15. 2020 negotiations
- UK in transition period until 31 December 2020
- Little time available for negotiation in 2020: around nine months
- One-time opportunity for extension before 1 July 2020
- EU was open to an extension but UK did not ask for one, despite COVID-19:
- Impeding negotiations
- Causing severe economic recession
- Future UK-EU partnership’s key elements:
- Economic partnership
- Security partnership
- General (programmes, equivalence, adequacy etc.)
- European Council’s scope for Commission’s negotiating objectives:
- Future relationship with UK
- Implementation of the Withdrawal Agreement
- No-deal preparations
- Expired on 31 December 2020
- UK government stated aims were:
- Zero tariffs and quotas on UK-EU goods trade
- Ability to diverge from EU regulations and rules
- EU pre-condition for FTA was UK commitment to level playing field provisions
- UK’s choice to diverge has definite, large costs and uncertain, small benefits
- UK was almost certainly unable to implement Northern Ireland Protocol fully by end December 2020:
- Practical and political disruption in NI
- UK could be taken to ECJ
- Brexit discussions did not finish on 31 December 2020
- Implementation activities will continue in 2021 and probably beyond
- Basic FTA had several advantages over ‘no deal’
Click here for summary of Brexit FactBase.
Timeline and approach
This section gives an overview of Phase 2 of Brexit, which began after the UK left the EU on 31 January 2020, after 47 years of EU membership. It ended with the signing of the EU-UK Trade and Cooperation Agreement (TCA) on 24 December 2020. A separate section covers the TCA itself.
The starting point for the future EU-UK relationship was the Political Declaration (PD), published in October and agreed by the UK and the EU. The long list of items in the PD (scroll down for a table of the PD contents) shows how wide-ranging and complex the negotiations were. In February, both the EU and the UK published their separate negotiation objectives for the future partnership. The negotiations began on 1 March, with a high-level review of progress on 15 June. Several deadlines (for example for fisheries and financial-services regulatory equivalence) were missed and negotiations continued up to December.
This introductory section covers:
- EU approach
- UK approach
- Structure of the negotiations
The Brexit FactBase section on no deal discusses what would have happened at the end of transition period on 31 December 2020 with ‘no deal’. For further detail on issues like trade and immigration, please refer to the relevant parts of Brexit FactBase or this section’s sources. There is also a separate briefing paper on trade that provides a comprehensive non-technical introduction to the trade aspects.
The EU and the UK government agreed the structure of the negotiations. The timeline in Figure 15.1 shows the process from the EU’s perspective and the terms in the Withdrawal Agreement as it was envisaged in early 2020. From 1 February 2020, the time available for negotiation in the transition period (assuming there was no extension) was around nine months because it requires around two months to prepare documents for presentation to parliaments and to ratify. In the end, those two months fell into 2021 for the EU.
In parallel with the negotiations, the UK and the EU have been implementing the legally-binding Withdrawal Agreement (not shown in Figure 15.1) covering citizens’ rights, financial settlement, Ireland/Northern Ireland, etc. The Withdrawal Agreement was much simpler to negotiate than the future partnership. Nevertheless, it took 34 months from the triggering of Article 50 in March 2017 to the UK’s departure from the EU on 31 January 2020.
Negotiations are likely to continue after 31 December 2020 to deal with partnership issues for which there was insufficient time in 2020, for example UK access to the Single Market for financial services. Also, the UK-EU partnership agreement requires new operational processes, systems and procedures to be implemented. Therefore, it is likely to take a few years after 31 December 2020, for the new partnership to be fully operational.
Until 31 December 2020, the threat of ‘no deal’ was still present, save for the provisions in the Withdrawal Agreement. Indeed, some observers believed ‘no deal’ was the likely outcome. Failure to reach an agreement would have meant that Great Britain would default to trading with the EU on World Trade Organisation (WTO) terms, and that all other arrangements resulting from EU membership would have ceased. Please see section on ‘No deal’ for details.
In the second quarter of 2020, most observers believed that the UK and the EU would agree an extension to the transition period because of COVID-19. It had impeded negotiations and had become the dominant concern for the UK and EU27 governments. COVID-19 had already caused a severe economic contraction, which made it seem unlikely that both parties would want to inflict even more economic damage through a poorly-negotiated future relationship or a poorly-implemented trade deal. However, the UK government, despite pressure from business and opposition parties, refused to request an extension before the deadline of 1 July 2020.
Figure 15.1 summarises the original timeline. The elements remain unchanged even though deadlines have passed. The main items that caused delays were fisheries, state aid and the level playing field.
Figure 15.1: Negotiation timeline (original version)
The first round of negotiations took place in Brussels on 2 – 5 March. Subsequent full negotiating rounds were planned to take place every two to three weeks, alternating between London and Brussels. However, due to the impact of COVID-19 the next three rounds were conducted by video conference:
- Round 2: 20 – 24 April
- Round 3: 11 – 15 May
- Round 4: 2 – 5 June
Despite the four rounds of negotiations, when the UK and the EU met to review progress on 15 June, little progress had been achieved. By 1 July:
- UK had not undertaken the work necessary to support a decision by the EU on equivalence in financial services;
- there was no agreement on fisheries; and
- there was no draft trade agreement.
