With political and media attention across the world focused on the global response to the Coronavirus pandemic, there has been little attention paid to the negotiations between the UK and EU on their future relationship, which entered their crucial third round of talks this week.
There can be no doubt that progress so far in those talks has been limited, so how likely is it that a deal can be struck that genuinely suits both sides – or is a WTO outcome now inevitable, with all the consequences that this could have for businesses in both the UK and EU?
There is a certain uniqueness to the current negotiations in that the parties to most trade negotiations are usually agreed on the final destination from the outset, with the talks being used to iron out the details. However in this case, the UK and EU have fundamental differences about the type of deal that they are looking to secure – with the UK looking for a more simple free trade agreement based on those that the EU has negotiated elsewhere, along with some bespoke agreements in other areas such as data and security; whilst the EU is seeking a more comprehensive framework agreement that includes some legal oversight and, crucially, a deal on fisheries. The two sides to this negotiation are therefore talking past one another in an unprecedented way – hardly able even to move the discussions on to areas of technical detail.
It is well known that the UK’s insistence on its right to diverge on standards and regulation – even if based on principle rather than the practical desire to do so – is the primary sticking point. In theory there could be a way through the middle that enables both sides to maintain their positions – a sort of grand equivalence agreement, whereby the EU withdrew certain access to its markets in the medium term if the UK chose to diverge – but the landing zone is narrow and a large dose of political will would be needed to get there.
Instead the atmosphere around the negotiations as a whole is mostly negative. The comments by Michel Barnier last month that the talks so far had been ‘disappointing’ came as little surprise, but nevertheless added to the sense of impending doom about the negotiations overall.
The deadline next month for deciding whether to extend the negotiations looms heavily but the UK’s determination to play hardball by repeatedly and publicly ruling out an extension, despite the disruption caused by the Coronavirus, has yet to lead to any softening in the EU’s position and, given the parameters of the EU negotiating mandate, is unlikely to do so. Indeed Boris Johnson also sees little need to compromise knowing that he has sufficient domestic political support for his own position, including a WTO outcome if necessary. The comments earlier this year by a Government source that the UK would break off the negotiations in June and prepare for no-deal if an agreement looked unlikely seem at once both provocative and rational, given the positions of the two sides. The displacement caused by Coronavirus on a global scale means that the threat of economic disruption from a WTO exit seems more manageable than might otherwise have been the case.
Overall the outlook can only be described as negative. The belief within the Government that it was time pressure which forced the EU to concede on the Withdrawal Agreement last year is far from certain to work a second time. The coming weeks will be crucial in determining if an agreement is possible or if there is enough will or flexibility on either side to reach one. But for businesses on both sides of the channel, the stakes couldn’t be higher.