The UK and the EU have been in negotiations on their future relationship since 2 March 2020, but though progress has been made, timetables have slipped and optimism is in short supply. How far have the negotiations got? What are the prospects of an agreement? What would be the costs of ‘no deal’?
Background and context
The negotiations on the future relationship between the EU and the UK are the second set of negotiations to take place in the wake of the referendum of 2016.
The first set, which decided the terms of the UK’s departure from the EU, were agreed under the Article 50 process.
They were concluded by Boris Johnson and EU representatives at the European Council in October 2019, which set the stage for UK withdrawal into a transition period on 31 January 2020, and in turn the current negotiations.
The EU and the UK signed off on two key texts as part of deciding on the so-called divorce:
The first text is the Withdrawal Agreement, which was ratified by Parliament and came into effect on 31 January 2020 when the UK left the EU. The Withdrawal Agreement is legally binding. It covers citizens’ rights and the settlement of the UK’s financial liabilities.
It also includes the Northern Ireland Protocol, which covers for customs, tariffs, the movement of goods, and regulation.
The Protocol creates special circumstances for Northern Ireland, which reflect the commitment of the UK and the EU to the Good Friday Agreement and include keeping the Irish border open. The Withdrawal Agreement sets out the arrangements for the transition period, which comes to an end on 31 December 2020.
In addition, the Agreement provides for the creation of a Joint Committee, composed of representatives from the UK and the EU, which oversees the implementation of the agreement. Six specialist committees cover the Northern Ireland protocol, citizens’ rights, British army bases in Cyprus, the financial settlement, Gibraltar, and ‘other separation issues’.
At the political level, the UK government is represented by Cabinet Office Minister Michael Gove and the EU by Commission Vice President Maroš Šefkovič.
The second is the Political Declaration, which sets out the framework for the future relationship between UK and the EU.
In the words of the UK government, the Political Declaration ‘reflects the government’s ambition to conclude an ambitious, broad, deep and flexible partnership across trade and economic cooperation with the EU, with a free trade agreement with the EU at its core, alongside agreements on security and other areas of cooperation’.
Although not legally binding, the Political Declaration has the status of an international treaty. It lists the areas where the two parties commit to reaching an agreement. Trade in goods and services are at the centre.
The text also covers sectors including digital, financial services, transport, energy, fisheries, law enforcement and judicial cooperation, foreign policy security and defence, as well as cyber security, civil protection, health security, illegal immigration, and counter terrorism (‘thematic cooperation’), and public procurement.
Other key elements are the overall structure of the future arrangement, institutional governance, and dispute settlement.
What do the two sides want from the negotiations?
Both sides have outlined their negotiating aims and their visions for the future relationship. In February 2020 the UK published The Future Relationship with the EU and a series of accompanying documents, including the 292-page draft UK-EU Comprehensive Free Trade Agreement (CFTA) and several sector-specific texts.
The EU transmitted its Draft text of the Agreement on the New Partnership with the United Kingdom to the UK on 18 March 2020.
This document translates into a legal text the negotiating position agreed by the political leaders of the member states in the European Council in February 2020.
Who is negotiating?
Negotiations take place at two levels. At official level, David Frost, the PM’s Europe adviser, is chief negotiator of Task Force Europe, overseeing negotiations from the UK side. Formerly a civil servant in the Foreign and Commonwealth Office, he heads a team of around 40 officials.
The EU negotiator is Michel Barnier, who also led the negotiations on the Withdrawal Agreement for the EU side. He negotiates on the basis of a mandate decided by the political leaders of EU member states, which was adopted on 25 February 2020. The negotiations are conducted by staff from the Task Forces of the two sides.
Boris Johnson, and the European Commission President Ursula Von Der Leyen, are responsible for the negotiations at political level.
How are the negotiations organised?
The topics covered are those set out in the Political Declaration. However, the UK made it clear that it did not wish to discuss foreign policy, security and defence, from which it can be inferred that these area areas that the UK would prefer to manage outside any permanent institutional framework.
The two sides agree the agenda for the negotiations on a round-by-round basis, often at very short notice. The items discussed vary from round to round.
The first round, completed in March, included eleven negotiating ‘tables’: trade in goods; trade in services and investment and other issues; level playing field for open and fair competition; transport; energy and civil nuclear cooperation; fisheries; mobility and social security coordination; law enforcement and judicial cooperation in criminal matters; thematic cooperation; participation in union programmes; and horizontal arrangements and governance.
By contrast, the sixth round, which took place 21-23 July, discussed the level playing field for open and fair competition; horizontal arrangements and governance; fisheries; trade in goods; trade in services and investment and other issues; law enforcement and judicial cooperation; energy; thematic cooperation; mobility and social security coordination; transport; and UK participation in EU programmes.
Where are we?
The talks have fallen behind schedule. The deadlines for a fisheries agreement and for financial services equivalence, both set for 30 June, were missed, and the ambition to agree an ‘early understanding on the principles underlying any agreement’ by July has not been realised, despite Johnson’s call at the high-level meeting in June to ‘put a tiger in the tank’.
Following the sixth round of talks, Michel Barnier declared an agreement ‘unlikely’, while David Frost commented that a deal might be reached, but that ‘no deal’ remains a prospect.
Part of the delay is due to the coronavirus, restrictions surrounding which led to the postponement of the second round of negotiations from mid-March to mid-April, and forced negotiators to conduct the third and fourth rounds through videoconferencing.
The UK government could have requested an extension at any point until 30 June, but despite domestic pressure from several quarters, including businesses worried about the time left to prepare for new arrangements to apply on 1 January 2021, it decided against.
