The race is on for EU-U.K. trade negotiators to resolve their outlying disputes on fishing rights and “level playing field” issues in order to avoid a disruptive no-deal British exit from the EU single market on Jan. 1. A limited trade agreement is probable, but London and Brussels must reach it by early December to ensure their legislatures can approve it in time. Negotiations resumed in Brussels on Nov. 16, with the goal of reaching a deal by the end of the month. While the European Union and the United Kingdom theoretically have until late December to reach a deal, the negotiators need to make time for the EU and U.K. parliaments to debate and vote on a potential deal. London and Brussels had previously identified a summit of EU leaders on Nov. 19 as a desirable date to reach a political agreement, but this soft deadline will probably be missed.
- On Nov. 16, Irish Foreign Minister Simon Coveney said that the European Union and the United Kingdom “really are in the last 10 days” of the negotiations and that the parties will shift to no-deal preparations unless there is an agreement by then.
- In a Nov. 15 tweet, the United Kingdom’s chief negotiator David Frost said there had been “some progress in a positive direction” in recent days.
- According to a recent Financial Times report, “much drafting has been done” on a deal, which “would come to about 1,800 pages.”
Fishing rights, as well as Britain’s future alignment with EU single market rules for state aid to companies and labor and environmental standards, are still some of the main obstacles to a deal. Agreement on these areas would open the door to a trade deal covering goods, and also create room for limited arrangements on areas such as financial services. In early November, the European Commission said it was still considering whether to grant “equivalence rights” to companies in the United Kingdom’s financial services sector. Without these rights, companies in the United Kingdom’s financial sector (a key sector of the British economy) will struggle to sell some of their products to customers in the European Union. The European Union’s delay in deciding on this issue suggests that Brussels is using financial services as leverage in its negotiations with London, which it could use to obtain concessions on issues such as fisheries.
- Coveney said that “the negotiations are not in a good place when it comes to fishing” and that there has not been any progress in closing the gap between British and EU demands on the issue.
- Fishing represents a very small part of the British economy but it is a politically sensitive issue in the United Kingdom, particularly in coastal regions.
- Fishing is also a relatively important issue for EU countries such as France, Spain and Belgium, whose fishermen are active in British waters.
- The European Commission grants “equivalence rights” to non-EU countries whose regulatory regime is considered to be equivalent to that of the European Union. Banks from countries with these rights are granted limited access to the European Union market.
The negotiation environment between the European Union and the United Kingdom has improved significantly in recent weeks and a limited trade deal is probable. The recent resignation of high-profile Brexit hardliners in the British government suggests that Prime Minister Boris Johnson’s cabinet is getting ready for a deal. The election of incoming U.S. President Joe Biden will also increase pressure on London to cooperate with Brussels, as unlike his predecessor, Biden is widely supportive of an EU-U.K. trade deal. Once it takes office in January, the Biden administration has said it will not negotiate a U.S.-U.K. trade deal if London fails to honor its 2019 pledge to the European Union to keep the border open between Northern Ireland and the Republic of Ireland no matter what happens with Brexit.
- Dominic Cummings, Johnson’s most influential adviser and former “Vote Leave” campaign director, stepped down from his post on Nov. 14. Lee Cain, another top Johnson aid and vocal Brexit supporter, also recently announced his resignation.
- On Nov. 10, the British House of Lords voted to remove the clauses from Johnson’s proposed Internal Market Bill that overrule parts of the 2019 EU-U.K. Withdrawal Agreement regarding Northern Ireland. The U.K. government has pledged to reintroduce those clauses when the bill returns to the House of Commons in December. The European Union has said there will not be a trade deal if the clauses are kept, but if there is a deal before the Internal Market Bill is approved, the clauses could become obsolete.
The European Union and the United Kingdom will have to start trading under costly World Trade Organization tariffs on Jan. 1 if they fail to reach a deal before then. But such a scenario would not mean the end of the Brexit process, as economic pressures would eventually force London and Brussels back to the negotiating table.
- On Oct. 16, the Confederation of British Industry warned that the U.K. economy is not prepared for a no-deal exit from the EU single market.
- The U.K.-based Federation of Small Businesses has also said that British small- and medium-sized businesses are not ready to simultaneously cope with a no-deal exit and COVID-19-related restriction on the economy.