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UK-EU trade negotiations: What is on the table? by Luis Alberto González García

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Luis González García

No formal trade talks have yet begun but the Brexit negotiations on the future trade relationship have already started. On 14 January 2020 the EU made the first offensive move. It published on its website a series of slides used in seminars with the 27 Member States on the future relationship with the UK. The intention was to show each Member State and the UK that the only trade deal on the table would be one based on an integrationist model. That is to say one which would guarantee a “level playing field”. In other words, what the EU was really saying to the UK is that the “CETA” model is not on the table. Days later, on 19 January 2020, the UK Chancellor, Mr Javid, made the following announcement, effectively rejecting the EU’s position: “[T]here will not be alignment, [the UK] will not be a ruletaker, [the UK] will not be in the single market and [the UK] will not be in the customs union.”[1]

These series of actions taken by each side last week tell us three things about what to expect from the negotiations. First, the EU is not posturing. It will seek a strong mechanism to ensure convergence with EU trade-related areas such as competition and state aid, intellectual property and safeguards to prevent unfair competitive advantages through tax, labour, environmental and regulatory measures and practices. Second, the UK is not posturing either. It will only pursue a trade model allowing it to conclude meaningful trade agreements with third countries around the world.  As a result, the UK-EU trade negotiation is about to get bad before it gets really bad.

“e UK-EU trade negotiation is about to get bad before it gets really bad.”

By insisting that the level playing field should be the basis of the negotiation, the EU is not posturing to increase leverage in trade talks with the UK. In fact it shows consistency in its approach to trade with third countries.  It is important to keep in mind that the EU follows two distinct approaches to trade: (1) the integration model which it uses in its trade relationship with European neighbours such as Norway, Switzerland, and the Ukraine; and (2) the liberalisation model which is used in its trade relationship with non-European countries. In the UK the latter is often called the “Canada-style” or “CETA” model. The EU’s use of one or the other model largely depends on geographical proximity. Although both models are similar in the sense that they offer reciprocal duty-free market access and commitments to reduce or eliminate non-tariff barriers to trade, their differences are significant. The integration model applies the concept of dynamic regulatory approximation which means that the third country must ensure that its domestic law reflects the development of EU law in trade-related areas such as technical regulations, consumer protection, competition law, including state aid state-owned companies, taxation, social policies including labour and environmental standards. This is done mostly through the harmonisation of rules. From the EU’s perspective, a high level of participation in the Single Market requires unified legal rules (derived from EU rules), strong supervision and enforcement (by EU agencies or joint committees) to avoid divergences which may lead to unfair competition. According to the EU, the harmonisation of rules leads to an ecosystem of regulations which ensures a level playing field with the Member States. By guaranteeing this level playing field, the argument goes, unfair competition is avoided and the regulatory and supervisory regime of the EU is safeguarded.

Along with the level playing field, the (i) decision-making autonomy of the European Court of Justice; (ii) financial stability of the Union; and (iii) the indivisibility of the four freedoms, are likely to be non-negotiable objectives for the EU in the negotiation of the future trade relationship with the UK.

Although the integration model offers a high level of participation in the Single Market and most of the benefits of full EU membership (this is the case for the EEA and Switzerland), it is not a relationship between equals. The burden of convergence and harmonisation of rules and standards (i.e. EU standards) is always on the third country, not the EU.

Unsurprisingly, the UK rejects the integration model. It is therefore not posturing either when it announces that it will pursue the liberalisation model which the EU applies to most third countries outside the EU’s sphere of influence (such as Canada, Japan, Korea and Mexico). This model is mainly aimed at the elimination of barriers to trade (liberalisation of goods and services) and cooperation on matters of economic and social policies. The trading relationship is, at least on paper, between equals and reciprocal. Although the liberalisation model necessarily implies that a certain level of trade restrictions is being maintained or adopted, it gives the third country a greater freedom to pursue an independent trade policy without accepting freedom of movement. This model is likely to be the UK’s basis of the negotiation.

Is there a middle ground? Yes, there is. Trade, like many things in life, is never black or white. But in order to overcome the challenging objectives, both sides must first realise that an unbalanced agreement with one side being merely the rule-taker would not be a satisfactory solution in the long term. The EU would therefore need to acknowledge that this is not a trade negotiation like any other and that a model heavily reliant on the harmonisation of rules on all economic sectors rather than on mutual recognition or equivalence is not a viable solution in a negotiation with a former member state that first and foremost wishes to no longer follow the EU harmonisation rules-system. The second step would require both sides to begin negotiations with a discussion aimed at identifying a convergence of interests. This can only be achieved by openly discussing each sides’ concerns and interests. Reciprocity should be adopted as the guiding principle of the negotiations. The third step would require an aggressive schedule of negotiations allowing for a fluid interaction between the technical negotiators rather than the formalistic four-week intervals approach. A more active participation in the negotiations from the 27 Member States and both parliaments may be desirable in order to ensure transparency and efficiency in the negotiation process.  Finally, negotiators on both sides should be reminded that in a complex and comprehensive negotiation such as this one, everything is related and everything should be on the table.

“Finally, negotiators on both sides should be reminded that in a complex and comprehensive negotiation such as this one, everything is related and everything should be on the table”

Negotiators from both sides face an enormous challenge: how to reconcile the UK’s interest in pursuing its own trade deals with the rest of the world and creating incentives to attract trade and investment to the UK with the EU’s interest in maintaining a level playing field and safeguarding the stability of the Single Market. Resolving the question of the level playing field as soon as possible would be desirable given that the negotiation of many trade disciplines will largely depend on the outcome of the bigger picture of the “level playing field”. Difficult as it will be to come to an agreement on this, the complexity of the negotiation will only increase. Next on the list would be to settle the issue of fishing rights. But that’s another matter. To be continued…

[1] FT interview, 18 January 2020.