Nigeria's leading finance and market intelligence news report.

Brexit talks: the brutal reckoning that awaits the UK

When and if Britain leaves the EU, an array of difficult questions about a future trade deal will spring up

As far as Boris Johnson is concerned, the hard part is already over.

Britain’s prime minister told the CBI on Monday that victory in the December 12 general election will allow him to “get Brexit done” and then swiftly broker an agreement with the EU on the two sides’ future relationship.

Noting that the UK would embark on trade talks from a place of “perfect alignment and harmony” after leaving the EU on January 31, he told business chiefs that he saw “absolutely no reason” why an agreement could not be reached by the end of next year.

It is a line that the Conservatives will stick to in their campaigning ahead of polling day as they warn that victory for Jeremy Corbyn’s Labour party would mean more “dither and drift” on Brexit. Mr Corbyn claimed at the same conference that the Tories’ approach would “subject us to years of drawn out, bogged down negotiations” with Brussels on a future relationship deal. He said his approach of holding a second referendum would deliver clarity sooner.
But as politicians spar over who is best placed to lead Britain out of its Brexit quagmire, top officials in Brussels believe the UK population faces a brutal reckoning for which it is ill-prepared. EU officials have been preparing for negotiations with the UK on the post-Brexit relationship for more than two years, and behind the scenes many member states are urging them to take a very hard line indeed.

“What is going to come is going to be much more challenging and demanding than what we have seen up to now,” says one senior EU diplomat. “I would not wish negotiating a trade deal with the EU on anybody. It’s the worst thing that can happen to you, especially if your administration doesn’t have any experience negotiating trade issues.”

Read also: EU agrees to Brexit ‘flextension’ until January 31

When and if Brexit is finally delivered, a vast array of questions will immediately spring up. The two sides will need to do their best to safeguard a trading relationship worth £650bn in 2018, as well as define the terms of co-operation on everything from air transport to fighting terrorism.

The talks will take place to the beat of a ticking clock. The UK’s post-Brexit transition period will expire at the end of 2020 unless Britain requests an extension by the middle of next year — something Mr Johnson is loath to do.

Both Mr Johnson and Phil Hogan, the EU’s incoming trade commissioner, have emphasised that the two sides are not starting from scratch.

Mr Hogan told Irish broadcaster RTE last week that Brussels would seek to kick off the negotiations swiftly, noting that the UK’s 46 years of EU membership created a unique context: one where Britain is integrated into the European market and in sync with its rules.

“With a bit of goodwill on both sides we can do an agreement more quickly than we would do with any other negotiations around the world, which would take three or four years,” he said.

Mr Johnson told the CBI that the two sides would begin talks “in a state of grace as far as our tariffs and our quotas are concerned”.

“There is no other trade negotiation the EU has ever embarked upon with a third country where that has been the case,” he said.

Another advantage is that Mr Johnson and the EU have already agreed on a 27-page political declaration setting out their shared vision of the future relationship. It forms part of the Brexit deal he struck with the bloc in October.
At the heart of the future relationship would be a free trade deal ensuring zero tariffs and no quota limits on goods, and providing market access on services at least similar to that granted in the EU’s recent trade deals with Canada and Japan. The declaration also covers other key areas of co-operation such as nuclear energy and joint military operations.

But EU diplomats warn that putting flesh on the bones of these plans will require a hard-fought negotiation, and that the question of how far the UK is prepared to stick to EU rules will be one of several highly sensitive issues needing to be resolved.

Michel Barnier, the EU’s chief Brexit negotiator, has already made clear that Brussels will be guided in the talks by a simple principle: the further the UK aims to diverge from EU rules in Mr Johnson’s avowed quest to boost the country’s economic competitiveness, the more restricted Britain’s access to the single market will be.

The EU argues that it is being asked to grant Britain market access on goods going beyond any other trade deal the bloc has with a major economy, creating a clear risk of unfair competition for Europe’s companies. Such access will come at the price of sticking closely to EU law on workers rights, environmental standards, state aid and other rules.

Britain, by contrast, argues that a free trade deal is a fundamentally looser economic relationship than membership of the EU’s single market and customs union, and that it would be hypocritical for Brussels to demand far more alignment than it has done in negotiations with other countries. Dominic Raab, the UK’s foreign secretary, said on Sunday that the country is “not going to align ourselves to EU rules”.

Some of the countries that have been most adamant about the need for a regulatory level playing field are those, such as the Netherlands and Denmark, that are bastions of the cause of free trade and close allies of the UK. “Britain’s allies will themselves be subject to their own internal lobbies,” says Peter Guilford, a former EU trade official. “They will not be on Britain’s side.”

Read also: Questions Trump’s EU ambassador will have to answer

EU diplomats underline that this is only part of the difficult terrain that the broader future relationship talks will need to navigate. Another is the neuralgic issue of fish.

Across all 28 EU member states, the sector employs just 180,000 people according to Eurostat — a tiny fraction of the EU’s 230m strong workforce. Yet for France and half a dozen other EU nations, the industry is the lifeblood of coastal communities and they will insist on preserving their access to British waters. They could well block the broader trade talks if they do not get their way.

The issue is just as sensitive for the UK, where the removal of British waters from the EU’s Common Fisheries Policy is hailed as one of the boons of Brexit.

Other potential flashpoints range from Spain’s veto over Gibraltar’s place in any future relationship, to the vexed question of the City of London’s ability to offer financial services to European companies.

The pressure is ramped up further by the tight timetable. Without a deal ready on January 1 2021, Britain risks a no-deal exit with the sudden imposition of tariffs and regulatory barriers on EU-UK trade, something economists warn would have a seismic effect on British business. Ratification of any deal by the EU promises to be a complex and lengthy process — although there will be scope for at least provisional application of the core parts of a trade agreement once the EU Council and European Parliament have given it their blessing.

EU officials are already speculating about the UK shifting its position once it grapples with the hard facts of what it means to leave the single market and customs union.

Under a future trade deal, importers and exporters would face new paperwork and customs and product checks aimed at combating everything from animal disease to excise fraud.

For Sam Lowe, a senior research fellow at the Centre for European Reform, “many businesses would find adapting to a new FTA just as troublesome as if the UK had crashed out without a deal”.

Trade deals also typically offer little in terms of market access for services, the backbone of the UK economy.

EU diplomats are already concerned that the talks could drag on as the UK gradually opts for closer economic ties than a conventional trade deal can provide. The Labour party’s policy is to negotiate a relationship in this vein, with a customs union and a “close relationship” to the single market.

Marietje Schaake, a former member of the European Parliament’s international trade committee, says: “The UK is under pressure because of the ticking clock, but more because of the incredible promises that have been made about the benefits that will materialise.

“The reality is years of negotiation and difficult choices.”

Whatsapp mobile

Get real time updates directly on you device, subscribe now.

Comments are closed, but trackbacks and pingbacks are open.