At the meeting on 15 June, the UK and the EU agreed to intensify negotiations in July, beginning with round 5 of face-to-face negotiations in Brussels from 29 June to 3 July. Aiming for thE European Council meeting in October, subsequent rounds took place:
- Round 6: 21 – 23 July
- Round 7: 17 – 21 August
- Round 8: 7 – 11 September
- Round 9: 28 September – 2 October
The Council meeting on 15 – 16 October was inconclusive, but discussions continued with a new tenth formal round from 22 to 25 October.
In early December, the negotiations continued and the EU set Wednesday 9 December as the deadline to agree a deal. Observers had said that mid-November was the deadline to reach an agreement, to give time to finalise texts and translate them prior to European Parliament approval in December. This assumed the deal was not a ‘mixed agreement’, which would require ratification by member states (but some argued that ratification could occur later). On 24 December 2020, agreement was reached.
European Commission, Negotiation rounds on the future partnership between the European Union and the United Kingdom
EU-UK Statement following the High Level Meeting on 15 June
PM’s Office, Organising principles for further negotiations with the EU, 21 October 2020
The Commission recommended comprehensive draft negotiating directives on 3 February to the European Council. After the Council adopted the mandate on 25 February, formal negotiations with the UK began on 1 March, with the first meeting between the EU and UK teams on 2 March.
The EU had two guiding principles for the negotiations:
- No surprises
- Allow for swift adoption
In line with the Commission’s decision of 22 October 2019, the Task Force for Relations with the United Kingdom (UKTF) was in charge of the preparation and conduct of the negotiations. Michel Barnier was the Head of the UKTF; his deputy was Clara Martinez Alberola.
The General Affairs Council is a part of the Council of the EU and meets monthly. Its meetings bring together the Foreign Ministers of the Member States – sometimes Ministers responsible for European Affairs participate. As trade is an important component, the meetings of the EU’s Foreign Affairs Council (on behalf of the European Council) were also important.
The UKTF, established on 16 November 2019, coordinated the Commission’s work on all strategic, operational, legal and financial issues related to the relations with the UK within the European Council’s guidelines. This included:
- Negotiations on the future relationship with the UK
- Implementation of the Withdrawal Agreement
- Commission’s ‘no-deal’ preparedness work
The UKTF replaced the Task Force for the Preparation and Conduct of the Negotiations with the UK under Article 50 TEU, which was created on 1 October 2016 to lead withdrawal negotiations. It had a coordinating role with other institutions, namely the European Parliament and the Council, under the direct authority of the President of the European Commission, Ursula von der Leyen.
The new Task Force closely cooperated with the Secretariat-General of the Commission (led by Ilze Juhansone), all relevant Commission services and the European External Action Service (EEAS). The EEAS is the EU’s diplomatic service, which supports the EU’s foreign affairs chief, Josep Borrell Fontelles, the High Representative for Foreign Affairs and Security Policy, to carry out the EU’s Common Foreign and Security Policy.
Two other key EU players were Sabine Weyand and Valdis Dombrovskis. Weyand was the chief official in the Commission’s international trade department and she was previously Michel Barnier’s deputy for the Article 50 negotiations. Valdis Dombrovskis was the EU trade commissioner and Sabine Weyand’s boss. The Trade Commissioner focussed on the tariff-free, quota-free trade deal. Valdis Dombrovskis was appointed on 8 September 2020 after Phil Hogan resigned on 26 August over his breach of Covid regulations in Ireland.
In approving the mandate, the EU summarised its ambitions as:
“The EU wishes to establish an ambitious, wide-ranging and balanced economic partnership with the UK. The mandate stresses that the future partnership should be underpinned by robust commitments to ensure a level playing field for open and fair competition, given the EU and the UK’s geographic proximity and economic interdependence.
The EU intends to establish a free trade agreement with the UK which ensures that zero tariffs and quotas apply to trade in goods. This agreement should provide for cooperation on customs and regulatory aspects. It should also include effective management and supervision, dispute settlement and enforcement arrangements.
On fisheries, the mandate outlines that the future partnership should uphold the existing reciprocal access to waters as well as stable quota shares. The agreement on fisheries should be established by 1 July 2020, to give time for determining fishing opportunities after the end of the transition period.
The mandate also contains provisions for future cooperation in areas such as digital trade, intellectual property, public procurement, mobility, transport, and energy.
The EU will seek to establish a comprehensive security partnership with the UK. The partnership should comprise law enforcement and judicial cooperation in criminal matters, as well as foreign policy, security and defence.
The mandate foresees that the future partnership should be embedded in an overall governance framework covering all areas of cooperation.”
On 3 February 2020, the Prime Minister gave a written statement to Parliament which disclosed the details of the UK’s proposed approach. The UK government then published its negotiating objectives on 27 February 2020. Although an FTA is mentioned frequently, the UK wished to seek agreement on many other areas (for example: fisheries, security, air transport and UK participation in EU programmes).
Responsibility for negotiations fell to a unit called ‘Taskforce Europe’, which sat in the Cabinet Office and Number 10 Downing Street. Taskforce Europe, which was about 40-strong, reported to the Prime Minister. David Frost, who headed the Taskforce, is a special advisor – not a senior civil servant nor a minister. The Department for Exiting the European Union (DExEU) was abolished on 31 January 2020.
