With tears, cheers, and a rendition of Auld Lang Syne, the UK officially made its long-awaited departure from the European Union on January 31st. But Brexit is far from over. The UK and the EU must now navigate through a transitional period during which they strike an accord on how they will handle matters relating to transit, trade, and more.
The UK is eager to branch out with new trade deals, particularly with the United States, and hopes for flexibility from Brussels. The EU accounts for half of Britain’s trade, while Britain represents 15 percent of the EU’s.
But the union is adamant that “There will be no compromise on the single market. Never, never, never”, said Michel Barnier, chief Brexit negotiator, to an audience at Queen’s University Belfast, describing the single market as the foundation of the EU’s international influence. “Leaving the single market, leaving the customs union will have consequences. And what I saw…in the last year, is that many of these consequences have been underestimated in the UK. Now we have to face the reality.”
“We need to make sure competition is and remains open and fair”, Barnier later said.
On the eve of Brexit, European Commission president Ursula von der Leyen noted, “We are considering a zero-tariff, zero-quotas free trade agreement. But the precondition is that EU and British businesses continue to compete on a level playing field, we will certainly not expose our companies to unfair competition”.
“I want the EU and the UK to stay good friends and good partners”, she added. “We will always love you and we will never be far, long live Europe.”
The UK’s Prime Minister Boris Johnson recently stated his interest in exploring a trade deal with the EU similar to that of Australia’s. “The choice is emphatically not ‘deal or no-deal’. The question is whether we agree a trading relationship with the EU comparable to Canada’s – or more like Australia’s”, said the Prime Minister. But in a speech given to the European parliament, von der Leyen noted that the deal Johnson aims to replicate does not exist. “Australia without any doubt is a strong and a like-minded partner…But the European Union does not have a trade agreement with Australia. We are currently trading on WTO terms”, said the Commission President.
It remains to be seen whether the UK will move forward in alignment with Europe’s social and regulatory models. Without that accord in place, it is possible that trade may grind to a halt by the end of the transitional period, on December 31st. And as things stand, getting even a bare-bones deal squared away by this deadline appears to be an ambitious and daunting task. EU trade deals that have been struck with Canada and Japan entailed seven arduous years of negotiations, and many wonder if the UK and the EU will be able to pull off something similar in less than one.
No Swiss Model
Applying the Swiss model to the UK has already been ruled out by the European Commission. Though not an official member, Switzerland enjoys most of the privileges of an EU Member State due to the existence of over 100 bilateral agreements that cover nearly every aspect of the relationship between the tiny country and the rest of the bloc.
Achieving these arrangements was a lengthy and cumbersome process that Brussels does not wish to repeat. Nor do they want the UK to undercut European firms by decreasing environmental standards or subsidising local firms. Instead, the EU wants to include a non-regression clause in the new deal, meaning that if Britain were to renege and lower its labour or environmental standards, the UK could be slapped with tariffs and have its access to the single market revoked.
“The idea is to have one treaty by end-2020, which would also have a governance structure and an openness to add supplementary treaties”, an EU diplomat told Reuters. “The more aligned Britain’s rules are with the EU’s, the better access it will have to the EU’s single market”, another official stated.
If the future treaty only deals with specific aspects of trades, it could be ratified by the EU Parliament, streamlining the entire process. However, if the deal also tackles issues like aviation, security, transport, and travel – which fall under the purvey of individual Member State governments – national governments would also be able to weigh in. This would delay the process considerably, and increase the likelihood of a “no-deal” scenario.
The EU is determined to come to an agreement on fisheries, financial services, trade in goods, and energy before signing a more robust deal regulating the entirety of the bloc’s future relationship with Britain. “It’s all outlined in the political declaration already and everything is negotiated when everything is negotiated — so fish and financial services and energy, you name it, all has to be done before we sign”, said Ursula von der Leyen, President of the European Commission. It appears Von der Leyen may soon butt heads with Johnson on this point.
In a recent speech, Johnson minimised the importance of seeing eye-to-eye with the bloc, and stressed the importance of free trade. “There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment or anything similar, any more than the EU should be obliged to accept UK rules…The UK will maintain the highest standards in these areas…without the compulsion of a treaty.”
“Here is the question: Are we going to insist that the EU does everything that we do as the price of free trade? Are we? Of course not.”
Though the Prime Minister stressed that Britain will not engage in a “race to the bottom”, he also likened his anti-regulation position to a free-trade Superman. “Humanity needs some government somewhere that is willing to make the case powerfully for freedom of exchange. Some country ready to take off its Clark Kent spectacles and leap into the phone booth and emerge with his cloak flowing as the supercharged champion of the right of populations of the Earth to buy and sell freely among each other…Free trade is being choked, and that is no fault of the people, that is no fault of individual consumers. I’m afraid it is the politicians who are failing to lead, the mercantilists are everywhere, the protectionists are gaining ground.”
