Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
Since the EU referendum in 2016, there have been many “fork in the road” moments that have subsequently altered the direction of the Brexit process: the post-referendum Conservative leadership election, the 2017 General Election, the UK-EU Joint Report on the Northern Ireland border, the renegotiation of the backstop and, most recently, Boris Johnson’s conclusive General Election victory. The next few months promise to be another such significant period.
Before the end of the month, the Prime Minister will meet Ursula von der Leyen, the European Commission President, and Charles Michel, the European Council President, for a “high-level meeting” – to take stock of progress on the future relationship negotiations. The backdrop is not particularly encouraging. The latest round of talks ended last Friday with both sides stating “no significant progress” had been made and that there had been “no movement on the most difficult areas”.
It is clear that UK and EU negotiators have reached a stalemate, which can only be unlocked by political leadership rather than technical wheezes. On the available evidence, and unless something changes, the UK and the EU are heading for a new relationship based on World Trade Organisation terms. Michel Barnier, the EU’s Chief Negotiator, said as much at his customarily downbeat press conference last week. “We can only take note that there has been no substantial progress since the beginning of these negotiations, and that we cannot continue like this forever,” he said.
Since the UK continues to firmly rule out the possibility of an extension to the transition period, there are broadly only two remaining options at this stage. First, to accelerate the talks (the UK wants to see significant progress in July) in the hope of reaching a deal by the autumn, which would allow for ratification and businesses some time to prepare for the new circumstances. Second, turn all attention to preparing for a no deal outcome.
In Brussels, the penny may be dropping for Barnier that, if the EU wants a trade deal with the UK, the current strategy is bound to fail. It was notable that at last week’s press conference he appeared to implicitly concede that the EU might need to be more flexible on the knottiest issues, which are state aid and fishing.
Barnier claimed that the UK had been backtracking on level-playing field commitments made in the Political Declaration. However, as pointed out by several British journalists at the press conference, Brussels is asking for dynamic alignment with EU law on state aid. This goes well beyond the commitments in the Political Declaration, which simply committed both sides to agreeing “a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition,” including arrangements for domestic enforcement and dispute resolution.
Asked whether he would continue to insist that the UK stick to the EU’s state aid regime, Barnier said that his priority was to find a way to protect businesses from unfair competition. “We need to work together to come up with the appropriate toolbox, the robust commitments,” he said. “What we care about is how effective these mechanisms will be so that they can ensure long-term, fair sustainable competition.” This is the language of the Political Declaration rather than the EU’s negotiating mandate to seek UK alignment.
Barnier’s mandate calls for a fishing agreement that gives EU boats access to UK waters on the basis of the status quo. However, the UK will not concede anything like the status quo, and without an agreement the EU will lose all influence over how the UK manages its fisheries access. To be fair to Barnier, he has accepted in recent weeks that the EU demand will not be met. It is the fishing ministers of the eight most affected EU member states that have insisted on holding the firm line.
Ultimately, this is where the biggest obstacle to a deal on the EU side now lies. Barnier sees some EU compromise as the route to a deal, but will the member states let him?
Barnier was sent in by EU leaders to play hardball in the expectation that the UK would fold. However, so far, this belief appears to be mistaken. The Government has shown no sign of bending from its core red line, which is that any future EU agreement should recognise the UK as an independent “sovereign equal”. This should not be that surprising, since it is not merely a negotiating position. For the vast majority of Brexiteers it is the fundamental objective of the entire exercise and this Government has the mandate to pursue it.
For its part, the UK has signalled that it might be prepared to dial down its ambitions in some areas. Some UK asks, such as the inclusion of audio-visual services in the agreement, may not be met. More significantly, the UK has offered to discuss a deal which does not provide for zero-tariff access on all products, in exchange for the EU dropping some of its level playing field demands. Any EU tariffs would be likely to fall on agricultural products, since they always do.
The EU is, however, loath to open up a difficult internal negotiation on which industries and therefore which member states any tariffs would fall. The EU is already in the middle of fraught internal negotiations over the proposed post-coronavirus recovery fund. One suggestion is that, since agreeing a deal with some tariffs would be too difficult in the timeframe, a deal might see some tariffs phased in over time, which would provide for managed UK-EU divergence.
Technical compromises and fudges can no doubt be found that will require compromise on both sides. But, ultimately, the path to a deal now depends on the EU’s willingness to change the tone of the negotiations. The jury is out on EU leaders’ ability or inclination to do this. However, Germany takes on the rotating EU presidency from July and Angela Merkel will not want a no deal outcome to be her legacy, if she can avoid it.