The Withdrawal Agreement Bill provides no formal role for MPs in approving the negotiating mandate, which Michael Gove presented to the Commons on 27 February. The government said that it would provide updates to Parliament as the negotiations progress, but provided no schedule. The UK government also needed to involve the devolved administrations to reflect Scottish, Welsh and Northern Irish interests in the talks and to implement the outcomes. It is not clear how the government involved them.
Parliament had to pass at least six pieces of Brexit legislation to give ministers powers in areas where the EU set the rules for the UK. The government needed to:
- Set new policies for:
- Set up new public bodies including:
- Independent Monitoring Authority (to monitor the UK’s application of citizens’ rights defined in the WA and any later agreements)
- Trade Remedies Authority (to investigate unfair trade practices and recommend actions in response)
- Make changes to existing public bodies
- Prepare for changes at the UK border (as well as the border between Great Britain and Northern Ireland)
As Chancellor of the Duchy of Lancaster, Michael Gove was the most senior minister in the Cabinet Office and was responsible for overseeing preparations for the implementation of Brexit. He was responsible for oversight of:
- Government departments’ preparations
- Communications and other government interventions to ensure businesses and citizens get ready
- Devolution consequences
The National Audit Office reported that the government was planning to have 27,500 civil servants working on Brexit preparations by March 2020.
Structure of the negotiations
Each round involved 11 negotiating groups where the detailed negotiations take place. The 11 groups covered:
- Trade in goods
- Trade in services; investments
- Level playing field
- Energy and civil nuclear cooperation
- Mobility and social security cooperation (including visas for travel and work)
- Law enforcement and judicial cooperation
- Thematic cooperation (including cybersecurity and migration)
- Participation in EU programmes;
- Horizonal arrangements and governance.
The negotiating parties could agree to merge or divide groups, or to create new ones.
Status of UK
After leaving the EU on 31 January 2020, the UK entered the transition period. This time-limited period, agreed as part of the Withdrawal Agreement, lasted at least until 31 December 2020. Until then, it was business as usual for citizens, consumers, businesses, investors, students and researchers in both the EU and the UK. (The WA sets out the exact terms of the transition period.)
The UK was no longer an EU Member State. UK representation ceased in the EU institutions, agencies, bodies and offices. Also, the UK no longer played any part in the EU’s decision-making processes. However, EU law still applied in the UK until the end of the transition period. The European Court of Justice (ECJ) continued to have jurisdiction over the UK during the transition period. This also applied to the interpretation and implementation of the WA.
The EU and UK used the eleven months to agree on a new partnership, based on the Political Declaration of October 2019. In the WA, there was a one-time opportunity to extend the transition period to either 31 December 2021 or 2022. But, to exercise the option, the UK and the EU needed to agree to do so before 1 July 2020. The UK chose not to ask for an extension.
During the transition period, the UK could conclude international agreements with third countries and international organisations even in areas of EU exclusive competence (such as trade). However, the EU had to explicitly authorise such agreements to enter into force, or to start applying, during the transition period.
During the transition period, all EU law, across all policy areas, still applied to and in the UK. This excluded the provisions of the Treaties and acts, which were not binding upon and in the UK before 1 February 2020. (The same was true for acts amending such acts.) In particular, the UK:
- remained in the EU Customs Union and in the Single Market with all four freedoms, and all EU policies applying;
- continued to apply the EU’s Justice and Home Affairs policy.
- was able to exercise its right to opt-in/opt-out to/of measures amending, replacing or building upon EU acts to which the UK was bound as a Member State;
- was subject to the EU’s enforcement mechanisms, such as infringement procedures;
- had to respect all international agreements the EU has signed;
- could not apply new agreements in areas of EU exclusive competence, unless authorised to do so by the EU.
Could the transition have been extended?
As time was short for the UK and the EU to agree and ratify the terms of their future relationship, they was a clear need for more time. If so, how could this have been done? An Institute for Government paper set out the options to secure more time after 30 June. These options could have been used to continue negotiations after 31 December and prepare for the huge changes to the trading relationship, or to give businesses more time to prepare – either for a deal or no deal.
The paper said agreeing an extension by 30 June would have given the government the greatest certainty, flexibility and control. It went on to set out four ways that the UK and EU could create more time:
- Amend the end date of the transition period in the Withdrawal Agreement. This could be done at any point after June. but it would have first required the ECJ’s legal opinion.
- Create a new transition period to begin on 1 January 2021 . This would have meant striking a new, complex agreement and a lengthy ratification process, alongside future relationship negotiations.
- Include an implementation phase as part of the future relationship treaty. This would have given businesses time to make investment decisions and adapt supply chains.
- Create an implementation phase to prepare for a potential no-deal exit. Agree a temporary deal to allow traders to adapt to a no-deal scenario if talks had broken down.
All four options are politically sensitive and/or legally complex.
Implementing Withdrawal Agreement
The Home Office does not know how many EU citizens there are in the UK, nor how many Brexit affects. As a result, a significant number of EU citizens are likely to face a cliff-edge on 1 July 2021, the deadline for applications. Will the ‘hostile environment’ apply to them, leading to deportations? If not, what alternative process will apply?
As at 31 May 2021, the Home Office had received 5,605,800 applications.
