Brexit Updates: Negotiations Between UK And EU Begin

2^nd March 2020 was an important day in the run-up to the future trade relationship between the United Kingdom and the European Union, as around 100 UK officials went to Brussels, Belgium, which is the headquarters of the EU27 bloc, to begin the negotiations on any possible trade deal to be agreed between the two parties in the future.

The talks have been preceded by comments from both parties, which suggested the leaders taking their respective hard stances on their demands for the deal. The diplomats from the European Union have suggested that if the diplomatic tensions continue to rise between the United Kingdom over the Brexit deal, it will potentially act as a catalyst for the end of the talks.

Background

On 31^st January 2020, the United Kingdom finally formally exited the European Union after three long years of turmoil. It was expected that the UK formally exiting the EU would bring an end to the economic slowdown, which was not to be seen immediately, as the transition phase had just begun and the UK was still looking to enter into trade agreements with the European Union as well as with other countries of the world, most notably, the United States of America.

For UK, their primary objective was to get the maximum possible access to a free market which could also fall in line with its overriding goal of pure, unfettered national sovereignty; for the EU, the aim is a relationship that makes market access reliant on deep policy commitments, and binding dispute-settlement.

While one of the biggest demands from the European Union’s side is for the UK to stay aligned on the EU standards for employment, environment and competition laws. On 12^th February 2020, UK and European media sources reported that the Members of the European Parliament (MEP) adopted a resolution to keep Britain tied to its standards across a range of issues, including the three important ones mentioned above. On the back of this, the Union also maintained its power by ordering the British administration to change its law on these issues. This was because, under the current terms and conditions of the withdrawal agreement, the European regulations would continue to supersede the British regulations.

Other important clarifications that the EU MP’s have sought from their British counterparts include the Irish border issue, even though the British Prime Minister had previously stated no checks would be required on goods moving from Great Britain to Northern Ireland.

As per the first proposition of the European Union regarding the trade deal with the UK, they would need to agree to the current norms on environmental standards worker issues, as well as social issues and the country would possibly be asked to upgrade its current legislations in the areas such as competition laws as well as state announced subsidies as and when the European Union changes its regulations as per the requirement of the dynamic global economic environment.

The stance of Britain on this is the fact that they wanted to get separate from the European Union primarily to have the freedom of regulation and disassociation from the same EU norms regarding these issues, and hence, the possibility of an agreement being reached looks grim between the two parties.

Current Position of The Trade Talks

The current stance on the trade talks from UK’s side has been rigid as well, as the UK administration believes that the EU needs Great Britain more, as compared to the UK needing EU for trade. The administration believes that all kinds of decisions on issues such as market access for banks and other financial sector companies should be done as early as possible and with dialogue being established to smoothen the evaluation process as per the statement of the UK chancellor responding to the EU financial services chairperson. It has already been established that meetings would be held between UK and EU negotiators to work smoothly through any areas of conflict between both the parties, especially in case of decisions of equivalence, as per UK chancellor, Rishi Sunak, who said this, in a letter communication to the European Commission financial services vice-president Valdis Dombrovskis. The letter also mentioned how the United Kingdom is displaying complete commitment to meeting a deadline of the end of June, a date that has been set by both parties to announce an EU-UK political and economic declaration, which will act as a framework for the future trade, economic and political relationship between the European Union and the United Kingdom.

At the same time, when legislators as well as the corporates and private parties, have been arguing that the UK legislation around these issues will be in line with what the European Union is suggesting in the beginning, but over a period of time, certain deviations would be required and should be expected by the EU, primarily because of of the dynamic nature and operating conditions for both the entities and hence either could end up saying that the other’s regulations are not comparable in nature.

Brexit Extra – Compensation Demand from UK Carmakers

On 3^rd March 2020, media sources reported that the UK car maker Peugeot could demand some amount of compensation from the British government, contingent to a bad Brexit deal, that could have a significant impact on its Vauxhall Factory in Ellesmere Port. Other car maker, as well as car component manufacturers have also raised concerns, stating that a bad trade deal, including tariffs, customs checks, and additional trade barriers could hamper the survival of these companies. The Vauxhall production facility near Ellesmere Port in Cheshire county, that is also responsible for employment of around 1000 people is already facing vulnerability, in part due to a decision on building a new Vauxhall Astra model remaining pending. The company’s previous investor, PSA, which is also in the process of a merger with Fiat Chrysler Automobiles, has already stopped making any capital infusion in the factory.

If the process of automobile companies calling out the government on its Brexit deal continues, along with a general global slowdown of the auto sector, it could become a catalyst for the administrations’ trade deal strategy to change before the end of the transition period.

Road Ahead

The UK obviously wants to be in trade with both EU and the USA after the transition period is over, and a free trade agreement (FTA) would be an ideal scenario, but the challenges to achieving such scenario are too many, and there are currently many roadblocks in the way. A deal with the US is most likely to have an impact on the energy, banking and the healthcare sectors in the UK while the final trade deal with the EU would be based upon the issues such as fishing rights of fishermen from both territories as well as certain Irish border issues, apart from various other issues.