Welcome back. Do you work in an industry that will be affected by the exit from the EU internal market and the customs union? If so, how do you expect the change to harm, or even benefit, you and your business?
Please send your feedback to [email protected]
The Brexit trade talks It seems that EU officials are now keen as Michel Barnier, the EU’s chief negotiator, may not come to London this weekend unless the UK side signals willingness to continue.
Depending on your point of view, this flood of frustration is evidence of David Frost’s steely negotiating skills – he’s finally getting under the EU’s skin – or a disturbing sign that even at this late hour we are having the same failed talks as six were a few months ago.
There has been a flutter this week about whether a four-year “review clause” could provide a mechanism by which the two sides could clear the way for a deal, but the different interpretations of how this could work speak for the gap between the two sides .
What started with a conversation about kicking the can on fisheries (which the EU has always said must be acted against access to the EU internal market) opened the door for some reflection on a possible solution to the overall agreement.
After some reflection by the UK, a four-year review clause of the free trade agreement would allow Brussels to assess whether the UK has acted in a way that undermines non-binding promises of free and fair competition – with Brussels imposing tariffs on UK trade as retaliatory tariffs If necessary.
Such a proposal would never fly for the EU. The imposition of tariffs after the fact is far too low a price to pay for competitive differences – especially if the UK were to maintain all of the other market access elements of the proposed FTA, from aviation freedoms to border trade facilitation.
From an EU perspective, it might be more realistic to agree on a review clause in which the penalty for deviating from its obligations on an equal footing is a much more “nuclear” option, with both sides reverting to a full no-deal scenario if the Deal didn’t work.
Given the ideological deadlock and chronic lack of trust between the sides, such a clause could still provide the means by which both could move forward. The very idea of such clauses, however, suggests the philosophical rift in these conversations.
The UK wants a “review clause” on the weakest terms possible because it wants – actively – the right to depart from the agreement over time.
In other words, the UK sees equal competition obligations as regulatory handcuffs to break free, while the EU sees them as a prerequisite for free and fair competition and a basis for a lasting and stable relationship.
These “ratchet clauses” for maintaining standards over time, set together with a governance mechanism to ensure compliance with these obligations, are part of what EU officials call “dissuasive” with both sides by their side of the agreement adhere to trade.
However, from a UK perspective, the deal is effectively becoming a menu for deviations where the UK can deviate from the agreement if necessary by paying the reasonable price at the right time.
When time runs out, those who feel confident that a deal will come about seem to base their belief on a mutual assumption that the other side will work out in the end.
The UK expects the EU to stop being such a control freak, accepts that Brexit means divergence by definition, and agrees to creative solutions to tackle this reality, largely using the standard sanctioning tools contained in trade agreements (the EU opposes this because it can see companies lose over time).
The EU expects Boris Johnson to review the Bureau of Budgetary Responsibility’s sobering forecasts this week about the cost of a no-deal exit and decide that it is clearly in the UK’s best interests to pay the price to enter the market , which accounts for nearly 50 percent of its total trade (Britain opposes this because over time it may find itself trapped as an EU subsidiary state).
Brexit has always been rather binary – and, as we saw with the Northern Irish Protocol, the fudges are rather chaotic and create uncertainty. If there is a deal, we will most likely end up here, which unfortunately has to be reported for already ailing companies.
But even at this late stage, barely a month until the end of the transition period, it is not yet clear – to quote Ursula von der Leyen, who speaks to MEPs this week – “whether there will be a deal in the end”.
Behind the scenes, the UK is confident that a deal is near, but it has been saying so for weeks and has been consistently more optimistic than the EU for the past six months – perhaps part of a strategy not seen here. designed to minimize the scope of what it wants from Brussels.
There is still time to reach an agreement, but the later it goes and the more condensed the political choreography and ratification process becomes, the higher the risk that no agreement becomes the path of least resistance for both sides.
We’re not there yet. Both Downing Street and the European Commission have a common interest in marginalizing things and using increasing urgency as a weapon to trick their respective clumsy squads (the European Research Group, the Elysee Palace) into nasty ones To compromise.
Whatever the outcome, it is unfortunate for businesses – and consumers, workers, travelers and anyone else who will be affected by the consequences – that it was seemingly impossible to properly organize an EU withdrawal.
Brexit in numbers
On the way to the cliff on Jan 1st, the question is whether business and market pressures will step in to find a compromise on both sides. So far they seem to have made little difference.
This week the auto industry, the Society of Motor Manufacturers and Traders (SMMT), tried to up the pressure by warning that a no-deal exit would cost the industry £ 55.4 billion over the next five years. The graph shows how important the EU market is for UK-based car manufacturers.
The industry expects that even a Canadian-style free trade agreement is expected to cost more than £ 14 billion as manufacturers who rely on parts outside the EU in their supply chains will continue to be required to pay duties under the expected terms of the agreement.
It is one of the really remarkable things about Brexit that such a profound change in the UK’s trade agreements with its closest neighbors should have happened with so little knowledge or consultation of those who trade.
Following Rishi Sunak’s recent appearances on the shipping box and on the Andrew Marr Show last weekend, the government’s tactic seems for now to be to ignore or downplay the upcoming changes. We’ll have to wait and see if that changes after January 1st.