For the 5,271,300 (94%) applications with concluded outcomes, the Home Office had granted:
- 52% (2,754,100) settled status;
- 43% (2,276,200) pre-settled status (rights for five years, after which need to apply for full settled status).
and 5% had different outcomes: 94,000 – refused (2%); 72,100 – withdrawn or void (1%); 74,900 – invalid (1%). There are rounding differences.
As of 31 March 2021, 6% of applications were from repeat applicants (311,870).
Note: These are figures for applications, not people. Many who are granted pre-settled status will apply for settled status. In addition, there will be people who have applied who will have left the UK for the EU.
The government set up the Independent Monitoring Authority (IMA) to oversee the implementation of the citizens’ rights element of the WA. This needed to be in place by the end of the transition period (with leadership, staff, infrastructure, systems and information flows).
Northern Ireland Protocol
The government was unable to fully implement the Northern Ireland Protocol by 31 December 2020. This is because the Protocol involves complex customs arrangements with regulatory and customs checks between NI and GB:
- WA established a Ireland/Northern Ireland Specialised Committee to take decisions on key details
- UK government published its command paper on 30 May 2020 outlining its planned approach to the Protocol
However, in practical terms, it was impossible for government and business to implement the necessary changes by the end of 2020. This could cause economic and political disruption in Northern Ireland. In addition, UK failure to comply with the WA means the European Commission could begin infringement proceedings against the UK through the ECJ.
In June 2020, the House of Lords EU Committee took evidence from organisations throughout the Northern Ireland agri-food supply chain, from the grain trade and farmers to food processors and retail, as well as the fishing industry. The Committee wrote to the Secretary of State on 1 July 2020, setting out its key findings and concerns:
- The Protocol is an opportunity for Northern Ireland to have a unique position in trade, but a UK-EU free trade agreement is critical to making this possible.
- There are significant risks if the Protocol is implemented without enough preparation and a careful approach, particularly if standards diverge between Northern Ireland and the rest of the UK: the viability of some Northern Ireland agri-food business operations could be threatened and Northern Ireland consumers could face higher food prices.
- There is an urgent need for the Government to step up its engagement and start detailed discussions on proposals for how to implement the Protocol with Northern Ireland agrifood businesses.
Future UK-EU partnership
In the absence of concrete counter-proposals from the UK, the negotiations followed the EU’s proposed approach. The EU’s approach followed principles and objectives stated in:
- European Council (Art. 50) guidelines on the framework for the future EU-UK relationship, 23 March 2018
- Revised Political Declaration agreed with the UK government on 17 October 2019, setting out the framework for the future UK-EU relationship
The European Commission published several negotiating documents that outlined its opening assumptions and approach for the main topics under discussion. These included a series of seminars topic by topic.
By contrast, the UK used political speeches by Johnson at Greenwich and Frost at Brussels to outline its opening position at a high level. In addition, the UK government provided a written statement to Parliament on 3 February 2020 which outlined its aims for the negotiations. The jointly-agreed Political Declaration was the starting point.
The UK government said that its principal aims for trade (which was only one of many topics in the PD) will be:
- Zero tariffs and quotas on UK-EU goods trade
- Ability to diverge from EU regulations and rules
However, the written statement to Parliament showed that it wanted much more.
The UK and the EU were negotiating a single comprehensive partnership agreement, with three main components:
- Institutional arrangements
- Basis for participation in programmes (e.g. Erasmus, Horizon Europe)
- EU autonomous measures (e.g. granting of equivalence)
- Economic partnership
- Level playing field
- Free Trade Agreement (FTA)
- Movement of citizens
- Security partnership
- Police and judicial cooperation
- Foreign, security and defence policy
There were also to be “supplementing agreements” embedded in the partnership agreement. The UK and the EU could agree these during the transition period or later. Brexit would not be ‘done’ until all these are in place. Given how little time was available in 2020, the negotiation of supplementals extended into 2021 (and will possibly go beyond).
Figure 15.2 shows how the European Commission grouped the detailed elements of the partnership under the three components. While separate negotiations focus on individual elements, there are links and interdependencies between them. The Single Market operates as a complex ecosystem, so the overall partnership was expected to involve much more than a simple ‘no-tariff FTA’.
The Commission held a series of seminars in January 2020 that summarised the main issues – fisheries, transport, mobility of citizens, data exchange, intelligence exchanges etc. The slides for each seminar included bullet-point summaries of the key issues for negotiation.
Figure 15.2 : EU/UK future partnership.
Scope of Political Declaration
Despite the frequent focus on tariffs, there are many other items mentioned in the extensive Political Declaration of October 2019. To give an idea of the PD’s broad scope, Table 15.1 lists its 53 headings, of which tariffs is not even one – it is a sub-heading.
