Fundamental differences between EU and UK obstruct Brexit negotiations

07/05/20

Free Trade Agreement negotiations

It makes perfect sense that all attention these days is focused on fighting the coronacrisis. But in the meantime, preparations for the new trade relationship between the European Union (EU) and the United Kingdom (UK) have also continued. Last week, the second round of negotiations on a free trade agreement took place by videoconference. The first results from this round are not too encouraging. Will the EU and the UK be able to make significant progress in the remaining two rounds of negotiations in key areas such as a level playing field, dispute resolution and fishing rights? Or are we still heading for a ‘no deal’ hard Brexit at the end of the year after the political Brexit on 31 January? In the light of all the economic effects of the corona crisis, the outlook is gloomy.

NBCC webinar

Review our webcast in cooperation with the Netherlands British Chamber of Commerce (NBCC). Among others, Stefaan de Rynck - from the core team of Michel Barnier, chief negotiator on behalf of the European Commission - gives his view on the current state of the negotiations.

Fundamental differences level playing field

After the second round of negotiations, both parties presented their findings. Although they have made progress on a number of issues, little progress can be reported on the most difficult aspects. "It doesn't help that the UK still hasn’t (fully) clarified its position in the negotiations", says Jan-Willem Thoen, head of the Brexit Desk for PwC Netherlands. "There are fundamental differences in the aspect of creating a level playing field, which is so crucial to the EU. In exchange for free market access, Europe requires the UK to commit to EU rules on, for example, state aid, employment terms and climate action. This is to prevent unfair competition that gives a trading partner just around the corner a competitive advantage without any restrictions on trade. The UK has a completely opposed view. The Britons prefer to reflect the conditions under which business is conducted by the EU with, for example, Canada, where significantly less far-reaching rules were agreed. However, according to the EU, these situations are incomparable due to the geographical distance."

Disagreement about resolving differences of opinion

Another fundamental bone of contention between the EU and the UK concerns the mechanism for resolving disagreements arising from a trade agreement. Where the EU is strongly committed to a clear, transparent and comprehensive system, the UK wishes to regulate this on a sector-by-sector basis. "However, the EU believes that everything is complementary within a trade agreement and that a dispute resolution system should reflect this as such", Thoen clarifies. "Moreover, the fact that the implementation of the withdrawal treaty for Northern Ireland is not running smoothly also seems to be playing a role in the background. The ink is not yet dry or there already seem to be fundamental differences of opinion about the interpretation of the 'border' in the Irish Sea and how to enforce it."

The deep crisis caused by the coronavirus seems a very good reason to consider an extension. However, the UK has already made it clear that it does not want an extension.

UK strongly opposed to extension of transitional period

When there are so many fundamental differences between the EU and the UK, it seems logical to take more time to see how these differences can be resolved. The withdrawal agreement allows the current transitional phase to be extended for a period up to two years. Of course there is a price to such an extension: the UK will have to pay financial compensation for extended unrestricted access to the European market similar to the membership fees paid by EU member states. The deep crisis caused by the coronavirus - both in the EU and in the UK, and all the attention it is demanding from governments - seems a very good reason to consider an extension. However, "The UK has already made it clear that it does not want an extension and that it wishes to end the long period of uncertainty, even if it does not lead to a trade agreement", reports Thoen. "The UK has also indicated that it will not accept a request for an extension from the EU side and that even tariffs may be acceptable to maintain the 31st of December as the end of the transitional period."

Consider a 'no deal' scenario

No extension, only two more rounds of negotiations until the 1st of July, when substantial progress must have been made, fundamental differences of opinion and, on top of that, the coronacrisis, which is a major concern for the governments. These are all factors that make the odds of successfully negotiating a unique trade agreement small. "Despite all the focus currently on the consequences of the coronacrisis, our message remains: be well prepared for all scenarios and, in particular, the possibility of a no deal agreement between the UK and the EU", concludes Thoen. "A 'no deal' scenario is unfortunately becoming more likely by the day. For a more detailed explanation of the status following the latest negotiations according to the European Commission, we would like to refer you to the webcast that we organised together with the Netherlands British Chamber of Commerce (NBCC). Among others, Stefaan de Rynck - from the core team of Michel Barnier, chief negotiator on behalf of the European Commission - gives his view on the current state of the negotiations."