However, the two sides have also been far apart on several key questions.
There has been some progress in recent weeks. As well as coordination between social security systems, the UK has softened its position on the EU’s demand that the areas lists in the Political Declaration should be governed within a single framework, as opposed to multiple sectoral agreements, while the EU has reportedly found a way of meeting the UK’s demands on the role of the European Court of Justice in dispute settlement.
But significant differences still remain. There appear to be two that most risk blocking on agreement.
The first issue is fisheries. As an independent coastal state after Brexit, the UK wants control over its waters, and to negotiate annually over EU access – presumably as a precursor to reducing EU access.
The EU initially insisted that European fishers retain their existing rights to fish and called for a long-term agreement on quotas. There are reports that Barnier now accepts the need to move from this ‘maximalist’ position – but still wants more certainty and stability for EU fishing communities.
The second is the level-playing field. As David Frost has repeatedly underlined, as a sovereign nation the UK insists on the right to set its own standards and regulation. It refuses to accept EU rules or to be bound by the European Court of Justice.
London contends that in its draft trade agreement it is asking for nothing more that the EU grants under its other trade agreements, notably with Canada. The EU, however, does not believe the UK’s sovereignty to be at issue. It counters that trade agreements need to reflect geography and levels of trade.
The UK is a neighbouring state and trade heavily with the EU. It claims that the UK is asking for far greater access than granted by an EU agreement to any other trade partner.
Moreover, since the UK is asking for such far-reaching access to the single market, the EU needs to be sure that there is a mechanism in place to ensure that European businesses are protected against future regulatory change that would give UK businesses an uncompetitive advantage.
This could come from lower labour market or environmental standards, or from public subsidies. For this reason, the EU is asking the UK to publish the rules that will govern state aid in the future.
Beyond these issues, trust between the two sides is not high. Alongside the negotiations, the EU is monitoring UK compliance with the obligations it signed up to under the Withdrawal Agreement, especially those regarding Northern Ireland.
Several issues still need to be decided, such as what goods destined for Northern Ireland will be subject to tariffs, which goods are to be considered ‘at risk’ at entering the single market into Ireland, and the location of border inspection posts.
The EU has been perturbed by the rhetoric in London, which suggests that that the UK government wants to reopen or thinks it can revise or renege from the commitments to which it signed up only last year.
What is the timetable?
The deadline for any agreement to come into place is 31 December 2020. On that day, the transition period comes to an end. Until then, the UK continues to enjoy the benefits of membership, even if it has formally left the organisation and no longer participates in EU decision making.
For an agreement to happen in time to be ratified by the two sides, there would have to be a breakthrough in September, so that a deal is ready ideally in advance of the European Council on 15 and 16 October.
Although the ratification procedure is relatively straightforward on the UK side, involving only Westminster, on the EU side even an agreement that is narrow in scope would need to be supported by a qualified majority in the Council (55% of member states, representing at least 65% of the total EU population) and a majority vote in the European Parliament.
The European Parliament holds its final plenary of the year on 14 December and any text would have to have been scrutinised by its specialist committees.
If the deal is more wide reaching – in other words, if it extends beyond trade, competition policy or fisheries, where the EU has exclusive competence – it will require a unanimous vote in the Council, a majority vote in the European Parliament, and ultimately approval by national and sub-national parliaments across the EU.
How might compromise happen?
On fish, there is scope for a compromise, but the UK would probably have to concede some sort of longer-term guarantees of access for European fleets and the EU to accept that in the longer-term it will lose quota to the UK.
The eight EU member states with a strong interest in fishing, which includes France, would have to be persuaded not to vote against in the interests of not obstructing the whole agreement.
On the level playing field, there would have to be movement on the UK side. The UK needs at the very least to publish its future state aid policy. However, as press speculation in recent days has shown, it is not clear that the UK has a clear vision of its post-Brexit policy.
On other standards Michael Gove has suggested that the UK can agree to non-regression, as long as it is not linked to EU law.
These shifts are possible, but they will need to be sold by the UK government to its supporters and by the EU negotiator to the member states as a price worth paying for tariff and quota free access and some other reductions in trade friction.
What happens if we don’t get a deal?
A ‘no deal’ remains a possibility. Indeed, some Brexiteers in the UK argue that ‘no deal’ is the most desirable outcome and that trading on WTO rules should hold no fear for the UK.
Whilst a ‘no deal’ future relationship would be less problematic than a ‘no deal’ in the Withdrawal Agreement, the UK would still be exposed to considerable disruption and uncertainty in many areas of the economy.
UK exports would be subject to exports, which would increase prices and reduce margins for UK producers, border checks would be introduced to ensure safety compliance, and some UK services could no longer take place within the EU.
Even if the UK and the EU were able to introduce unilateral measures or minimum agreements on some or all of the areas covered in the Political Declaration, which include aviation, financial services, and fisheries, they would be highly rudimentary and short-lived.
What happens if we do?
Even if there is a deal, relations between the UK and the EU will change fundamentally after 31 December 2020.
The UK government and the EU have both released communications that are intended to assist governments, citizens and businesses in preparing themselves for the changes that will take place on 31 December 2020. These include the introduction of customs formalities at UK-EU borders.
Moreover, Brexit would not be at an end. Even if a comprehensive agreement is reached, implementation could take months or years. The UK will take time to adapt to Brexit in virtually every policy area and is likely to be affected in ways that are currently unforeseen.
If the deal were of limited coverage, negotiations between the two sides are likely to be necessary. Unilateral action on either side could also affect the relationship.
By Hussein Kassim, senior fellow, The UK in a Changing Europe.