Brexit negotiations stuck with a split on the fundamentals

During the crisis unleashed by the global Covid-19 pandemic, the British government and the European Union have continued to hold trade negotiations – remotely via video conference.

The Cabinet Secretary Michael Gove was in the Commons today to update MPs on the progress made. It didn’t take long, as it turns out that there hasn’t been all that much progress. Gove did restate Britain’s commitment to reaching a “standard, comprehensive Free Trade Agreement” between the United Kingdom and the EU. But persistent disagreements of principle over fundamental values and aims mean that talks remain stuck in a stalemate at an uncertain moment.

Gove was in diplomatic mode when he claimed that the latest round of negotiations between the British government and the EU had been “full and constructive”, ranging from “trade in goods and services, fisheries, law enforcement and criminal justice”, as well as other issues.

In addition, Gove said that grounds for a working relationship had been found in several areas. He said that the most recent talks had “underlined that a standard comprehensive FTA” alongside cooperation on “law and order, civil nuclear and aviation” were uncontroversial and “could be agreed without major difficulties in the time available”.

These draft legal documents were published by the government in full online earlier today.

So far, however, three rounds of EU-UK negotiations have failed to move towards a deal. Two deadlines are looming: There will be no extension to the transition unless the UK asks for it by the end of June. Number 10 says it will not. Then on 31 December 2020, the Brexit transition period ends.

The lead negotiators of both sides – David Frost and Michel Barnier – have struggled to make progress and strike a compromise. Last Friday, the two Sherpas released statements which amounted to admissions of the fact that discussions have stalled on some core areas.

Neither the British government nor the EU have adjusted their fundamental red lines for a future trading relationship. As Gove put it today: “There remain… some areas where we have significant difference of principle.” He referred to issues ranging from market regulation to the EU’s desire to have full access to the UK’s fishing waters.

The thorniest of these problems is the so-called “level playing field” outlined in the EU’s negotiating mandate, which in turn sets out the Union’s ambitions and strategies for a trade deal with the UK. The purpose of the level playing field would be to ensure that the UK maintains what Brussels deems to be fair regulatory standards in in several areas – from state aid, competition regulation, environmental standards, taxation and labour rights – in exchange for access to the single market. The model for these standards is stated to be the European Union’s own regulations.

Gove expressed concern over this issue today: “The EU essentially wants us to obey the rules of their club even though we are no longer members”. He added: “It remains difficult to reach a mutually-beneficial agreement while the EU maintains such an ideological approach.”

But Barnier warned last week that the UK cannot expect to “have the best of both worlds”. Taking aim at the UK’s emphasis on precedents such as the EU’s Free Trade Agreements with Canada, Japan, and South Korea, Barnier said: “The EU wants a modern, unprecedented, forward-looking agreement, not a narrow one rooted in past-precedents.”

Overcoming this impasse will probably require greater movement and compromise on both sides. Raoul Ruparel, former Special Adviser to Theresa May on Europe, tweeted: “Both sides are being unrealistic in their positions in places.”

In the first place, the EU would not usually demand that another independent country subscribe to a form of dynamic alignment with its own state aid rules. And this might soon be seen as a particularly onerous hindrance, given that targeted state aid programmes are likely to be vital in reconstructing economies devasted by the fallout of the Covid-19 crisis not only in Britain but also across the EU. Nor would Brussels normally dream of requesting unrestricted access to the fisheries of a non-EU sovereign state.

As for the UK, while it is easy to find precedents when it comes to the mutual recognition of certain areas of trade – including agricultural goods, food, machinery, electrical products, and construction products – in previous EU comprehensive trade deals with other countries, the government is asking for more than a “skinny FTA”. Downing Street also wants to push beyond global precedents in areas such as financial and business services.

Figures on both sides of the negotiations believe that a deal could be possible, but it is clear that the negotiators will have to find a way of moving on certain points while respecting each other’s fundamental principles.

Gove explained today that he believes an “agreement is possible if flexibility is shown”. The British government desires to be recognised as “a sovereign equal”, he said, and as an independent trading nation with ultimate control over its own regulations and national resources.

The European Union, on the other hand, is anxious to impress upon Downing Street that asking for more than is typically offered in the EU’s global trade deals will also require more compromises on sovereignty and regulations.

Overcoming these differences will be a challenge when the disagreements are rooted in divergent approaches to free trade and governing philosophies. And where Downing Street sees post-Brexit Britain as an independent force for rules-based international trade, much like Japan, the EU continues to fear the spectre of a Singapore-on-Thames, free to undercut and undermine more heavily regulated European industries.

Unless both sides give some ground on their demands, it looks like “no deal” at the end of the year.