|Table 15.1: Political Declaration headings|
|Part I. Initial Provisions (4)|
|1. Basis for cooperation||A. Core values|
|B. Data Protection|
|2. Areas of shared interest||A. Participation in Union programmes|
|Part II. Economic partnership (25)|
|1. Objectives and principles|
|2. Goods||A. Objectives and principles|
|C. Regulatory aspects|
|E. Implications for checks and controls|
|3. Services and investment||A. Objectives and principles|
|B. Market access and non-discrimination|
|C. Regulatory aspects|
|4. Financial services|
|6. Capital movements and payments|
|7. Intellectual property|
|8. Public procurement|
|10. Transport||A. Aviation|
|B. Road transport|
|C. Rail transport|
|D. Maritime transport|
|11. Energy||A. Electricity and gas|
|B. Civil Nuclear|
|C. Carbon pricing|
|12. Fishing opportunities|
|13. Global cooperation|
|14. Level playing field for open and fair competition|
|Part III Security partnership (17)|
|1. Objectives and principles|
|2. Law enforcement and judicial cooperation in criminal matters||A. Data exchange|
|B. Operational cooperation between law enforcement competent authorities and judicial cooperation in criminal matters|
|C. Anti-money laundering and counter-terrorism financing|
|3. Foreign policy security and defence||A. Consultation and cooperation|
|C. Operations and missions|
|D. Defence capabilities development|
|E. Intelligence exchanges|
|G. Development cooperation|
|4. Thematic cooperation||A. Cyber security|
|B. Civil protection|
|C. Health security|
|D. Illegal migration|
|E. Counter terrorism and countering violent extremism|
|5. Classified and sensitive not classified information|
|Part IV Institutional and other horizontal arrangements (6)|
|2. Governance||A. Strategic direction and dialogue|
|B. Management administration and supervision|
|D. Dispute settlement|
|3. Exceptions and safeguards|
|Part V Forward process (1)|
Opening positions compared
Table 15.2 highlights the areas of agreement and the difference in the UK and EU opening positions.
Table 15.2: Opening positions
|Opening negotiation positions|
|Issue||Areas of agreement||Differences|
|General principles||Reflect sovereignty of both parties.||EU wants to protect integrity of Single Market.
UK wants to negotiate sector-by-sector deals.
|EU wants to safeguard rules-based international order.
UK threatens to disregard the Northern Ireland Protocol in the Withdrawal Agreement Treaty.
|Governance and dispute resolution||Need for a governance and dispute-settlement arrangement.||EU wants a single institutional framework.
UK wants separate arrangements for each deal.
|There should be an independent arbitration panel to resolve disputes.||EU wants arbitration panel to refer to ECJ for any dispute relating to matters of EU law.
UK does not want a role for ECJ in decisions relating to the future relationship.
|1||Trade in goods||Remove tariffs and quotas.||EU says this is contingent on UK making 'robust commitments' to level playing field (LPF) provisions.
UK sees it as a reciprocal commitment, which should recognise existing precedents.
|Cooperate to minimise regulatory barriers.||UK wants mutual recognition of regulatory standards but EU has not offered it.
Rules of Origin: EU wants to offer a more restrictive approach than UK wants.
|2||Trade in services (and investment)||Provide access to EU for UK services (and vice versa) in excess of WTO minimum access.||Most FTAs do not liberalise services much.
EU does not see UK-EU FTA as an exception - envisaging restricted access compared to EU membership.
UK is more ambitious and seeks to go beyond EU precedents in areas, such as in digital, professional and business services and equivalence.
|Financial services: grant equivalence||UK wants structured process for withdrawal to increase certainty.
EU intends to use normal unilateral withdrawal at short notice.
|Audio-visual services: UK wants exceptions to be granted.
EU does not.
|Intellectual property||FTA should exceed WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and World Intellectual Property Organization (WIPO) conventions.||EU wants trade deal to preserve existing high standards protection.
UK wants a more flexible, less well-defined approach.
|Public procurement||EU wants to include public procurement.
UK does not.
|3||Level playing field||UK wants LPF commitments to be limited to those found in existing EU agreements with distant trade partners, such as Canada.
EU says UK should be treated differently due to proximity and scale of UK-EU economic interdependence.
|EU wants UK to maintain current standards, and UK public bodies to take place of EU Commission to enforce standards.
UK does not want its commitments to be enforceable by dispute resolution.
|4||Transport||Air: EU believes UK should have less access to EU air space than now.
UK favours bilateral agreements in accordance with EU precedent.
|Road freight: EU envisages bilateral access.
UK seeks greater regulatory freedom and rejects need for restrictions on freight numbers.
|EU says UK must accept LPF commitments and further alignment on “common levels of protection” (in the form of non-regression clauses).
|5||Energy and civil nuclear cooperation||Gas and electricity: EU wants LPF rules agreed before deeper co-operation on electricity and gas.
UK wants energy agreement to allow UK to have an independent energy policy.
|Nuclear: broad agreement on nuclear provisions and shared interest in preserving research co-operation.|
|6||Fisheries||EU sees fisheries rights as linked to agreement on trade.
UK preferred option is in line with EU precedent for other coastal states.
|EU wants to manage fisheries same as now.
UK wants annual negotiations on access to waters.
|EU wants to agree provisions on fisheries by 1 July 2020, but UK ignores this.|
|7||Mobility and social security cooperation (including visas for travel and work)||Mobility and social security: similar opening positions.|
|8||Law enforcement and judicial cooperation||UK and EU want to agree mechanisms to allow criminal justice and policing co-operation to continue.||EU says UK will be limited as a third country outside the Schengen area. EU wants to make some exceptions: no other non-Schengen country is part of Prüm, and the proposal for reciprocal exchange of PNR data would go further than arrangements for other third countries.
|9||Thematic cooperation (including cybersecurity and migration)||Security and foreign policy: limited cooperation||UK is open to substantial foreign policy co-operation but sees no need for an institutional framework.
|Data: UK seeks and EU is expected to grant a 'data adequacy' ruling for UK.|
|10||Participation in EU programmes||Open to UK participation in other programmes, subject to general rules on implementation and financial contribution.|
|11||Horizonal arrangements and governance.||Need for a governance and dispute-settlement arrangement.||UK wants governance and dispute-settlement arrangements for every deal struck.
