the top of their agenda. Secondly, it is hard to hold talks over videoconference, and there is no room for the kind of one-on-one discussions that often prove crucial in negotiations like these. It hasn’t helped that both Frost and Barnier were at one point struck down with coronavirus symptoms.

All this makes a no-deal exit all the more likely unless the British government seeks an extension to the deadline. That request has to be made by 30 June. Leavers and remainers alike have called for the deadline to be put back – a poll taken in March put public support for the move at almost two-thirds. Their thinking goes that to leave without a deal in any case would be foolish, but to do so when businesses will only just be recovering from the pandemic borders on the suicidal. Others, however, counter that, during its recovery, the UK will need all the regulatory freedom it can get. Furthermore, they want to avoid having to contribute to expensive EU recovery funds in response to COVID-19. That is the line taken by the government, which insists the UK will leave on 31 December with or without a deal. Earlier this month it emerged that plans to train pandemic response teams were shelved, and reassigned to no-deal preparations.

What nobody wants, especially now, is a rerun of the parliamentary trench warfare that paralysed British politics for most of 2019. With prime minister Boris Johnson wielding a majority of 80 parliamentary seats, that may not happen. Yet, there are bound to be disagreements, as many leavers prioritise a harder Brexit even at the expense of a deal, while most remainers place greater emphasis on a deal, even at the expense of the deadline. Watch this space.

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