Update on UK-EU trade negotiations

Update on UK-EU trade negotiations

BLOG · BY Nick Boulton, Head of Technical and Trade · 12 June 2020

With the impact of COVID-19 looking set to continue to the end of the post-Brexit transition period in December 2020, it is now more important than ever for businesses to plan in the coming months.

The business community did not expect a fully fleshed out trade deal by end of June and this will certainly not happen, but where are we now?

The UK started negotiations with expectations of a Canada type deal but this was quashed quite  early on when it became clear that in exchange for such a deal the EU would need level playing field commitments that the UK was simply not prepared to give.

Also, very early on the UK Government ruled out the possibility of an extension in any form to the transition period. This puts significant pressure on trade talks as business very firmly believes the UK cannot afford to exit without a negotiated trade deal with our biggest trading partner the EU.

Four rounds of negotiations have taken place prior to COVID19 crisis and while technical work has continued it is clearly not as efficient via on-line meetings and deadlock seems firmly in place.

The critical gateway issues are considered to be: Level playing field commitments – with EU expecting the UK to keep in line with current rules on environment, workers’ rights, state aid and European court decisions. Fishing is also seen as a small but very emotive issue for both sides especially over the allocation of fishing areas.

Work on technical standards and alignment for things such as, EN standards, mutual recognition of notified bodies, educational and professional qualifications etc are thought to be progressing well with potential mechanisms in place or close to agreement. However, these technical issues can only be implemented if the critical gateway issues are solved and a full trade agreement between the UK and EU signed. So, while civil servants are making good progress, significant political input is now needed from both sides to see a deal is achieved in the available timeframe.

30th June was held out as an important milestone but the COVID crisis means its unlikely much political progress has been made on critical issues and matters such as financial services.  This means a high-level political meeting is necessary around this time to set the future agenda and timeframe as there is currently nothing in negotiating calendar beyond end June.

UK has suggested that progress is maintained throughout the summer without a break in order to keep the negotiating process moving but the EU has yet to respond. Germany is due to take over presidency from September, and with EU resources directed elsewhere on COVID issues especially the 750 billion Euro rescue package there appears to be much finger pointing but little political will to break the current deadlock.

In terms of timeframe its clear the UK has two conflicting agendas. Business lead by CBI want a trade deal defined and agreed as soon as possible to give business a reasonable time to prepare for 1st January 2021. Politicians meanwhile see the best tactic is to delay and go to the wire in terms of time. Currently it looks like politicians are winning the day and business will be given little time to prepare. David Frost chief UK negotiator has recently suggested we need to get a deal done by the end of September, which in reality would leave business less than twelve weeks to prepare, a prospect many in the business community do not see as acceptable or practical.

As always there needs to be political movement on both sides and CBI suggests that Boris Johnson needs to talk and win support on key points from the leaders of individual EU members states rather than just relying on often heated exchanges with EU negotiators. Cabinet infighting has at least calmed down as the prospect of an extension has been eliminated and the “no trade deal” outcome is looking more likely than ever.  Politically Boris Johnson and his government look safe whatever the outcome.

CBI and business generally still see no deal as a very bad outcome for the UK. While a lighter touch deal is increasingly on the cards this is viewed as a better alternative than no deal at all. It is recognised that with 50% of UK trade being undertaken with the EU any level of tariffs on products would push up costs especially in terms of food and manufacturing. However, if UK want to talk about individual or groups of tariffs, then EU negotiators do not have a mandate to do so and getting one would extend the process beyond the currently available timeframe.

In the timber sector as we have seen from the recently published UK global tariff that fortunately few of our product categories are subject to duty on a global basis. However, wood-based panels and some wood materials for manufacturing are subject to duty and TTF is working with its members and UK government to minimise the impact on critical European sources should a no deal exit come to pass.

The COVID crisis has not only impacted the available time for trade negotiations it has also potentially changed the UK perspective with supporting and breathing life back into the UK economy taking a greater priority than ever before. There is concern that uncertainty over the UKs trade position with its European partners for 2021 and beyond may increase the chance of job cuts in the UK as global companies review and reorganise their operations post crisis.

Operation Yellow hammer and its preparation for a no deal exit has been usurped by COVID19 with all available resources being diverted to other more pressing priorities. Michael Gove removed all temporary BREXIT measures at the start of 2020 and CBI see it as essential that these are reimplemented to prevent the full force of a no deal BREXIT impacting the UK economy from 1st January 2021. However, it is difficult to see justification for resources being re-allocated to a no deal BREXIT which may not happen when there is such a crying need for resources in the here and now.

Which brings me back to my opening point BREXIT is coming on the 1st January 2021 and it is now more important than ever for businesses to plan over the coming months.

TTF Members can see our latest guidance on preparing for BREXIT here.