EU's bid for Brexit trade deal by 2020 points to limited scope

13 December 2017 7:23pm
UK EU Flags

11 December 2017. By Matthew Holehouse.

An EU-UK trade agreement could come as early as 2020 as the bloc’s leadership seeks to deliver a fast-track deal, MLex has learned.

The plans would let UK Prime Minister Theresa May fulfill her aim of exiting the EU with a transition period of around two years and allow her Conservative Party to complete negotiations before the next general election in 2022.

The UK has long wanted a quick trade deal, a wish until now met with skepticism on the EU side. Trade deals often take much longer to discuss and finalize: the EU’s trade agreement with Japan took four years to negotiate, while its pact with Canada took seven.

The unprecedented speed of the proposed timetable, in addition to the UK’s insistence on escaping EU legal oversight, could rule out an accord that goes much beyond a conventional third-country free-trade agreement, featuring only limited provisions for services.

While the move would address the UK’s desire for a hasty exit from the bloc, it is likely to disappoint businesses hoping for a deal that replicates much of their current market access.

Roadmap

The exit process will produce two documents.

The legally-binding withdrawal agreement, under Article 50 of the EU treaty, will cover elements including the rights of citizens, the UK’s financial settlement and a raft of measures to terminate cross-border agreements in goods, judicial proceedings and nuclear materials. It will also create a transitional period, in which the UK's market access and duties toward the bloc will remain, even though the country will lose all decision-making powers.

EU governments will also issue a non-binding political declaration setting out principles for a future trade agreement.
Negotiations on a future trade deal will start under Article 218 of the EU treaty, once the UK formally leaves on March 29, 2019.

The bloc’s leadership believes an accord could be concluded as early as 2020, and applied provisionally that year with the unanimous approval of all EU states and the bloc’s parliament, it is understood. Ratifications by national parliaments would then follow and could last until 2023.

The EU’s case for a fast deal is helped by a recent EU Court of Justice ruling concerning Singapore’s trade deal with the bloc. The court ruled in May that EU leaders are allowed to approve the bulk of an agreement, with only a narrow set of issues — investment portfolios and investment dispute mechanisms — requiring ratification by national assemblies.

UK Brexit Secretary David Davis told the BBC on Sunday that he expected most of the negotiations on the future trade relationship actually to take place during 2018, with the Article 218 process a mere technicality that would take “maybe one minute.”

The UK has argued that a fast agreement is possible because both sides are beginning from a position of zero tariffs and regulatory alignment.

Weak hand

The UK’s desire for the speediest possible exit, and its inability to walk away from talks without creating chaos, will strengthen the EU’s hand in setting terms for the upcoming trade negotiation.

Many UK lawmakers are unhappy about the amount the UK government has committed to pay the bloc, which it says could range up to 39 billion pounds ($52 billion). But lawmakers are prepared to accept the amount if the payment is conditional on the UK securing a future trade agreement.

May has tried to reassure UK lawmakers that it will be conditional: “It depends upon a broader agreement being reached. As I have said, nothing is agreed until everything is agreed, so if there is no agreement then our offer also falls away,” she said in a letter to Conservative Party lawmakers today.

But the link between the financial settlement, and the terms of a future trade agreement, is arguably tenuous.

The framework of a future trade agreement drawn up by EU leaders alongside the exit bill will be a political resolution, and won’t have binding force on the EU when it draws up a mandate for trade talks under Article 218.

The UK’s negotiating hand has therefore been sliced in two — it will have no ability to renegotiate the financial settlement if it finds that trade talks in 2019 and 2020 are not going as planned.

That means the UK's position is a lot weaker than the current saber-rattling at Westminster would suggest.

Brexit Special Report