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Britain should not settle for ‘60%’ of its negotiating objectives with the EU

uk settle with eu
Written by Harry Western

According to news reports, chief UK negotiator David Frost has told MPs that the UK may achieve ‘60%’ of its objectives in current negotiations with the EU. Is this good news or bad news? The answer depends crucially on how those objectives are defined, and exactly what the 40% Frost is pessimistic about achieving actually is.

The government itself has laid out its core objective on a number of occasions as being to establish the UK as a fully independent state with control of its own trade policy, regulatory system, judicial system and natural resources including fishing grounds. Based on this, it is critical the UK does not sign up to a deal which includes any of the following elements –

  • A trade deal that limits the right of the UK to set its own external tariff or conclude trade agreements with third countries. This includes ruling out regulatory alignment with the EU which would in practice make trade deals with many countries impossible. A key area here is food and agricultural trade – the real intention of recent attempts by lobby groups to push the UK into locking in various protectionist food sector regulations is not to defend food standards but to undermine the UK’s potential to cut third country trade deals.
  • Automatic regulatory alignment with the EU, e.g. via the EU’s so-called ‘level playing field’ demands. Agreeing this would not only damage the UK’s ability to cut trade agreements but also open the UK up to endless regulatory attacks. Anyone doubting this should look at the EU’s record in this area – among others, the UK agriculture, fishing, clinical trials, vacuum cleaner and financial services industries have all been on the receiving end of such treatment in recent decades.
  • Any role for the ECJ in governing a trade agreement. The ECJ is a political court that cannot be relied on to be an impartial arbiter of any UK-EU disputes.
  • Any continuation of the EU’s common fisheries policies. As we have previously written, in this area ‘no deal’ is the best deal for the UK fishing industry. There is room for negotiation on some elements of a new fishing arrangement including how to phase it in but not on core elements such as using zonal attachment to determine the UK/EU fishing rights – which will correct the current gross imbalance and deliver a massive boost to the UK industry.

What about other elements of a possible deal? In addition to the broad objectives outlined above, the UK has also outlined a set of more specific demands in the talks so far:

  • On governance, there should be a series of separate agreements each governed individually. By contrast, the EU wants an overarching agreement folding in all elements and giving it the right to ‘punish’ supposed transgressions in one area by sanctions in others.
  • A zero tariff and zero quota trade agreement on goods.
  • ‘Cumulation’ whereby not only EU content but also content from countries with which the UK and EU have free trade deals can be included by UK firms as ‘local content’ for rules of origin purposes (thus making it easier for UK firms to qualify for zero tariffs when exporting to the EU).
  • Mutual recognition of conformity assessments i.e. testing and certification of goods.
  • A financial services agreement based on a concept like ‘enhanced equivalence’ whereby the UK and EU would agree to recognise each other’s regulatory systems as equivalent. This should not allow the EU to suddenly and unilaterally withdraw regulatory recognition – as its current equivalence system does.
  • Mutual recognition of professional qualifications.
  • Agreement on data sharing.
  • A deal on freight transport to smooth cross-channel flows and an aviation agreement.

Compared to the first list, which we would characterise as ‘essential’, quite a lot of the list above might be described as ‘nice to have’. If David Frost’s 60% remark refers to this list, that would be no disaster as it’s fair to say that the UK’s initial asks in these areas – while mostly supported by precedents in other agreements the EU has signed – are, together, a big ask.

Some of the elements in the second list are also of quite limited importance – cumulation, professional recognition, data sharing and mutual recognition of conformity assessment would all fit into this group. So too does freight transport – the EU would actually be the big winner from an agreement here as EU firms carry the great majority of UK-EU trade. If none of these elements feature in a final agreement, or they do so in a limited form, the loss will be minor.

Even a zero tariff zero quota trade deal is arguably more valuable to the EU than the UK, given the EU’s massive trade surplus with the UK. Preserving EU trade preferences in the UK market isn’t obviously a positive for the UK – other, cheaper, global suppliers are waiting in the wings.

On financial services, meanwhile, ‘no deal’ is perfectly satisfactory for the UK. The UK is a massive global financial hub, the EU is a financial backwater. Wholesale UK financial services can be traded with the EU without EU equivalence or ‘passporting’ rights and maintaining UK regulatory autonomy in this area is of absolutely paramount importance – especially as the EU moves in an ever more restrictive and anti-market direction in this area.

One element of the second list we would not be relaxed about is governance. It is critical in our view that the UK does not agree to a deal that bundles together elements like trade, fishing, security and aviation and which allows the EU either to collapse such an agreement based on disagreements in one area or use disputes in one area to launch attacks in others. Such an arrangement would be a recipe for constant blackmail/conflict and damaging uncertainty. The EU would use such a structure to try to force the UK into satellite status.

Based on the above, it would be useful if David Frost clarified exactly which of our two lists his ‘60%’ figure refers to. Yielding 40% to the EU in the first list would be nothing short of disastrous.

This is especially the case when we consider that the EU has already gained perhaps 60% of its key aims in the first round of negotiations undertaken with the May government. It has got an excessive and potentially open-ended financial settlement; an extremely generous deal on citizens’ rights; the semi-annexation of Northern Ireland, economically; and protection of geographical indications. By contrast, there is little, if anything in the Withdrawal Agreement that can be seen as a significant win for the UK. If anyone wants to know why the EU has been so obdurate in subsequent rounds of talks, this is the main reason – most of the key prizes are already in the bag and were gained so easily that the EU sees no purpose in giving ground on the outstanding issues.

 

‘Harry Western’ is the pen-name of a senior economist working in the private sector who wishes to remain anonymous.

About the author

Harry Western