Meanwhile, unlike Switzerland, the UK soon plans to limit the movement of people across the border. While British and EU citizens have the right to live and work in each other’s countries until the end of the transition period, the British government has warned the estimated 3.5 million EU citizens within their borders that they have until the end of December to register to retain those rights. After the transitional period comes to a halt, Johnson intends to introduce a points-based immigration system similar to Australia’s, which would only allow high-skilled workers into the country.
Scotland and Ireland
Though Wales and England voted to leave the EU, Scotland and Ireland opted to remain. Brexit has sparked tensions between the countries since the initial referendum. But with Britain’s exit in full sway, eyes have turned to the border in Ireland. Once an open and fluid border between Ireland and Northern Ireland, things are rapidly getting complicated as only one side remains in the EU. Scottish nationalists are agitating for an independence referendum and Irish nationalists want to unite their country – both of which Johnson has said he will never allow.
Insecurity regarding future trade with the EU or the USA makes things hard for small British business owners, who also court disaster if governments slap tariffs on their goods. “It’s been very hectic”, said Antony McCallum, who works in whiskey and spirits. “We don’t know what rules will apply. There is no clarity. I’m going to wait for more certainty, until I know I can trade freely within Europe.” With a narrowly-tailored deal or no deal at all, many small business owners can expect to suffer financial hits.
And despite Boris Johnson’s insistence that there will be no checks on goods on the Irish border, Irish Prime Minister Leo Varadkar admitted that this is likely to be a necessary task to ensure regulatory rules are followed. The fact that any EU regulations will be applied in Northern Ireland at all was a major concession that Johnson made to push Brexit through and avoid imposing a border on the island.
Even so, coming to any sort of agreement is absolutely crucial, as both finance and trade rely on each other, as well as mutual equivalency, to maintain seamless cross-border operations. “I think there is scope to come to [an] agreement on a level playing field but I don’t want to create the impression for a second that there aren’t going to be huge difficulties in some areas”, Varadkar said at a news conference.
Timely Trade
Fishing is a topic very important to these talks. French fishermen have temporarily lost access to the waters off the Guernsey coasts (a British crown dependency), one of the Channel Islands situated near Normandy, due to the expiration of the European fisheries treaty that automatically followed Britain’s exit from the EU.
To resolve the issue, the UK government has installed a new system where boats would need to get individual authorisations to enter waters 6 to 12 miles off its coasts. While it’s a clever workaround, it’s not something that can be scaled up for the rest of Europe.
Although fishermen play only a small part in the French economy, they have an outsized political influence, having pressured their president, Emmanuel Macron, to play hardball with Britain. A small row over fish could prevent the UK from making the kind of trade deal it wants with the whole EU.
Authorities in Calais, a French port town, are meanwhile lobbying to create a duty-free zone in case any new deal does bring tariffs. “Our mayor is fighting for the whole town of Calais to benefit from the same duty-free rules as the ferries”, said Philippe Mignonet, one of Mayor Natacha Bouchart’s deputies. Calais is also exploring the viability of tax rebates to make trade and travel affordable and attractive to their neighbours just across the Channel. The idea comes from reviving the “booze cruises” of the 1980s and 90s, when millions of British citizens crossed the channel to engage in duty-free shopping – a practice that came to an end after 1999 when the single market came into play.
Conversely, Britain’s medical research community fears being locked out of the continent’s wider research networks. Fields that tackle childhood cancers and rare diseases often need to strike collaborations across Europe to recruit enough patients for medical trials, something a hard Brexit would make exceedingly difficult. “It would be a real disadvantage to children in this country if we were not part of those networks”, Pamela Kearns, professor of paediatric oncology at the University of Birmingham, told Reuters. “It will disadvantage us massively.”
The UK anticipates full border checks on all goods coming from the rest of the EU. These checks are likely to increase the burden on businesses like carmakers and supermarkets, which rely on the timely delivery of goods. And even small delays can spell disaster for businesses. “Costs add up with every new procedure or delay – and every pound spent on adapting to new requirements is a pound less for training, equipment or securing new customers”, said BCC Director General Adam Marshall.
Border checks are also likely to cause food disruption, and Johnson’s government will need to act quickly to establish a functional infrastructure to sustain the flow of fresh food into their country. Otherwise, “consumers in the UK will see significant disruption, particularly in the availability of fresh fruit and vegetables” said the British Retail Consortium’s Director of Food and Sustainability, Andrew Opie.
Though the UK is likely to be significantly weaker on the trade-front without the EU, so too is the union with regard to international trade and diplomacy. While a member state, the UK acted as a pragmatic balance between the more statist countries like France and the more frugal, federal ones, like Germany. This is an internal division that may now come closer to the fore. But regardless of the challenges that lie ahead in shaping the future relationship between Britain and the EU, the fact remains that Brexit has brought about one significant benefit: it has united the rest of Europe to work closer together to maintain their single market and unified diplomacy.
