Brexit Has Arrived, But The EU-UK Trading Future Is Far From Clear

After all the bluster, brinkmanship and interminable back-and-forths, Brexit has finally happened. It’s been no easy journeya tumultuous four years have rocked the British political scene since 2016’s historic vote. But now, forty years on from the UK’s earliest European integration, the nation stands on its own two feet one again. Well, sort of. 

Brexit Details

Yes, Britain has formally withdrawn its EU membershipso no more UK MEPs, British commissioners, or European Court of Justice (ECJ) representationbut in the short term, that’s about it. 

For the duration of an 11-month mutually agreed “transition period,” the UK will remain in the Single Market, contribute to the Brussels budget, and follow EU rules. All the while, negotiators from both sides will strive to thrash out the future UK-EU relationship.

Unpicking four decades of ever-closer alignment, it promises to be a testy process. British Prime Minister Boris Johnson is bullish however: by December 31, 2020, he’s confident a comprehensive trade deal will have been agreed.  

How Will The EU And UK Reach A Trade Deal?

It’s a heady ambition, especially in such a narrow negotiating window. Before talks can even begin, both sides must publish their negotiating objectives. The EU’s Brexit point man Michel Barnier must also receive an official negotiating mandate from his Brussels bosses.

These administrative hurdles take us to the start of March. At that point, trade talks will likely proceed at breakneck speed until July, the next point-of-no-return. By then, Johnson must decide whether to seek an extension to the transition periodsomething he has legislated againstor risk inciting the fury of British businesses by flirting with a no-deal cliff edge exit.

That leaves the tightest of time-framesthe four months between March and Julyto have the foundations of the future pact agreed. It’s a colossal task; but the Brits seem sure that a bells-and-whistles deal can be brokered.       

Wanted: A ‘Canada-Style’ Trade Deal

They’re pushing for a “Canada-style” trading agreementone mirroring Brussels’ arrangement with Ottawa. CETA, as the deal is known, closely aligns EU and Canadian standards, allowing for limited checks on goods moving across the Atlantic. It also removes almost all trade tariffs, reducing consumer costs at both ends. 

CETA wasn’t signed off in a single year though (let alone four months). It took a full five years to be negotiated, and another three before it entered into law. And ultimately, it is a far similar arrangement than the one envisioned post-Brexit.

Canada sends roughly one-tenth of its exports to the EU; Europe accounts for almost half of the UK’s output. Britain’s relationship with the continent extends well beyond commerce, too. Business, financial services, security, fishing, data exchange, research and much, much more will have to be accounted for in the deal. On almost all of these, CETA has no say.  

The EU’s Position

Negotiators will have to “prioritize”, according to remarks from Ursula von der Leyen, President of the European Commission, on a recent trip to London. It’s a sentiment shared by the Brits, who are eager to make headwaybut they’re less keen on some of the EU chief’s other ideas. 

Ensuring a “level playing field” is necessary to achieve a speedy agreement, von der Leyen said. In other words, regulatory alignment between London and Brussels, lest the UK want to lose access to Europe’s lucrative Single Market. 

For Johnson, this is a red line. On labor laws, taxation, state aid or the environment, he wants no sort of sequencing with EU rules. Already he has brushed aside a promise made by his predecessor Theresa May to protect workers’ rights in line with European regulations.

Enforcement Is Key

How a future trade deal that can be effectively enforced is likely to be another sticking point. Any commercial disputes must be resolved by the ECJ, the Europeans have made clear. This the UK government cannot abide, not least as they’ll be no British judges featured on the panel. 

And so an impasse looks inevitable. What if a compromise cannot be reached? Britain will conclude its departure without a deal, becoming like any other non-member state. That would mean the overnight arrival of regulatory barriers, tariffs, and quotas.

Such a scenario might cost the UK some $16 billion in lost EU sales, the UN’s trade agency announced last year. Deeply anxious at this possibility, British business and industry groups are leaning heavily on the government to reach some sort of accord with Brusselshowever limited in scope.

So, by December of this year, we may well see a deal. It’ll be a bare-bones arrangement most likely, one that covers the free movement of goods and some services. That, for better or for worse, the UK government will brand “Brexit.”