UK-EU: Early trade talks stand-off

By Michael Jarvis, London UK

The first salvos have been fired in the trade negotiations battle between the United Kingdom and its now-erstwhile partner, the European Union.

Within minutes of each other, British Prime Boris Johnson and EU chief negotiator Michel Barnier set out their stall in separate high-profile public statements in London and Brussels.

The UK and the EU formally went their separate ways on January 31st, marking the end of a 47-year relationship built on free trade.

Dismantling that to replace it with an arrangement satisfactory to both sides was never going to be easy, and if this week’s opening exchanges are anything to go by, it might be more difficult than thought.

Prime Minister Boris Johnson is demanding that the EU gives the UK a free trade deal with all the bells and whistles by the end of this year or risk tariffs on its exports to the UK market, its most important trading partner.

The EU is equally digging in its heels, insisting on regulatory alignment in several key areas which the UK adamantly objects to.

For the British prime minister, such demands fly in the face of the UK regaining its ‘sovereignty and independence’ with Brexit.

With the best of intentions, negotiations are predicated on a win-win outcome. But, with both sides clearly and forcefully laying down red lines at such an early stage makes giving ground, to at least save face, all the more challenging.

And while these might just be the opening salvos as each party marks out their turf, the one thing they don’t have on their side is time.

The UK and the EU have locked themselves into a Withdrawal Agreement with a hard-wired ‘transition period’ that expires at the end of this year.

If the intention is to force each other into a compromise, current indications are that it might not work. There’s no escape hatch other than to walk away…and blame each other for failing to compromise.

But failure is relative in this respect. Prime Minister Johnson is already being accused of setting the stage to force a no-deal outcome and reverting to World Trade Organisation (WTO) tariff-based trading rules to apply pressure on the EU.

The thinking is that he would then opt to conclude a preferred trade deal with the United States under a Trump administration (which has been sending enticing signals to Mr Johnson).

But current indicators suggest that such that ‘deal’ might not be that easily achieved.

The prospect of the UK-EU trade talks seems set to be a repeat of the numerous twists and turns of the negotiations for the Withdrawal Agreement which left shattered UK political careers in its wake over a three-year stretch.

The trade talks do not have the luxury of such a timespan. The Withdrawal Agreement limits them to a negotiating window of just nine months from March when the talks are expected to start in earnest.

Under normal circumstances, trade deals take years to complete.

And if by force of circumstance, a workable arrangement is arrived at, the early indications are that it might not be amicable.

That would not augur well for future relations.

The EU’s own red lines, including its unswerving insistence on ‘regulatory alignment’, are already proving to be the equivalent of waving the proverbial red flag to the bull.

“The envisaged agreement should uphold the common high standards in the areas of state aid, competition, state-owned enterprises, social and employment standards, environmental standards, climate change, and relevant tax matters,” it demands.

That clashes with the message coming from the UK: “We shall not be rule-takers.”

Out of the question for the Boris Johnson government is the UK is being subjected to the European Court of Justice, another condition on which the EU is insisting.

Border control, especially the free movement of goods, services and people, is another EU demand.

The UK other the other hand is not amenable to a single market and customs union arrangement with the EU where such requirements are bolted on to any eventual agreement.

There’s no doubt that there will be points of agreement on the core economic aspects of a trade deal.

It’s crucial to both sides. Their respective economies depend on it.

It’s vital that the promised goal of ‘frictionless trade’ is achieved. Even with the UK outside EU membership; their economies are that deeply intertwined.

Furthermore, the ‘frictionless trade’ mantra preached ad hominem and to great effect in the recent UK election, is not just political, it’s practical.

If punitive tariffs come into the picture it would be a game of attrition. There’ll be no winners.

Prime Minister Johnson is all but threatening to walk away if a deal is not reached by the agreed deadline of the end of this year - the end of the ‘transition period’ - set by the Withdrawal Agreement.

He is pushing for a deal modelled on the Canada-EU trade deal called Ceta (Canada-EU Trade Agreement).

The Ceta entails tariff free-trade and quotas on most goods but does not extend to financial services, a critical area for the UK.

Crucially, it took around eight years to negotiate and is still not fully signed off yet.

As the saying goes, the trade talks between the UK and the EU have a long way to go and a short time to get there.

The gulf between them - in content and tone - is deep, wide and reminiscent of the English Channel which separates the UK from the European mainland. They might as well be might be shouting across the channel from opposite shores…which in a sense they are.

But the British and mainland Europe have 'conquered' that channel and bridged that gap before.

They've done it historically by sailing across it, then flying over it, and more recently going under it with the Channel Tunnel.

(Submarines might qualify as going through it).

Trade has always been the main driver.

It is again. And the same ingenuity that bridged that physical gap must again be summoned by the UK and the EU to bridge their policy divide.

Their future relationship - trade and more - depends on it.