Negotiation of a UK/EU Trade Agreement: the Fourth Round

By Richard Eccles

06-2020

The UK and EU completed their fourth round of negotiations of a proposed future trade agreement on 5 June. Little progress has been reported, despite the end of the transition period being less than seven months away. Equally there has apparently been no progress on the implementation of the UK/EU Withdrawal Agreement and in particular the "border in the Irish Sea" provisions of the Northern Ireland Protocol, which may be seen by the EU team politically as a pre-condition to taking a trade agreement forward.

This article follows on from and updates our previous note of March 2020, on the Negotiation of a UK/EU Trade Agreement.

Progress of the negotiations of a free trade agreement – the EU viewpoint

Following the conclusion of each round of negotiations, the EU lead negotiator, Michel Barnier released a press statement. He has detailed four main areas of deliberations:

Level playing field provisions

­­There has been little change in the EU/UK negotiations for a "level playing field". The EU proposes obligations to uphold common high standards in competition, State aid, environment, climate change, employment and relevant tax matters "over time" with EU standards as a reference point. However, the UK is still firmly opposed to any obligation which would involve giving up control of its own laws to be aligned with the EU's laws or for the EU institutions to have any jurisdiction in the UK. The EU team interpret this as a failure to engage on social and environmental standards and on preventing unfair trade distortions and unjustified competitive advantages including on State aid and tax measures.

Governance of the UK/EU future partnership

The EU and UK remain far apart on the overall governance of their future partnership. The EU still proposes a single framework for the UK and the EU to manage all areas of their future relationship, whereas the UK wants a number of separate agreements, each with their separate governance arrangements.  The EU insists on an over-arching dispute resolution role for the European Court of Justice, which the UK refuses to countenance.

Police and judicial co-operation in criminal matters

Both the UK and EU want a close relationship in this area, but the area causing difficulties is that the EU wants firm guarantees on fundamental rights and individual freedoms, which the UK cannot guarantee without giving away some autonomy. The EU wants the UK to maintain the EU's current standards in certain areas of law such as data protection, which Barnier says the UK is failing to promise.

Fisheries

There has been little progress made on fisheries. The UK has produced no proposed legal text and the EU's position is that there can be no economic partnership without a long term solution on fisheries.

Michel Barnier's statement following completion of the third round of negotiations went further. He stated that the UK is continuing to refuse to agree the alignment or "level playing field" guarantee or to agree common social and environmental standards. He said that whilst the UK is seeking a comprehensive free trade agreement in line with existing precedents, it is not possible to copy and paste the "best of" the EU's existing three free trade agreements, with Canada, South Korea and Japan. He said that in any event the UK is demanding more than these agreements provide for, including complete freedom of movement of UK service providers for short stays, recognition of professional qualifications, assimilation of UK auditors to EU ones, the ability to co-decide with the EU on certain matters concerning equivalence in financial services, and retention of existing electricity interconnection arrangements.

Following the fourth round of negotiations, Michel Barnier accused the UK government of back-tracking on the commitments that it made in the Political Declaration (of January 2020), including on the level playing field, governance, and co-operation on foreign policy and defence.

The UK viewpoint on the trade agreement negotiations

The UK government statement following the fourth negotiating round referred to progress being limited but the talks being positive in tone, and the parties being close to the limits of what can be achieved through the format of remote formal negotiating rounds. (The discussions have taken place by video conference due to Covid-19.)

The UK government's position is that the specifics of the EU's proposals concerning trade in goods are less open than the terms of the EU's recent free trade agreements with other countries. Regarding the "level playing field" and governance provisions, the UK government likewise maintains that the EU is insisting on conditions on the UK which are not included in the EU's other trade agreements, and which fail to take account of the fact of the UK's withdrawal from the EU. The UK government stated following the third negotiating round that the level playing field demands are "novel and unbalanced" and that the EU is insisting on "an ideological approach" preventing agreement. The UK's approach, as shown in a suite of draft texts published on 19 May, is to seek separate agreements on different relevant policy areas.

In relation to fisheries, the UK government team appears to believe that the EU is seeking to maintain its current rights (quota shares) in disregard of the fact that, following the transition period, UK waters will be outside the EU Single Market and outside the reach of EU rules. The UK's proposal is that future fishing opportunities be based on the principle of "zonal attachment" and that this better reflects where the fish are. Under the UK proposal, the granting of access to EU vessels to fish in UK waters would be subject to annual negotiations, compliance with UK rules and licensing requirements including reporting obligations.

