Last week marked a hand-over from the technical Brexit negotiations back to the negotiators’ political masters.  After four rounds of talks on the future EU-UK relationship, it appears that the UK and the EU are increasingly talking past each other.  With both sides seeming to accept that the transition period will finish at the end of this year, a no-deal exit from current arrangements at year-end looks increasingly likely.  It will take significant political will on both sides to step back from the brink, yet their focus is on the more immediate challenges of COVID-19.

This blog post outlines the negotiations to date, the main points on which the UK and EU disagree, the prospects for the “high level meeting” that will follow this June, and the principal considerations in whether a deal can be reached this year.  If no deal is reached, the UK will either have to trade with the EU on World Trade Organization terms – which would hit UK businesses and consumers hard – or accept an extension of transitional arrangements with the EU – which it has repeatedly ruled out.

Opening Positions

Both UK and EU had to expedite the preparatory work on their initial positions.

Thanks to informal “seminars” conducted in January, the Commission was able to present proposals for the negotiating mandate, which would then be given to the EU negotiator, Michel Barnier.  These “Negotiating Directives” were approved by the Council on February 25 (see here).

These are very similar to the initial mandate given by the Council in 2018, and focus on preserving the EU’s internal market. The EU, however, had to adapt to the UK’s new position, set out in the Political Declaration of October 17, 2019, asking for a trade relationship “on the lines of the FTAs already agreed by the EU in recent years with Canada and with other friendly countries”. The EU stated that it was prepared to offer a “zero tariffs, zero quotas” agreement, but on the condition that the UK commits to a “balance of rights and obligations, and a level playing field”. It also insisted that the entire deal should fall under an “overall governance framework”.

Two days after the presentation of the EU mandate, the UK published its own “negotiating strategy” (see here).  This makes it clear that London is not prepared to compromise on the recovery of its full national sovereignty.  It confirms the UK Government’s strong intention to fully regain its “legal autonomy” and the “right to manage (its) own resources”.  The UK “will not agree to any obligations for our laws to be aligned with the EU’s, or for the EU’s institutions, including the Court of Justice, to have any jurisdiction in the UK”.  As to the structure of the deal, the UK would also like to see the comprehensive free trade agreement concluded separately, and “supplemented by a range of other international agreements covering, principally, fisheries, law enforcement and judicial cooperation in criminal matters, transport, and energy”.

The distance between these two positions showed just how difficult a negotiation this was likely to be.

The Negotiations’ Terms of Reference

On February 28, the two sides agreed on the “Terms of Reference” for their talks – essentially, their format and calendar (see here).

• The negotiations are led by the Commission’s chief Negotiator (Michel Barnier), Head of the Task Force for Relations with the United Kingdom (UKTF) and on the UK side by the UK’s Chief Negotiator (David Frost), Head of Task Force Europe (TFE).
• Several “negotiating groups” meet alongside the plenary negotiating sessions, working under the guidance of the Chief Negotiators and/or Deputy Chief Negotiators. There are 11 such groups: on “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”.
• Full rounds of negotiations were, in principle, supposed to take place every two to three weeks, alternating between London and Brussels.

The first such round was held from March 2 to 5.  No real negotiations took place.  Rather, each side outlined and explained its position on various issues.  The EU negotiator, Michel Barnier, noted in his press conference at the end of the round that “there are points of convergence on some of our objectives, including the participation of the U.K. in some EU programmes.  But to be completely [frank]: there are many divergences and they are very serious divergences, which is probably quite natural in a first round of negotiations”.

One positive outcome – at least as seen from Brussels – was that the UK promised to live up to its commitments in the Northern Ireland Protocol of the Withdrawal Agreement.  This foresees checks on goods passing from Great Britain to Northern Ireland, to avoid a hard border between Northern Ireland and the Republic of Ireland.  For Barnier, this was “a question of trust that we needed at this point to start building our future relationship”.  (Questions remain on whether the UK’s proposed “minimal” checks on goods flowing between Great Britain and Northern Ireland will be sufficient.)

From the start, the UK and EU agreed that it would be easier to bridge differences in negotiating a text than in exchanging positions.  (This was also the approach adopted when negotiating the Withdrawal Agreement.)  To this end, a week after the first round, the two sides exchanged their versions of a draft treaty.  The Commission presented a 441-page “Draft proposal to the European Parliament and the Council for the Agreement on the New Partnership between the European Union and the United Kingdom” (here).  The UK gave the negotiators its own version of what it believes the agreement should be, but asked that it not be made public.  (The British texts were eventually published on May 19 – see here.)

COVID-19 Hits Hard …

Soon after the first round of negotiations, the “lockdowns” introduced across Europe to control the COVID‑19 pandemic disturbed the agenda.  The second negotiating session, planned for March 18-20, was cancelled.  Michel Barnier announced that he had contracted the virus and David Frost showed mild symptoms.  From then on, as with most EU meetings, the Brexit talks took place “virtually”, by videoconference.

