After months of talks, and the British threat to walk away, the UK and EU are finally working on a joint text which could seal a Brexit trade deal. But it’s not yet in the bag.
Just two weeks ago the UK threatened to go for a no-deal unless there was a fundamental shift by the EU.
No one in Brussels seems to quite believe that the British flounce was genuine.
Nonetheless there were a few days of nervousness before Michel Barnier’s speech to the European Parliament provided the UK with what it called a “significant” signal that the EU was serious about getting down to business.
So after an extended 7-night stay in London for Michel Barnier, and now talks continuing in Brussels, where have we got to?
Details are scant because Michel Barnier has not given his usual press conference nor his usual debriefs in Brussels.
Update: Just one tweet this afternoon confirming that they are still at it:
He has, however, been keeping the European Commission President, Ursula von der Leyen updated. And at least one MEP.
According to Bloomberg, “the two sides have begun work on the text of an agreement on the level competitive playing field, and are close to finalizing a joint document covering state aid…”
Getting down to drafting – and on one of the key sticking points – would be a significant advance.
Level playing field
Initially the UK refused to set out what kind of state aid / subsidy regime it is planning post-Brexit. The EU countered that it needed “credible guarantees” the UK was committed to “open and fair competition”.
British promises, when they arrived, have not been enough. Not least because, in the wake of the Internal Market Bill debacle, member states are more distrustful than ever of the UK’s Brexit intentions.
Phrases like ‘Singapore-on-Thames’ have reemerged in recent days.
The happy medium on the level playing field, as it was sketched out to me, involves a UK regulatory authority independent of, but not wildly different from, the EU’s state aid regime.
Japanese and Swiss examples have been touted as possible starting models.
The exact arrangements are not yet clear, but the principle is to agree common rules which can co-exist. And standards which both sides agree will not fall, and could, if both sides agree, even rise, to reflect, for example, tougher environmental targets.
On Thursday, President von der Leyen insisted that “good progress” is being made on ironing out these kinds of details.
Governance
Another area of disagreement over recent months has been the arbitration system which will oversee any deal.
Interestingly von der Leyen did not mention it yesterday, which could be read as either good or bad.
Certainly the concept has been solidifying in recent weeks around what Michel Barnier calls a “Retaliation toolbox”.
Again, from the EU side, this seems to have hardened as a result of the Internal Market Bill.
Trade experts tell me that once FTAs are signed, disputes do occur. But they are resolved amongst groups of officials and lawyers and rarely become political.
But occastionally disputes can escalate and, given the breadth of the UK-EU trade deal offering zero tariffs and quotas across the board (unprecedented for the EU, as Michel Barnier frequently likes to remind the British), the potential for disagreement is surely higher.
The EU can be incredibly slow in solving disagreements, even amongst member states. Legal teams can spend months, even years, in pursuit.
This time, the EU wants a fast ‘automatic’ mechanism to kick in and retaliate in cases of serious infringements. It could of course also be used in the other direction by the UK side.
In principle, either side would be able to wreak revenge, economically speaking, using another part of the agreement equal in value.
In other words, a tit for tat.
The weakness of such a system, if not fully fleshed out, is that a low level dispute could quickly escalate into an all-out trade war.
You can be sure UK and EU lawyers are working overtime on this right now.
Fisheries
One area where such a dispute could occur is fisheries.
It is often said that fisheries represents a tiny fraction of national GDP, both in the UK and in the coastal states of the European Union (the Luxembourg PM recently joked that fisheries was not really a big deal for him).
The importance of fisheries is eclipsed by its symbolic significance.
All of that is true, but fisheries is truly economically important for particular communities in, for example, north-west Scotland, Devon and northern France.
And the fact there are elections in France in 2021 is not unrelated to the hard position French President, Emmanuel Macron has taken on the issue.
“Will the situation be the same as today’s? No, that’s for sure. Our fishermen know it, we know it too. We’ll have to help them. But can we accept a Brexit that sacrifices our fishermen? No.”
EMMANUEL MACRON (FRENCH PRESIDENT), BRUSSELS 16 OCTOBER 2020
Which goes some way to explaining why fisheries could upset the entire UK-EU deal.
Under pressure from the ‘group of eight’ (sometimes extended to the group of eleven) member states interested in fisheries, Michel Barnier has recommitted to the principle of ‘nothing is agreed until everything is agreed’.
Meaning the EU will not sign off on everything else leaving fisheries isolated and under pressure as the one thing standing in the way of a deal.
To underline this, the EU has cast around for something the UK wants of roughly equal value.
That’s why Michel Barnier told his British counterpart, David Frost, that the UK could not expect access to the EU’s energy market if European fishermen were cut off from fishing in British waters.
But this week, one EU source went even further and suggested that a phased reduction of EU fishing quotas in UK waters could be balanced against a fade out for British energy sales in Europe.
Another idea, which could also end up being part of the deal, is for each side to get first dibs on the types of fish they want most.
There is clearly some overlap, but there are also species which are considered more of a delicacy on one side of the Channel than the other.
Quota lists have been exchanged, but there is still more work to do on this.
There is also a question of expectation management: British fishermen imagine they are going to get a big boost to their share as a result of Brexit.
On the other side, a Dutch politician told me his fishermen were also expecting to get the same, if not more quota as a result of the UK-EU deal.
Something’s going to have to give.
What happens next?
Talks are continuing in Brussels on all issues. I understand these will carry on until next Tuesday or Wednesday. And this will be the next key moment.
Yesterday, the European Council President, Charles Michel, indicated that he expected to get a progress report from Michel Barnier in the coming days.
If things are really going that well – which would require progress on fisheries too – this should be the moment member states give their consent to Michel Barnier to race to the finish line.
The final deadline?
Several sources told me “the end of the first week of November”, meaning Sunday 8th November at the very latest, was the new deadline.
One then hestiated and added, well a few more days wouldn’t kill us.
Others have floated the idea of mid November as being the final, final moment.
After four years, we will soon know: deal or no deal.