Informal discussions continued this week in Brussels between the UK and EU negotiators ahead of the 9th negotiating round next week – the last scheduled round to date. Last week’s discussions were described as useful by sources on the UK side. As the BRC’s new data released today shows, the costs to consumers of no deal before the end of the year will be high, with as much as £3.1bn in new tariff costs for imported food products alone. Consumers would pay the heaviest price on everyday goods if there's no trade deal in place on 1 January.
The position of both teams has been to carry on negotiating and to park in a separate strand the serious issues created by the UK Internal Market Bill clauses on the Protocol, and the prospect of further provisions in the forthcoming Finance Bill which may affect the GB-NI tariffs issue.
Publicly, matters are no further on in terms of resolving the quartet of top level issues required to reach a successful Partnership Agreement including trade. In private however, matters may be entering a key phase. On state aid within the wider level playing field chapter, no new UK position on state aid has been presented beyond the policy statement for January 2021 reverting to WTO rules to underpin state aid. That would not be acceptable to the EU for the basis of common rules on state aid architecture and regulatory approaches. The most likely landing ground would be a system which takes account of common principles written into the trade part of the agreement combined with an independent UK regulatory system. Dynamic alignment with EU state aid rules, and jurisdiction over GB state aid by the CJEU is not being pursued by the EU any longer. The Institute for Government produced a paper on state aid which sketches out a clear landing ground. Last weekend, a group of eminent competition and state aid lawyers wrote to the PM seeking discussions about a practical system which could meet the negotiating aims of both sides. Without a further UK policy position on state aid being communicated to the EU Chief Negotiator it is hard to see how the negotiations can be taken forward in time for a negotiating tunnel by the mid-October. This is still the key area for a solution to be found. It can still be reached. But progress next week is crucial. There is no desire among EU heads of government that the European Council summit should be a reset point for the negotiations, but it could provide an impetus to get a deal which is imminent over the line by the end of October.
Other main issues requiring resolution include fisheries (finding middle path for multi-annual year allocation between zonal attachment versus historic fishing rights opening bids from the UK and EU), governance (how the agreement can be enforced and whether sanctions in one area can be made for breaches of another area), and police and judicial co-operation (what will the UK do on human rights, data protection, and extensiveness of links). Landing spots are possible to envisage in these areas.
Furthermore, the more quickly agreement can be reached on these issues and zero-tariffs the greater the prospects of salvaging some of the asks which the UK made in its original negotiating mandate, whether that is a deal on organics or wine, mutual recognition deal on conformity assessment, on haulage, more generous rules of origin (though perhaps not the original multi-cumulation offer), and annexes on pharmaceuticals and chemicals allowing for greater information sharing. The later a breakthrough comes, the more difficult it will be to have both the time and trust to include any of these elements within the final Treaty.
So if political will exists on both sides to pursue a thin deal, it could still be done. Whether or not it happens prior to the European Council summit on October 15/16 is questionable. That will depend upon a significant breakthrough next week. The UK PM’s deadline is October 15, the EU have a deadline of a couple of weeks after that. In any case a legal text would be required around then for ratification in both Westminster and the EU institutions by 1 January.
What effect is the UK Internal Market Bill continuing to have upon the negotiations? Effectively the EU are operating a twin track approach, attempting to resolve the issue of implementation of the Protocol and the wider Withdrawal Agreement within the dispute resolution processes. So within the Joint Committee, the Commission has called for the removal of the contentious provisions clauses 41-45 of the Bill by the end of September, while reserving the right to go down the arbitration route in the Withdrawal Agreement after that, if removal does not occur. In terms of the Withdrawal Agreement that route can result in a reference to the CJEU, and potential fines or suspension of parts of the agreement if such a decision is not accepted by a defaulting party under the Agreement.
Even the amended clauses, now containing a Parliamentary trigger vote on the use of the powers to overwrite parts of the Protocol have met with disapproval by EU governments. A further cause of dispute may be any attempt by the UK Government to unilaterally create presumptions through any forthcoming Bill abolishing any tariffs on goods movements between GB and NI.
Nevertheless, important issues continue to be discussed within the Joint Committee and Specialised Committee despite the disagreements over the UK Internal Market Bill. Bear in mind the Bill does not cover GB-NI movements – it simply covers NI-GB exit summary processes and reach-back in GB in respect of EU state aid rules. It does not cover tariffs, nor GB to NI border checks or controls.
Decisions on exit summary declarations from NI may be imminent, and the retail industry’s ideas for an solution on export health certificates and tariffs on GB-NI movements. The issue of the presumption to be applied to goods “at risk” of entering the Single Market and therefore bound to have EU tariffs applied is still to be jointly resolved. The EU’s approach is said to be one more of targeting goods upon which there is a significant difference in UK and EU tariffs, such as intermediate goods and some inputs, rather than finished goods which retailers sell.
The UK Internal Market Bill is unlikely to conclude its Lords stages until near the end of October. If any wider UK-EU deal is struck it could be dependent upon the removal or further substantial amendment of the controversial clauses. It is unlikely EU negotiators will strike a deal if it cannot be ratified in the European Parliament. MEPs from the main five groupings have made clear their position that no agreement will be ratified if the clauses remain in the UK Internal Market Bill in their present form.
In summary, prospects are a little higher of a deal than a fortnight ago. Much depends on what the real bottom line within No 10 is – to adopt some common principles on state aid with the EU written into the agreement as the pathway to a zero-tariff deal and then declare “victory” or to blame the EU for intransigence. Make no mistake, there is no prospect of a deal after “a few months of no deal.” A different mandate would have to be prepared within the EU and the politics would not be right to restart negotiations for years. In this respect, a thin deal is better than no deal. With the appropriate moves principally on state aid and fisheries it is tough but attainable by the end of October.