Wild Speculation: What Could a UK-EU FTA Landing Zone Look Like?
This article is going to consist of me offering my best guess and over-simplifying a huge volume of very complex negotiating questions to try and paint a picture of what a compromise landing zone could look like.
I fully expect very smart people to tell me I couldn’t be more wrong. Time will probably prove them right.
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I keep being asked if a deal between the UK and EU can be reached before December 2020, and what that might look like. Let me be honest. I have no idea.
However, being asked repeatedly is all the licence I need to speculate wildly. So here goes.
What do we actually know?
We now know what the two sides have publicly listed as positions for the negotiations.
The EU has released the mandate the Commission would like to go into negotiations with the UK holding (not literally, as a typical EU document it’s too heavy for any one negotiator to actually lift).
The UK has also released something, though like optimistic new lovers we’re hoping they have a lot more to show us than what we’ve seen so far.
What are the biggest issues?
The mandates largely confirmed some things everyone already suspected:
The Free Trade Agreement would be a narrow one, primarily focused on preventing tariffs being reintroduced between the two parties;
The EU will condition full tariff elimination on:
Commitments from the UK on the so-called “Level Playing Field” issues of the environment, labour, climate change and state aid (subsidies);
Guaranteed access for EU fishing vessels to UK waters at levels roughly equivalent to what’s currently going on.
The UK would find the above incompatible with its goal of regaining sovereignty and autonomy in these areas.
Wait, what about all the other things?
There’s a lot more to be negotiated, but the above are what most analysts believe to be the truly pivotal questions of the negotiation.
What does a compromise need to be?
In order to actually make it across the line, whatever emerges from these negotiations has to be politically satisfactory to both sides. The politics are the key.
In my view, for Boris Johnson and the No. 10 team that means being able to say they:
Got a deal;
Preserved the UK’s sovereignty over its own regulations;
Preserved the UK’s sovereignty over its fishing waters;
Prevented the UK from ever being subject to binding rulings by the ECJ.
Whereas for Michel Barnier and DG Trade that means being able to demonstrate they:
Worked constructively to get a deal without sacrificing the Single Market;
Secured legal guarantees the UK won’t be able to use its regulatory policy to undercut EU producers;
Secured legal guarantees to consistent UK waters access for EU fishing vessels.
Tariffs and the Level Playing Field
Landing Zone Option 1: Lower Ambition
When trade negotiators talk about ambition they’re either referring to how much a deal opens up markets, or describing one another’s hapless efforts to approach attractive people at bars. Given I have no experience with the latter, let’s stick exclusively to the former.
A primary reason the EU is being so demanding in the “Level Playing Field” category is that under the deal both sides want it would forego all ability to levy tariffs on UK goods (except through trade defense, more on this in a second).
This virtually never happens in a Free Trade Agreement. In CETA, the EU’s agreement with Canada, it kept a selection of its most sensitive tariffs in place, which is one of the reasons it was able to be more relaxed about the Level Playing Field provisions in that agreement.
If, like in CETA, the agreement leaves some tariffs untouched then the EU may be more flexible on Level Playing Field. The tariff lines its most worried about would remain protected by EU tariffs and so wouldn’t need to worry as much if the UK failed to keep up with rising EU standards or even regressed.
Upsides of this approach:
Both sides able to claim a ‘win’, if not necessarily a success;
As with CETA, the vast majority of tariffs could still probably be eliminated.
Downsides or risks of this approach:
The tariff lines most likely to remain in place are precisely those the two sides need ditched the most (the biggest ones). Sectors like beef, lamb and dairy could find themselves locked out of major markets;
Once you move away from the “Full Tariff Elimination” approach and start negotiating tariff line by tariff line, the already absurdly ambitious timeline gets blown out of the window. There are like… so many tariff lines you guys. So many;
Given the UK’s proximity and size, the number of tariffs the EU demands to retain in order to give up on its Level Playing Field demands may be so high as to render the agreement largely worthless.
Landing Zone Option 2: A Level Playing Field Compromise
As stated, the positions of the two sides on some parts of the Level Playing Field are simply incompatible.
The UK can’t simultaneously have full sovereignty over its subsidy policies and be subject to the EU’s State Aid regime. Those two things simply can’t be true at the same time.
Prime Minister Johnson argued in his February 3 Address that none of this should be a problem because UK standards have historically been at the forefront of the EU, and this won’t be changing.
The EU counters that trade agreements are about legal certainty in the long term, and if the UK truly doesn’t intend to diverge downward then binding this fact in a trade agreement shouldn’t be a problem.
With all that said, if the two sides move partially off their red lines it’s possible to imagine a compromise.
This is easier in the environment, labour and climate change than it is in State Aid. Here, the EU is largely asking for the UK not to regress from its existing levels of protection. Provided the commitments here are generally worded enough (the overall standard shouldn’t fall, but individual rules can change) then the UK can honestly say it retains its regulatory autonomy while the EU has the confidence it won’t be undercut, at least in the aggregate.