The UK's Chief Negotiator, David Frost, has now stated: "For our part we are willing to work hard to see whether at least the outline of a balanced agreement, covering all issues, can be reached soon. Any such deal must of course accommodate the reality of the UK’s well-established position on the so-called "level playing field", on fisheries, and the other difficult issues."

The Withdrawal Agreement and the Northern Ireland Protocol

The implementation of the UK/EU Withdrawal Agreement, finalised in January, is important to the progress of the negotiations of the future UK/EU economic relationship, and is in the hands of the UK/EU Joint Committee. This critically includes the resolution of border control issues under the Northern Ireland Protocol, whereby tariffs are to be imposed by the UK and the EU is to be able to exercise regulatory and technical controls, in respect of goods moving from Great Britain to Northern Ireland where they are at risk of transiting to the EU (in practice the Republic of Ireland).

The Joint Committee met on 30 April 2020 to discuss the Northern Ireland Protocol, by video conference. Both the UK and EU updated the Joint Committee on progress to implement the Withdrawal Agreement.

The UK government reaffirmed the UK's commitment to complying with its legal obligations under the Northern Ireland Protocol, and to protecting the Good Friday Agreement and the gains of the peace process, and to preserving Northern Ireland's place in the UK. The EU is concerned by the UK's apparent failure to have taken any steps to set up any infrastructure for implementing the arrangements for the trading border as between Great Britain and Northern Ireland, and has emphasised the importance of the UK properly setting out its plans for all such implementation measures prescribed by the Protocol and providing a detailed timeline at or before the high level conference planned for June.

The UK Cabinet Office published a paper on 20 May 2020 setting out its proposals for implementation of the Protocol. This stated that additional import administration will be needed for trade from Great Britain to Northern Ireland, but that the UK will not levy tariffs on goods remaining within the UK and that new physical customs infrastructure will not be built. This approach seems to be based on an assumed default position that most trade going from Great Britain to Northern Ireland will be treated as not "at risk" of then moving into the Republic of Ireland (the EU). However, this issue remains to be discussed in the UK-EU Joint Committee which is required to set the relevant criteria.

Can the tra­­nsition period be extended?

The transition period currently lasts until 31 December 2020 under the terms of the Withdrawal Agreement. There is provision for the transition period to be extended once for up to two years provided that the UK submits a formal request by 1 July. The UK has maintained that it will not seek an extension, and moreover the European Union (Withdrawal) Act 2018 (as amended by the European Union (Withdrawal Agreement) Act 2020) ("the EU Withdrawal Act") prohibits any UK Minister from agreeing to an extension of the transition period in the Joint Committee.

The UK would therefore have to revoke section 15A of the EU Withdrawal Act through amending legislation, in order to allow any extension of the transition period to be requested, as well as amending the Act to change the exit date. In the event of an extension, there would need to be a negotiation of the UK's financial contribution to the EU budget for the extended period. Whilst the UK has so far rejected the idea of an extension of the transition period, Michel Barnier emphasized following the fourth negotiating round that the EU continues to be open to one for one year or two years.

What happens now?

Unless the UK government requests an extension before the end of June, the UK and EU will continue to be bound by the deadline in the Withdrawal Agreement and the UK will on 1 January 2021 be outside the EU, the Single Market and Customs Union without any UK-EU relationship agreement.

There has been speculation as to the tactics of the UK government, in that it may consider that it has less to lose from a failure to achieve a free trade agreement than would have been the case if it had failed to secure the Withdrawal Agreement. It could also be the case that the UK might perhaps see an advantage in being able to avoid obligations under the Northern Ireland Protocol if no trade agreement were concluded. The UK government team may be hoping that pressure to secure a trade agreement might result in greater concessions from the EU side towards the end of the transition period than could otherwise have been expected, but this cannot be predicted.

Michel Barnier has stated that the current lack of progress cannot continue, especially in the light of the UK government's continued refusal to countenance an extension of the transition period. He has stated that a finalised agreement is needed by 31 October, to allow time for ratification processes before 31 December 2020. Attention now turns to the second meeting of the Joint Committee (under the Withdrawal Agreement), scheduled for 12 June, and to the High Level Meeting in mid-June involving the President of the European Commission and the Prime Minister.

This article is part of our Brexit series.