EU wants one framework to cover the whole agreement.
|Independent arbitration panel to resolve disputes.||EU wants independent arbitration panel and reference to ECJ for any dispute relating to matters of EU law.
UK wants arrangements to reflect regulatory and judicial independence of UK.
UK wants no role for the ECJ in decisions relating to the future relationship.
This section discusses some important aspects that affect trade:
- Level playing field
- Cost of divergence
- Equivalence and adequacy
- Rules of origin
Level playing field
The Political Declaration pledged a level playing field (LPF) to ensure open and fair competition. The EU had set the LPF provisions as a pre-condition for the FTA, because the UK is a close neighbour with deep trade connections. LPF terms appear in other EU FTAs but are less important with distant countries like Canada or Japan.
Principally, the EU wants to prevent the UK from deregulating or increasing state financial support to give British industry an unfair competitive advantage over EU rivals. The UK sought reciprocal undertakings to avoid unfair EU competitive advantage over UK firms.
The objectives of the LPF safeguards were to:
- Ensure open and fair competition based on commitments across the economic partnership
- Prevent distortions of trade and unfair competitive advantages
- Address cross-border UK-EU pollution
- Address global sustainability and climate change challenges by continuing close cooperation
The LPF provisions relate to several areas as well as regulatory and technical standards. The main LPF areas are:
- State aid (i.e. government subsidies)
- Social and employment standards
- Environment and climate change
- Relevant tax matters
On standards, the EU proposed (and the UK agreed) that the minimum protections for environment and labour should be those that apply today. If the UK goes below the minimum and this affects trade or investment, the EU would be entitled to levy tariff sanctions (subject to arbitration) to level up the playing field. The main issue will be how to deal with future divergence. As standards evolve, the two parties may agree new higher minimum levels.
On state aid, the UK wanted to be free to set its own rules and to have maximum access to the EU market of 450 million consumers. The EU wanted to make sure that the UK does not gain unfair competitive advantage through state aid. The UK and EU need to agree to a common framework for subsidy rules. These will involve the UK committing to a robust regime that will prevent unfair subsidies that allow UK firms to undercut their EU competitors. The PD commits to mechanisms for domestic enforcement and for dispute settlement. As a start point, the EU asked the UK to commit to preserving EU state aid rules.
The UK does not spend much on subsidies compared to most EU counterparts (see Figure 15.3). The UK government currently provides about £8 billion a year in approved state aid, mainly to support environmental goals. This is only 0.4% of GDP and less than a third of what Germany spends (1.5% of GDP). So, from a helicopter view, UK state aid should not be a major issue for either the UK or the EU.
Figure 15.3: State aid as % of GDP (2018)
To secure a UK-EU FTA, a UK state-aid policy was essential. Experts say it was crucial to give confidence to EU negotiators that Britain will not compete unfairly with EU firms. A clear state-aid policy also has benefits for the UK itself. The Institute for Government made a strong case for effective control of subsidies post Brexit.
So far, the government has announced that the UK would follow WTO subsidy rules after the end of the transition period. It also said it would publish clear guidance on WTO rules before the end of 2020 for public authorities and devolved administrations. In addition, business would be able to comment on the UK’s own proposed domestic regime in 2021. However, due to lack of effective enforcement, a WTO approach would mean weak control, which is unlikely to satisfy the EU.
State-aid rules appear in other trade deals. For example, the UK-Japan FTA copies restrictions on subsidies in the EU-Japan deal. These prohibit both governments from, for example, giving indefinite guarantees to struggling companies, or providing a bailout without a restructuring plan. As a result of its Japan deal, the UK will need to put laws in place to ensure that British public bodies meet the restrictions.
Under WTO rules, when a country believes another is giving unfair subsidies to a domestic producer, it can respond with ‘countervailing duties’. This means tariffs on goods that might have nothing to do with the subsidised sector. For example, the US responded to what it saw as unfair subsidies to Airbus with higher tariffs on aircraft, Scotch whisky and other products.
UK Trade Policy Observatory, UK-EU trade relations: A checklist of 10 key issues
European Commission, DG Competition, State Aid Scoreboard 2019
HMG, Government sets out plans for new approach to subsidy control, September 2020
Institute for Government, Beyond state aid, September 2020
Financial Times, Japan trade deal commits UK to stricter state aid curbs than in EU talks, 13 September 2020
The UK government’s principal aims for trade were:
- Zero tariffs and quotas on UK-EU goods trade;
- Ability to diverge from EU regulations and rules.
It framed its aims in terms of a “Canada-style agreement” (a Comprehensive Economic and Trade Agreement) or an “Australia-style agreement” (‘no deal’). All reputable economists agree that no-deal terms (a WTO Brexit) would be disastrous for UK trade and the economy. For example, NIESR estimated that UK-EU trade would fall by 59% to 65% and overall trade by 24% to 26%. See the section on impact assessment for details.
