Towards a hard Brexit? The negotiations and possible outcomes. 19th April 2020

That the UK is heading towards a hard Brexit is widely recognised. But the term ‘hard Brexit’ is bandied around loosely meaning anything from a close and comprehensive deal not far short of the single market to leaving with no deal. So what might the future relationship between the UK and EU look like? Where are we heading with the negotiations, what are the possible outcomes by 31st December 2020, and what are the main points of contention?

The UK government set out its position on 27th February 2020 in The Future Relationship with the EU – The UK’s Approach to Negotiations, while the EU’s approach is covered in a series of directives and communications also published in February 2020.

The UK would like a ‘Comprehensive Free Trade Agreement’ supplemented by a range of agreements principally covering fisheries, energy, transport, law enforcement and judicial cooperation. The trade agreement would include zero tariffs and quotas, and regulatory cooperation on a wide range of trade issues (such as technical standards, licensing, professional qualifications) to limit non-tariff barriers.

The UK would accept reciprocal commitments on state aid and competition policy, and says it would not weaken labour and environmental laws to try to encourage trade and investment (the so-called Level Playing Field requirements). But crucially the UK government insists there would be no legal alignment and the rules would not be subject to any bilateral dispute resolution process. The European Court of Justice would play no role in UK law. The UK government argues that this is consistent with comprehensive trade agreements reached between the EU and Canada and Japan.

The UK would thus enjoy most of the benefits of the customs union and some benefits of the single market without the constraints of EU law. Although well short EU membership, short of what Theresa May seemed to want, and certainly short of ‘frictionless’ trade, it is more extensive than some commentators imply. I would certainly call it a ‘hard Brexit’, but the centre of gravity of the debate has shifted so much that many would call this a soft Brexit and no-deal a hard Brexit.

The EU shares the UK’s aspiration for a comprehensive trade and non-trade deal, but there are some major tensions (see Brexit: what are the key flashpoints as EU-UK trade talks begin? Guardian, 1st March 2020). The most significant are in relation to the Level Playing Field requirements, the role of the Court of Justice, and fisheries. The EU wants ‘robust guarantees’ that Level Playing Field regulations will align with the EU, and governance mechanisms to ensure that they are implemented. They want a dispute resolution panel which can refer to the Court of Justice for rulings on EU law. All this is consistent with the Political Declaration, which the UK signed up to, but is now at odds with the UK’s published negotiating position. The EU also argue that geographic proximity and interdependent economies mean the UK is very different from Canada and Japan.

The UK wants fishing rights to be agreed separately from trade and negotiated annually (similar to the agreement between Norway and the EU). For Britain as an island nation fishing is politically symbolic despite being economically tiny. The EU sees things very differently. It would like a system of fishing rights similar to that when the UK was an EU member and linked to the trade deal. For the UK to be able to sell fish (and other goods) to EU countries with zero tariffs the EU demands that the UK accepts much of the EU’s fishing rights and quotas.

If these and other tensions cannot be resolved then the UK government’s position is that the new ‘trading relationship … will look similar to Australia’s’. As Australia does not have an agreement with the EU, it appears the outcome would be no-deal, though the words ‘will look similar to’ imply some kind of limited deal will be sought.

Possible outcomes by December 2020

There are many possible permutations that can make up a deal. An idea of the possible deals is shown in the table, along with no-deal or an extension. These are of course highly simplified possibilities – points on a spectrum between a comprehensive deal and no deal – the actual negotiations are highly complex covering a wide range of areas. I give an indicative probability of each outcome – a quantitative indication of my qualitative judgement. There are too many unknowns and too little data for anything like a true quantitative probability.

Brexit negotiations5e

The most obvious deal is a comprehensive trade and non-trade agreement, which both parties say they want. The question is whether the differences can be resolved. While some compromise by both sides is likely, the power balance suggests that the UK is more likely to cave in and accept the majority of the EU’s demands than vice versa. But perhaps the UK government’s hardball strategy will work and the EU will accept most of the UK’s demands for autonomy.

Another possibility, given the extremely tight timescale, is that only an outline agreement is reached. It would be a framework for a comprehensive future deal, but with much still to negotiate. Temporary bridging arrangements would be put in place and a timetable agreed for further negotiations. Many may label this as ‘Transition Period 2.0’, but government gloss will very likely present it as a phased implementation of a final deal with a review schedule.

Alternatively a limited and very thin deal could be reached involving the introduction of tariffs on some goods and agreement on little more than some essential non-trade matters. In some ways this might not be very different from no-deal and hard Brexiters may doubt whether it is worth it.

Finally there is the possibility of an extension to the transition period which according to the Withdrawal Agreement needs to be agreed before 1st July 2020. Although UK law (the Withdrawal Act) currently forbids an extension, parliament could change that law fairly easily. Any kind of rational response to the corona virus crisis suggests the need for an extension. But the government seems determined to carry on regardless. It can be questioned whether they actually want the comprehensive deal detailed in their approach to the negotiations, particularly as many pro-Brexit supporters would see this as a ‘soft Brexit’. I cover the question of the crisis and the possibility of an extension in separate blog.