The challenges of such an approach quickly became evident: it is a challenge to run dozens of parallel negotiations over videoconferences, and even harder to build the trust and understanding needed to find compromises with a counterpart on screen.

Nevertheless, the negotiators pushed on.  Three further rounds of talks took place by videoconference, in the weeks of April 20, May 11, and June 1.  As anticipated, the hardening of the UK position, as well as the lack of preparatory work due to the absence of “face to face” meetings, brought the negotiations into a deadlock.  There was no progress on fisheries, the level playing field, governance, or the role of the Court of Justice of the European Union in determining questions of EU law (a hard red line for the EU).

The only positive sign of progress was the issue of the Northern Irish border: the UK accepted the basic need for customs checks in the Irish sea to meet its obligations under the Withdrawal Agreement.  The UK’s plan detailing how the border between Northern Ireland and Ireland will function once the UK leaves the EU customs union was published on May 20 (see here).

… Yet No Extension in Sight

Soon after the talks switched to “virtual” meetings, some in the EU began to argue that the extension of the transition period would swiftly become a technical necessity.  What’s more – they argued – with the major economic shock of COVID‑19, and the focus needed to respond to it, it was simply common sense to limit the uncertainties by taking the potential for a “no-deal” exit by January 2021 off the table.

Yet the British reaction to these arguments was and remains firm: there is absolutely no question of extending the transition period – and the EU seems to have decided not to insist.  There is a common belief in Brussels that radical “Leavers” in London see the COVID‑19 crisis as a vehicle for a “WTO” outcome, with the virus rather than Brexit blamed for its economic impact.  The UK’s absolutist reaction to the potential for a prolongation blamed on COVID‑19 – even where a majority of UK voters believed this would be sensible – did little to dispel this notion.

This leaves little chance that the UK and EU would agree an extension to the transitional arrangements in June, as provided for in the Withdrawal Agreement.  Though some see the possibility of an extension at the last minute, this will face far greater hurdles.  The Withdrawal Agreement was made under Article 50 of the EU Treaty, and the extension it provides for can be agreed at the EU level.  If the June deadline is missed, a later extension would likely need to be made under a separate treaty, as the UK is no longer an EU Member State.  This, being a “mixed competence” trade agreement, would need to be ratified by national and sometime regional parliaments.  Doing so at speed could be difficult – all the more so if those parliaments are not meeting in their normal format due to a potential second spike in COVID‑19 later this year.  If there is strong political will, some alternative “fudge” might be found – but this too will not be straightforward.

The Main Divergences

The Coronavirus crisis, instead of encouraging flexibility in some of the UK’s and the EU’s respective positions, seems to have hardened them.  The two sides are increasingly talking past each other.  This became apparent in an exchange of letters between David Frost and Michel Barnier after the end of the third round of negotiations on May 19.

The UK has repeatedly referred to recent EU trade agreements with Japan, Canada and others as models for the trade relationship, asking that the Commission extend elements of each of these to the UK.  Meanwhile, the EU 27 continue to insist that, contrary to what the UK’s chief negotiator has implied, the UK has “no entitlement to any benefits that the EU may have offered or granted in other contexts”; that every EU agreement has “its own balance of rights and obligations, tailored to the partner and the era in which it is concluded”; and that “geographic proximity and economic interdependence” impose special commitments to ensure the “level playing field”.

Other elements of the future relationship are also in deadlock:

• The “governance” of the deal: the UK would like to see a series of sectoral arrangements on a case-by-case basis, while the EU is interested in an overall governance framework.

The EU indeed wants to prevent the UK from “picking and choosing” and fears the British approach would not allow for a balance of concessions – a likely key to a positive outcome.

However, in the document shared on May 19, the UK Government stresses that it  “does not agree that every area be incorporated into a negotiated Treaty or similar arrangement” and continues to note that “many policy areas – for example foreign policy or immigration policy – are for the UK Government to determine, within a framework of broader friendly dialogue and cooperation between the UK and the EU: they do not require an institutionalized relationship”.

• The “level playing field”: the UK refuses to agree to any obligations for its laws to be aligned with the EU, while, as confirmed in the draft treaty text, the EU considers that because of the “geographic proximity and economic interdependence”, the trade relationship between the UK and the EU needs to be based on “long-lasting and robust commitments that prevent distortions of trade and unfair competitive advantages”.

The UK position on this issue seems to have hardened since the conclusion of the Political Declaration on October 17, 2019. In David Frost’s letter to Barnier that was mentioned above, Frost points out that the EU position “amounts to saying that a country in Europe cannot expect to determine its own rules, simply on the grounds of geography, and that it must bend to EU norms. That is not an argument that can hope to be accepted in the 21st century”.