Compared to WTO terms, Canada++ might have sounded impressive, but it would have still been a big step-down from EU membership. Even with an FTA, friction-free trade in the Single Market will be gone for UK-based companies, who will find it more difficult and more expensive to trade. For example, rules of origin checks will apply. Also, British companies which trade with Northern Ireland face new checks and controls.
However, the tariff and quota terms of Johnson’s basic FTA should have been relatively simple to negotiate. Fish was the main exception.
Cost of divergence
As the UK wants to diverge from EU rules, the EU will treat the UK as if it will diverge, whether it does or not. EU trade controls will apply to UK exports irrespective of whether the UK’s rules and regulations are the same as the EU’s – the same as any other FTA partner.
This means the full spectrum of EU checks and controls will apply, for example:
- Exporters will need an EU-established entity to be legally responsible for ensuring the product complies with EU rules and for placing it on the EU market. This could be the EU-based importer or a legal representative. UK exporters of low-risk products will be able to self-certify that they meet EU requirements. However, they will no longer be able to place them directly on the EU market.
- Exports of animals and animal-origin products will face new regulatory controls at the border. These will involve new paperwork (such as export health certificates signed by a vet) and new physical inspections). This will happen irrespective of whether the UK applies the same food hygiene standards as the EU.
Continued alignment will benefit UK-based businesses serving the UK and the EU. Alignment avoids having to produce to different rules when selling to both markets. However, it will only remove regulatory barriers to trade, where the EU grants the UK equivalence (see below).
The UK’s freedom to diverge comes with large additional costs. However, when the UK decides to diverge, for example, by adopting US production methods. the UK would not face new barriers with the EU – they would already exist. Avoiding extra costs because you are already paying them is a false benefit. Indeed. the government’s own analysis found that the benefits of regulatory divergence are likely to be small.
European product standards are recognised globally. As a result, UK exporters are likely to follow them. The UK will have to choose between keeping the benefits of not diverging by following EU rules; or pursuing Brexit ideology about sovereignty over the UK’s wider economic interests.
Equivalence and adequacy
There are some areas where unilateral alignment with EU rules could lead to greater market access. Two important examples are:
- Financial services and the areas covered by the EU’s financial equivalence regime. Here, the EU could allow certain financial services activity, focused on the EU-27, to continue to take place in the UK. In these areas, historically, the UK has often gold-plated EU rules for financial services – known as ‘super-equivalence’. However, it is important to note that, even with equivalence granted, there would still be a large gap compared to membership of the Single Market.
- Data protection. Here, unilateral alignment would mean the EU is more likely to grant the UK an adequacy ruling. Adequacy would mean that companies would be able to continue storing the personal data of EU citizens in UK data centres. This is important because exchanges of personal data are at the core of law enforcement and judicial cooperation, as well as commercial trade with the EU.
Equivalence and adequacy rulings are unilateral. They are in the EU’s gift and are not subject to negotiation. The EU can withdraw them at short notice, which gives the EU significant leverage. For example, the EU recently withdrew permission for EU stocks to trade on Swiss exchanges to put pressure on Switzerland to sign up to an unrelated agreement. Of course, the UK may also grant equivalence to the EU in certain areas to facilitate EU27 access to the UK market.
Rules of origin
Rules of origin drive one of the new customs checks that will affect UK-EU trade. The purpose of the rules is to find out where something was made in order to decide whether the product is tariff free or a tariff should apply. As the UK has left the EU Customs Union, UK exporters to the EU have to prove the origin of their products. This is standard practice for parties to an FTA.
To determine origin, exporters need to analyse the content of their products between local content and that from other countries. To do this, there are different rules for different sectors and goods classifications. For a manufactured product in a global supply chain, the rules might measure each country’s economic contribution to the product. For example, for a car to qualify for zero tariffs under the EU’s FTA with South Korea, 55% of its value must have been created in the EU.
All FTAs define their particular rules of origin. For example, the trade agreement between the EU and South Africa allows components from both to count towards ‘local content’. However, when the UK leaves the EU’s rules, South African components will be excluded from EU local content, unless the UK-EU trade deal says different. The number of trade agreements involved in an international manufacturing process can make it difficult to apply the rules.
The upshot is that rules-of-origin checks will cost UK exporters money and time. As a result, the rules will make post-Brexit exporting to the EU less competitive, less attractive and less profitable compared to EU membership.
UK Trade Policy Observatory, Certificates and rules of origin: the experience of UK firms, Peter Holmes and Nick Jacob, January 2018
Centre for European Reform, What a Boris Johnson EU-UK free trade agreement means for business, Sam Lowe, November 2019
Security and defence
The UK government did not say that it expects to stay aligned with its EU partners on security matters, but it seemed likely that it would, because:
- The Political Declaration points to a continued close relationship, which it describes as a “broad, comprehensive and balanced security partnership”.
- In December 2019, the UK government listed the UK priorities as free trade, human rights, democracy and the international rule of law. These are the same as those that the EU set out in its 2016 ‘Global Strategy’ and which are supported by France, Germany and Italy.
- In July 2018, the UK government’s White Paper advocated “a single, coherent security partnership between the UK and the EU”, covering both internal and external security co-operation. The UK had previously set out the arrangements that it hoped to negotiate with the EU, hoping to preserve much of its access and influence as a Member State.
- Since June 2016, the UK he UK has remained aligned with the EU over issues including Iran and sanctions against Russia.
