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

By Richard Eccles

08-2020

The UK and EU completed their latest round of negotiations of a proposed future trade agreement on 21 August. No progress has been reported, other than on certain technical issues, despite the end of the transition period being only four months away.  Equally there has apparently been no further 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.

This article is a further follow-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, and the UK government’s chief negotiator, David Frost, have released a press statement.

Michel Barnier has now stated, by way of overview:   "The need for a Level Playing Field is not going to go away. …  It is a non-negotiable pre-condition to grant access to our market of 450 million citizens, given the United Kingdom's geographic proximity and the intensity of our economic exchanges.  We are asking for nothing more, but nothing less, than what Prime Minister Johnson committed to in our joint Political Declaration last October, together with the 27 EU leaders."

These are the main areas of deliberations on which he has now focused:

Level playing field provisions

­­There has been no 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 interprets 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. 

Michel Barnier mentioned after the previous round of negotiations that the UK government’s failure to engage on State aid controls is particularly concerning because there is no visibility at this stage on the UK’s future domestic subsidy control regime.

The UK government states that it does not understand why the EU will not agree to a Canada-style free trade agreement, based on the existing CETA precedent.  With regard to this request, Michel Barnier stated previously: “A less ambitious agreement on goods and services will not lead the EU to drop its demands for a robust level playing field.” 

Fisheries

There has again been no progress on fisheries.  The EU's position continues to be that there can be no economic partnership without a long term solution on fisheries.  Michel Barnier says that the UK is seeking almost total exclusion of EU fleets from UK waters and that the EU’s position is that common stocks must be managed jointly.

Governance of the UK/EU future partnership

The EU and UK remain far apart on the overall governance of their future partnership. Michel Barnier has stated that the parties are "still far from agreeing on the essential issue of dispute settlement". The EU proposed a single framework for the UK and the EU to manage all areas of their future relationship, whereas the UK preferred a number of separate agreements, each with their separate governance arrangements.  The EU has insisted on an over-arching dispute resolution role for the European Court of Justice, which the UK has refused to countenance.

Law enforcement

The EU’s demand for firm guarantees on fundamental rights and individual freedoms, which the UK cannot guarantee without giving away some autonomy, has been a source of difficulty. Michel Barnier has now stated "We still struggle to agree on the necessary guarantees to protect citizens' fundamental rights and personal data." The EU wants the UK to maintain the EU's current standards in certain areas of law such as data protection, which Barnier said the UK was failing to promise.

Michel Barnier previously 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. 

The UK viewpoint on the trade agreement negotiations

The UK government's position is 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 has previously stated that the EU’s level playing field demands are "novel and unbalanced" and that the EU is insisting on "an ideological approach" preventing agreement. 

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.

David Frost stated at the conclusion of the seventh round: "The EU is still insisting not only that we must accept continuity with EU state aid and fisheries policy, but also that this must be agreed before any further substantive work can be done in any other area of the negotiation, including on legal texts.  This makes it unnecessarily difficult to make progress. There are other significant areas which remain to be resolved and, even where there is a broad understanding between negotiators, there is a lot of detail to work through. Time is short for both sides."

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, which will take effect on 1 January 2021.  Under the Protocol, 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 in June, and the UK and EU held the second meeting of the specialised committee on the implementation of the Northern Ireland Protocol in July 2020. The UK government reaffirmed the UK's commitment to protecting the Good Friday Agreement and the gains of the peace process, and to preserving Northern Ireland's place in the UK customs territory. It also stated an intention to provide further guidance to businesses in Northern Ireland in the coming weeks. The EU is concerned by the UK's apparent lack of practical preparations for the implementation of the trading border requirements as between Great Britain and Northern Ireland, and has emphasised the importance of the UK increasing its technical engagement as required by the Protocol, without delay.

The UK Cabinet Office published a paper on 20 May 2020 setting out its proposals for implementation of the Protocol.  The UK government has published a series of papers in August 2020 on the treatment of goods moving between Great Britain and Northern Ireland and between Northern Ireland and the EU and also between Northern Ireland and the rest of the world.  These government proposals are subject to the outcome of the further discussions in the UK-EU Joint Committee which is required to set the relevant criteria.  Meanwhile these government papers are summarised in a separate briefing note here.

What happens next?

There is no longer any possibility, under the Withdrawal Agreement, of an extension to the transition period. The UK will on 1 January 2021 be outside the EU, the Single Market and Customs Union.  Very rapid progress would now be needed in the remaining rounds of negotiations, in order for a UK-EU trade or relationship agreement to be achieved.  The EU approach, which has been described as "parallelism", i.e. of not concluding agreement in areas where it might be possible while other important areas are outstanding, can be seen as delaying agreement in some areas because of disagreement in others.

Meanwhile, 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 appears to be resolutely determined not to accept the core EU demands concerning the "level playing field" or on fisheries.  

A finalised trade agreement is needed by 31 October, to allow time for ratification processes before 31 December 2020. The next round of negotiations commences on 7 September 2020, in London. The parties have also committed to organise a third meeting of the specialised committee on the implementation of the Northern Ireland Protocol in the early autumn.

This article is part of our Brexit series.