Brexit: light at the end of the tunnel?

By Tom Parker, SEC Newgate Deputy CEO and British Chamber of Commerce in Belgium President, with Adam Koves, EU Trade Policy Consultant at Cambre Associates

Rumour has it that a deal is brewing in London and Brussels. Some are still pinning their hopes on the success of intense, “tunnel” negotiations. However, businesses are starting to notify clients about Brexit charges, shipping changes and the like. Time and time again, negotiators come out of the talks admitting that “significant differences remain”. Brexit watchers know them all too well: fisheries, level playing field and governance. Overall, the view in Brussels has not changed since day one. The British government should choose how deep and wide the English Channel should be. Regardless, it cannot walk on water, and the EU cannot build a one-way bridge. The Eurotunnel remains the only way, and there is one week left to decide.

It is not like shooting fish in a barrel….

Adam Smith is well appreciated in Brussels, and the EU backs free trade and competition, but no negotiator would do so without question. Ensuring a level playing field is at the core of the EU’s trade policy, especially as competition from third countries increases. In fact, the EU is working on measures to tackle distortive effects of foreign subsidies and is reviewing its entire strategy to be more autonomous and blunter in facing foreign competition. Whilst targeting Chinese state-owned enterprises, the thinking behind these efforts applies to London too. If the EU were to grant special treatment to the UK on the level playing field, this would undermine its position vis-à-vis other major competitors. Before agreeing on trade terms, the EU needs assurance that the UK, as its soon-to-be-largest neighbour, will not become a “Singapore on Thames”. This sentiment is shared by many in the European business community, which favours an EU-UK deal but not if this means having on its doorstep competitors who do not play by the same rules.[1]

… but some fish are easier to catch

The question of fisheries is not such an issue of principle, so it is easier to find a landing zone (pun intended) there. Currently, European fishing fleets have equal access to British waters, and EU ministers set catch limits every year. The UK wants a bigger fishing quota, while the EU prefers the status quo, since French and Spanish fishermen would lose out. Chief Negotiator Michel Barnier has accepted that the EU needs to move on this, but he has to convince Madrid and Paris. Despite its modest size in economic terms, the issue of fisheries is highly symbolic. It was one of the drivers of the Brexiteers’ success in the polls. French President Emmanuel Macron would probably like to avoid seeing a similar backlash, especially in the Brittany region, home of Marine Le Pen. While EU leaders might show some flexibility, the tight timeframe is an additional challenge for negotiations. And the EU is not known for quick decisions.

Can the US elections shake things up?

Joe Biden’s election victory puts the UK government in a very tricky position. Leading Democrats in the US have said there is “no chance” of a UK-US trade deal if Britain goes through with its Internal Market bill, which contradicts the Withdrawal Agreement with the EU. Even the UK House of Lords has voted against the legislation. The EU is well aware that UK Prime Minister Boris Johnson has an unenviable trade conundrum   and a weak hand looking ahead. What concessions will Johnson be prepared to make to land a trade deal with the US?  How can he mitigate the prospect that the next US Administration  is more interested in forging closer ties with the EU, a much bigger partner and market, than with the UK, specifically to face China. How can Johnson avoid leaving the UK out in the cold with potentially no deal with any of the world’s largest markets, having upset the future US administration, distanced itself from China and left the EU altogether.

Time is of the essence. This is the make-or-break week. After speaking at the weekend, Commission President Ursula von der Leyen and Johnson agreed to redouble their  efforts to reach an agreement Unless they make progress by the next European Council on 19 November, they will likely have no choice but to realise that the light at the end of the tunnel is just an oncoming train – and brace for impact.

[1]https://bdi.eu/media/presse/presse/downloads/2020-10-14_BREXIT_JOINT_DECLARATION_BDI_MEDEF_CONFINDUSTRIA_20201014_DEF.pdf