A trade deal with the EU after completing Brexit was going to be the easiest ever, leave-supporting politicians promised. As the UK was already aligned with all EU rules and standards, it could be “completed in an afternoon”. The problem that they either did not foresee, or neglected to mention, was that their insistence on “taking back control” would mean the right to diverge from exactly those rules and standards and that would not meet the EU’s requirements for trading on a level playing field.
If the UK could go back on commitments to continue to match the EU’s environmental and employment standards, their chief negotiator Michel Barnier has said, then this would potentially give UK exporters an unfair advantage. This response was seen, by the UK side, as the EU being stubborn and failing to compromise and so the latest chapter in this long-running saga degenerated into name-calling and a potentially deal-breaking stand-off.
State aid — really?
The main stumbling blocks as the two sides went into October’s final round of talks, before the deadline for reaching a deal, were fishing quotas and state aid. With regard to the former, it has always seemed unlikely that a potential trade deal worth billions could be jeopardised by an argument over a sector that contributes only 0.1% to the UK economy. However symbolic regaining control of British waters has become, the two sides are surely going to compromise over this issue if it means saving the main agreement.
State aid has therefore emerged as the most likely rock on which the deal could founder although, for many analysts, it seems a most unlikely place for a Conservative Government to place its flag. Intervention in industry has been anathema to the party since the days of Mrs Thatcher and, rather than seeking to allow more opportunities for national support, successive British governments have encouraged the EU to take a tougher line. Where there have been concessions in EU law on the question of supporting domestic companies, the UK has been less interested in taking advantage of such opportunities than, say, France and Germany. And yet, this is the sticking point on which it is apparently prepared to end the negotiations.
The next Google
The answer to this conundrum seems to lie with the Prime Minister’s right-hand man, Dominic Cummings. According to various reports, he has convinced Mr Johnson that the future success of the British economy lies in being able to support start-up tech companies in the hope of helping the next Google, Amazon or Apple to grow somewhere in the Thames valley rather than Silicon Valley. Leaving the UK free to subsidise private companies in this way does not sit well with the EU which has always made a level playing field one of its red lines.
While it is true that it has not introduced similar requirements into deals with countries such as Canada and South Korea, the European Commission points out that they are not massive economies sitting just a few miles off its shores and able to shift thousands of goods across its borders every day of the week. With time now so short, and neither side likely to concede its position unilaterally, there are only two choices remaining: compromise or no deal.
What else could possibly go wrong?
There is however another problem casting a large shadow over the talks, the Prime Minister’s unexpected decision to alter the Withdrawal Agreement he signed last year with the EU and which formed the basis of his general election campaign (“Get Brexit done”). MPs across the House of Commons were shocked when Northern Ireland Secretary Brandon Lewis conceded that the changes introduced in the new Internal Market Bill would break international law, albeit in a “very specific and limited way”.
That proviso failed to impress several former Prime Ministers (including John Major and David Cameron) who all protested that this would be a breach of international law that would shatter the UK’s reputation across the world. Theresa May questioned whether the country could be trusted by future trade partners if it unilaterally altered the terms of the agreement it signed last year. The Government's most senior lawyer resigned over the proposed breach of the Government's obligations under international law.
In response, Boris Johnson argued that the agreement which he now wished to unilaterally amend had been “rushed through the Commons” and not given proper scrutiny so it was only now realised that it included difficulties with internal trade in the UK that had to be overcome. What he failed to acknowledge was that he was personally responsible for Parliament having had little time to scrutinise the agreement which he had assured MPs was “oven-ready”.
The EU has reacted badly to the suggestion that the UK will go back on a deal cemented in international law. This will be smoothed over, if not forgotten, assuming the two sides agree a tariff-free deal but will poison any future talks if the current negotiations do finally result in no deal. Commission President Ursula von der Leyen said that, if the UK unilaterally changed the Withdrawal Agreement it was “throwing its good name to the wind”. In her recent State of the Union address, she stressed: “This is a matter of law and trust and good faith.” She later confirmed that the EU would take legal action if the UK failed to delete the offending clauses from the Internal market Bill.
Any more problems?
Given that a possible trade deal with the United States was the holy grail for many Brexit supporters, the news that many leading US Democrats are angry at the proposal to go back on the Withdrawal Agreement will have come as a shock. Presidential candidate Joe Biden and Nancy Pelosi, Speaker of the House of Representatives, have warned that Britain will be unable to secure a US trade deal if it does “anything to undermine the treaty that brought peace to Northern Ireland after decades of violence”.
Closer to home, worries are being expressed by trade groups that Smart Freight, the system intended to ensure, after the end of the transition period, that trucks are carrying the correct documentation before they travel to ports in order to reduce delays on arrival, will not be fully functional in time. “The Government needs to understand the complexity of the UK’s highly interconnected logistics industry and the amount of co-ordination required in order to use Smart Freight, and prioritise the allocation of more resource to deliver the system on time, to protect the UK’s supply chain,” Logistics UK Director of Policy, Elizabeth de Jong, said.
More generally, according to the British Chambers of Commerce (BCC), just 38% of firms have done a Brexit risk assessment in 2020. With many businesses focusing on the problems caused by the pandemic, the BCC research found that half of those surveyed have not so far taken any of the steps recommended by the Government to prepare for changes in the movement of goods between the UK and the EU. Director General Adam Marshall warned that, despite recent public information campaigns, levels of preparedness are low and businesses still lack basic details.
With little being reported so far on the final round of talks, the one item that seems to have leaked out has left the UK car industry in a state of shock. Citing rules of origin, the EU has apparently refused to accept that car parts from Japan and Turkey used in the UK should be treated as British which will mean automotive exports potentially facing higher tariffs. The Society of Motor Manufacturers and Traders (SMMT) responded: “Given its importance to the economy and livelihoods and the damaging consequences of tariffs, we need the sector prioritised in negotiations, not traded off against other industries.”
Light at the end of the tunnel?
Not the Channel Tunnel unfortunately, as that is just another of the Government’s post-Brexit problems. A leading Parliamentary Committee, which considers draft EU legislation, has produced a report, available at
https://publications.parliament.uk/pa/cm5801/cmselect/cmeuleg/229-xvii/229-xvii.pdf, which warns that the EU believes that the UK/France Treaty of Canterbury, which has governed the Tunnel’s operation since 1986, will need to be amended after Brexit. Given that the Commission envisages the Court of Justice having a role in any dispute over the Treaty, while Mr Johnson fought the election on promises to prevent the EU Court from having any say in UK matters, this can only end in tears.
However, that is for another day. The “tunnel” that may bring better news to both sides is that into which the negotiators will be said to enter if the talks are nearing agreement as the deadline approaches. This is a jargon term for a period of closed-door talks which allows the two sides to thrash out the final details of an agreement. By mid-October either that light will be shining, however dimly, from the tunnel, or the two sides will finally have admitted defeat and those who have always argued that “no deal” is an acceptable alternative will have the chance to be proved right. Only a few weeks ago, the Prime Minister said: “I want to be absolutely clear, as we have said right from the start, that would be a good outcome for the UK. As a Government we are preparing, at our borders and at our ports, to be ready for it.” Fingers crossed.