Roderick Crawford works on conflict resolution in countries such as Yemen, South Sudan and Iraq, and on Brexit-related matters. He is a former editor of Parliamentary Brief.
Today’s virtual meeting between Boris Johnson, Michael Gove and David Frost and Ursula von der Leyen, Charles Michel and David Sassoli is the first of what is likely to be a number of political engagements to break the impasse and help lay the ground for a final agreement acceptable for the UK, the EU and its 27 member states.
A key issue – probably the key one – that must be resolved is the establishment of a robust level playing field to ensure the fair and free competition that is needed to underpin a free trade agreement (FTA). This is a hard EU red line, but the proposed implementation of it has come up against UK red lines and, in places, crossed them. Without a resolution of this issue, there can be no FTA.
In the Political Declaration, the UK agreed to ‘uphold the common high standards applicable in the Union and in the United Kingdom at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters’.
The EU 27 will not agree to sincere assurances from the UK in this area; the final UK-EU FTA will need to have much more robust level playing field standards than the Canada-EU FTA if it is to be acceptable to the Commission and to the 27.
One answer would be for the UK and the EU to agree ‘common high standards’ drawn from those currently in force in the EU and UK — standards that are directly and not peripherally concerned with trade and competitiveness. These standards would have standing only within the free trade agreement, and, not being ‘common standards’ within the EU and therefore EU rules, would have no role for the European Court of Justice (ECJ) in interpreting them.
They would be common to the EU and UK only in the limited context of this agreement, securing level playing field on the terms set out in the Political Declaration. Normal FTA dispute resolution, as in Canada-EU, ought to be sufficient to ensure that these are upheld, and that there is no regression: if these need to be a little more robust, that should not present an insurmountable problem, so long as the mechanisms are entirely within the framework of the FTA.
This does not mean a return to the common rulebook, as proposed by Theresa May; that required the continued application of EU rules and a significant role for the ECJ. Rather, ‘common high standards’ would have a legal basis solely within the FTA, and without a role for the court in interpreting them — they would not be EU rules, and their origins, as such, would be severed. The UK would be a rules upholder, not a rules taker.
Amongst these level playing field issues, state aid offers incredibly complex challenges, not least in the post-Covid-19 world of massive state interventions in all our economies. As the EU proposals on state aid are not endorsed by the Political Declaration, the UK and EU will need to find answers outside of EU rules and institutions.
Using common high standards, as proposed above, combined with close regulatory co-operation and robust FTA dispute resolution mechanisms will be necessary, and should provide effective and efficient security against abuses by both parties.
In the trade talks, the elephant in the room is the UK’s substantial trade deficit with the EU. In 2018, the UK had a trade deficit of £66 billion with the EU: a surplus of £28 billion in services against a deficit of £94 billion in goods.
In any usual trade negotiation – and this clearly isn’t one – that would never be far from the minds of the negotiators. Maintaining access to the Single Market for UK services, including finance, adds value to the EU economy as well as helping the UK pay for its import of EU goods.
We have been pretty relaxed about this – other member states would not be – but if our trade carried an equivalent surplus it would have been a major issue for the EU. A healthy free trade agreement needs to be comprehensive and balanced: at its core is not only a proper level playing field, but healthy balanced trade too.
A second impasse is on the overarching governance of the future relationship; the UK is clear that it does not want this, whilst the EU clearly wants a comprehensive agreement covering all aspects of the future relationship.
However, while access to the Single Market should be dependent on open and fair competition, it should not be dependent on security, justice, foreign policy or defence matters. The UK is ambitious in its foreign policy; though it will want to co-ordinate and co-operate with the EU, it also wants to take its own initiatives and forge wider alliances; it will want to champion interests that the EU might not support — or which the EU might oppose.
Freedom to act is essential for the UK — and there can be no retaliation on trade, because the EU considers the UK is in breach on other areas, such as foreign or defence policy. With a review of the UK’s integrated foreign policy and defence review lying ahead, potentially more significant even than that carried out after the end of the Cold War, this is no time to be tying the UK into EU frameworks. Arrangements with the EU should follow, not precede, that review.
There is flexibility in the Political Declaration on the governance of the agreement. Its precise legal form is not set out: specific governance arrangements can be established in individual areas, and the parties to the agreement may decide that an agreement should sit outside of the overarching institutional framework. This is the text that the Government should use to argue that its red lines on governance are compatible with the Political Declaration.