Things are tougher in state aid where the EU is literally asking for its subsidy regime to apply to the entirety of the UK in perpetuity. This is a pretty extreme version of alignment, which the UK understandably finds problematic. Additionally, because this would be an EU law, this opens the possibility of the ECJ ruling on the UK which Boris Johnson has vowed never to accept.
A possible albeit difficult compromise might be a version of dynamic alignment where the UK agrees not to subsidize beyond the maximum levels permitted by EU State Aid rules without actually being bound by the state aid rules themselves.
Basically, instead of legally committing to implementing the EU’s rules on subsidies in the UK, the UK would agree that it would keep its own subsidies within the broad limits those rules add up to. This would have a similar effect, but mean technically no EU laws apply to the UK and that the ECJ has no role in the relationship.
What would all this need to work?
The key would be agreeing dispute settlement and trade defense provisions both sides are comfortable with.
Dispute Settlement refers to the procedures the two sides follow when one side thinks the other isn’t living up to their commitments. In the EU mandate they’re seeking a joint governance body (a joint committee, basically) to talk things out. If that doesn’t work, there will be a panel of independent arbitrators (trade judges) to issue a final, binding ruling on who is right or wrong.
The EU will want this to be as robust as possible, whereas the UK will want to avoid the impression they’ve just reinvented the ECJ in another building.
Trade Defense refers to special procedures in trade law where the parties can extraordinarily and unilaterally defend their markets in certain circumstances. For example, if an industry feels it’s being victimized by an unfair subsidy abroad, its government can launch an investigation and if it confirms the charge, impose a large tariff to ‘rebalance’ trade.
The more robust, practical and effective these two mechanisms are, the more comfortable the EU is likely to be with a slight relaxation of the Level Playing Field red lines. The good news is while the details of these will be a negotiating challenge, both sides mandates indicate they want dispute settlement and trade defense included in this agreement, so they’re starting from a point of agreement.
Upsides of this approach:
Potentially preserves true tariff free trade in Europe;
Provides both sides comfort about the regulatory direction of travel going forward;
Boris Johnson would be able to say the UK is still in charge of its own rules and free from the oversight of the ECJ, while Michel Barnier would be able to assure the EU27 they never risk being undercut by a Singapore on the Thames on their doorstep.
Downsides of this approach:
Would require both sides moving off their red lines, in the UK’s case a considerable distance;
Very easy to demagogue against on both sides, with potential difficulties arising for ratification;
Elements of this would require very careful (and thus long, contentious and difficult) drafting, for which there is little time.
Fishing Rights and Quotas
Landing Zone Option: Negotiating Above The Fold
As in State Aid, the stated positions of the two sides are, if taken literally, fundamentally incompatible. The EU can’t have fixed and immovable guaranteed access levels to UK waters for its fishermen if the UK gets its demand for such access to be subject to an annual renegotiation.
From the EU’s perspective, a deal that eliminates all tariffs but doesn’t bind access to the UK’s waters risks the EU being locked out in future fishing negotiations because it would no longer be able to threaten tariffs on UK catches as retaliation.
There is a potential compromise here though, if we assume that what’s most important for the Boris Johnson administration is to be able to point to an annual renegotiation and a decrease in access.
If the two sides agree to a package consisting of a minimum level of access combined with an annual negotiation, there’s an extent to which the needs of both are partially met. Moreover, if that minimum level of access is somewhat below what the UK was providing under the EU, the No. 10 team could credibly claim to have retaken more of the UK’s waters for UK fishing vessels.
The EU meanwhile, while still having to negotiate access annually, would enter such negotiations with a large chunk of their required access already secured. Negotiations would therefore focus on ‘extra’ access and not risk a total or significant lockout of EU vessels.
Upsides of this approach:
Both sides get elements of what they want on an issue that is both intensely symbolic but also of critical importance to coastal fishing communities;
Downsides of this approach:
A larger concession for the UK, effectively guaranteeing EU access to its waters, and thus easy to demagogue against;
Negotiations over the ‘minimum’ could be highly contentious, especially if the UK does insist on a quota well below existing levels.
Conclusion - Is all this possible?
Maybe. Who the hell knows? It’s 2020, none of us have successfully predicted anything for half a decade. The world is chaos.
What I’ve presented above is a heavily simplified summary of how potentially, the two sides could cobble together something on the major issues that sort of aligns with their core objectives for this negotiation.
Will it be good enough?
Is there time to find the legal language to capture it all?
Will other issues arise to trip everything up?
Do the two sides actually value getting a deal over the appearance of being ‘tough’ and pushing back on an ‘unreasonable’ partner?
I don’t know, and I don’t think anyone else does either. I’m speculating here. Why?
Because people keep asking me to.