After the fourth negotiating round, in what was seen in Brussels as a significant shift, the EU signaled that it may be willing to compromise on its strict requirement that the UK follow EU state aid rules after Brexit.

• Cooperation in criminal justice and law enforcement: for institutional reasons, the UK can no longer “opt in” to EU instruments that are in principle reserved for EU Member States. The UK government seems to have accepted this: in its position paper it confirms that it will not seek membership in Europol, Eurojust and the European Arrest Warrant. It does however, ask for cooperation in Justice and Home Affairs to be dealt with in “a separate agreement with its own appropriate and proportionate governance mechanism (which would) ‘not constrain the autonomy of the UK’s legal system in any way. It should not provide any role for the CJEU in resolving UK-EU disputes”.

The EU, in its draft treaty text, suggests the creation of an Arbitration Tribunal, but insists that the CJEU must remain the relevant forum to determine any questions of EU law.

• Fisheries: the UK would like to regain control of its fishing waters and decide unilaterally on access for EU vessels, as well as for third-country vessels; but at the same time it asks to have free access to the EU market for its fishing products.

In the UK’s view, the relationship should be similar to the one the EU has with Norway: “Fishing opportunities should be negotiated annually based on the best available science for shared stocks…” it no longer accepts the “relative stability” mechanism for sharing fishing quotas, and believes that “future fishing opportunities should be based on the principle of zonal attachment, which better reflects where the fish live”.

In principle, there is some logic to this position – but it does not take into account the traditional patterns in the EU coastal areas, which are politically very sensitive.  It also does not reflect the fact that UK fishermen already sell most of their fish to the rest of the EU – and if a deal isn’t reached, they will face tariffs of up to 23% on these imports, which could make much of their catches uneconomical.

• Financial services: the EU is strongly attached to the current system of “equivalence” in relation to third countries: it still gives the EU the last word. Here, again, the UK would like to see a more balanced system with mutual access to each other’s financial markets and an independent arbitration mechanism. It asks for “enhanced provision for regulatory and supervisory cooperation arrangements and for the structured withdrawal of equivalence findings”.
• External security: the EU asked for a separate negotiating group on “Cooperation on foreign policy, security and defense” but it was rejected by the UK, who would like to see these issues dealt with in another framework (see above).

The Road Ahead

The negotiations on the UK’s future relationship with the EU are hostage to the coronavirus crisis.  A no-deal end to the transitional period in December would bring significant economic harm, and it is in both sides’ interest to avoid it.

Yet the focus in both Brussels and London is elsewhere.  In the UK, hit hard by the COVID-19 pandemic, the Government’s focus is rightly on meeting the challenges of this public health emergency.  The strongest proponents of Brexit are now thought to favor a “clean break”, wagering that the inevitable economic damage can be wrapped up into the consequences of COVID-19.

In Brussels, the Commission – now consolidated as the UK’s negotiating counterpart as a third country – is set on reshaping fundamentally the EU’s budget, building the foundations of a fiscal union through the COVID-19 recovery fund.  (Dubbed “Next Generation EU,” and backed by France and Germany, some think that such a fund would have been unthinkable with the UK as a Member State.)  For its part, the EU is increasingly resigned to the prospect of the UK leaving without a deal, and assesses that the harm to its own GDP will be mitigated by the economic contraction caused by COVID-19 – and reduced by the measures put in place to drive the economic recovery.

This resignation is also a product of the EU’s difficulty in understanding where the UK stands.  In its view, in the October 2019 Political Declaration that accompanied the Withdrawal Agreement, the UK and the EU committed to a broad economic and trade agreement that would preserve close ties.  The UK now seeks a basic zero-tariff, zero-quota trade agreement, with a number of special, separate, and highly preferential agreements specifically tailored to the UK’s interests – in transport, energy, pharmaceuticals, and services both financial and not.  Yet it will not compromise on those areas of importance to the EU, such as fisheries.  Meanwhile, the UK’s rhetoric in recent public pronouncements looks more like defensive positioning than constructive interaction.

The EU 27 negotiating team is therefore not very optimistic for the near future.  They very much hope that private talks develop over the summer that can move both sides’ red line significantly, and allow a “new dynamic” to emerge.  Nevertheless, they are also beginning to prepare for a “WTO outcome,” which could result from either a “no deal” or from a minimal agreement.

Such an agreement could still be concluded (and ratified) in the short period remaining before the end of the year, but it would represent a least-bad outcome, minimizing harm rather than maximizing mutual benefit.  If that is all that is on offer, the EU will likely accept it and take the relatively minor economic hit.  Some in the UK may see it as a victory, but it would likely come with economic harm that the UK can ill afford.

 

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