Adequacy is necessary to ensure the free flow of personal data that is core to judicial and law enforcement. The Commission said it would endeavour to finalise its adequacy assessment by the end 2020 and would prioritise its assessment in the context of law enforcement. The main steps are:
- Assessment by the Commission, in close cooperation with the UK
- Publish draft Commission decision (an Implementing Act)
- European Data Protection Board gives its opinion (which may lead to changes in the Act)
- Vote by Member States (qualified majority) in the Standing Committee
Ratification and implementation
If the negotiations solely focus on trade, the European Commission can argue that it has exclusive competence. This would mean that ratification is relatively simple and quick: only the European Council (the national leaders), and the European Parliament need to sign off on the deal. Indeed, at the Council, a non-mixed agreement could be decided by a qualified majority vote – it would not require unanimity. (See the section on sovereignty and law for further details on competences and voting.)
However, if the partnership covers shared competences like the environment, it is a ‘mixed agreement’. Ratification of a mixed agreement takes longer to achieve. In this case, each member state needs to ratify the agreement in line with its sovereign political arrangements. As each member state (and some regional parliaments) need to approve the deal, it also becomes more complicated and harder to negotiate, not least because each legislature has a veto.
The EU UK Trade and Cooperation Agreement is an Association Agreement, which uses Article 217 of the EU Treaty. This requires unanimity in the European Council and the consent of the European Parliament, but not necessarily approval by national and regional parliaments. After the European Parliament and Council have voted on the UK-EU agreement, it can be applied provisionally and ratified during early 2021. See section on EU-UK Agreement for more details.
The future UK-EU partnership requires new operational processes, systems and procedures to be implemented. It will also take time for government and business to adjust. Commonly, an FTA is phased in over several years to give time for businesses to adjust to the new trade conditions. For example, the EU’s CETA with Japan phases in tariff reductions over seven years.
Therefore, it would have been sensible for the UK and the EU to have agreed to phase in the implementation of new trade barriers over several years. This would also allow time to negotiate the supplemental agreements.
Government and business both need time to design and implement the systems and other infrastructure necessary to operate the new partnership. From a trade perspective alone, Pascal Lamy, previously Director-General of the WTO, has said this could take four to five further years.
Advantages of FTA over ‘no deal’
Aside from the severe economic damage to the UK of both options, there are other considerations. In August 2020, the Centre for European Research published a short paper that looked at the main advantages of a basic FTA over ‘no deal’. The table below summarises the paper’s key points, updated to include comments on the EU-UK Trade and Cooperation Agreement. Note that the TCA left items to agree after 1 January 2021.
For a further examination of the differences and similarities between ‘no deal’ and a basic FTA, please see the Brexit FactBase section on ‘no deal’.
|Advantages of a basic FTA over 'no deal'|
|Implication||No deal||Basic FTA||Advantage in EU-UK Trade and Cooperation Agreement?|
|1||Exit Single Market and Customs Union||Yes||Yes||No. UK-EU trade is more difficult due to new regulatory and technical barriers to trade in goods and services.
For goods trade, both options lead to new customs processes, delays and costs.
|2||Tariffs on UK-EU goods trade||Yes||No||Yes. Under 'no deal', some sectors would have been particularly hard hit by new tariffs e.g. agriculture, food, drink and automotive manufacturing.|
|3||Restrictions on cross-border services trade||Yes||Yes||Yes. Services trade is restricted but the TCA has fewer restrictions on services than 'no deal'. The TCA governance structure creates basis to negotiate easing of some restrictions e.g. recognising professional qualifications and providing short-term work visas.|
|4||Cooperation on customs procedures||No||Likely||Yes. Included as part of TCA. Avoids UK-EU border 'freezing' on 1 January 2021 and allows UK and EU to work together to minimise disruption.|
|5||Interim trade agreement||No||Possible||No. Under 'no deal', WTO rules would not have permitted an interim agreement. But, with TCA, there is no overall transition path to implementation mapped out. Some trade aspects of SM/CU could have been extended for limited time to facilitate TCA implementation.|
|6||Agreements on other areas||No||Likely||Yes. TCA creates governance structure that allows changes to TCA and future negotiations in areas such as social security and cooperation on scientific research.|
|7||EU grants equivalence to UK financial services regulation||No||Likely||Not yet granted. Would facilitate some financial services trade out of UK to EU.|
|8||EU assesses UK data protection as adequate||No||Likely||Temporary extension but not yet granted. Allows UK businesses to store EU citizens' personal data on UK servers (necessary for some UK businesses to operate effectively with EU customers).|
|9||NI - Ireland Protocol implementation||Difficult||Yes||Yes. The Protocol is part of the legally-binding Withdrawal Agreement, an international treaty. It applies in the event of 'no deal' or an FTA. However, implementation depends on EU-UK cooperation. For example, UK officials and agencies have to treat goods crossing westwards across the GB/NI border as entering the EU. Therefore, an acrimonious 'no deal' would have made its implementation difficult. Even with the TCA, the Protocol was not fully operational by 31 December 2020.|
|Draft - 8 September 2020||Source: BrexitFactBase based mainly on the CER paper "Five Reasons Why Even a Basic EU-UK Trade Deal is Better Than Nothing"|
Source: Centre for European Reform, Five Reasons Why Even a Basic EU-UK Trade Deal is Better Than Nothing, August 2020