Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
A UK-EU trade deal is said to be 95 per cent there. However, it seems that every passing week has promised to be the “crunch” point that will mark the breakthrough.
An agreement is probably more likely than not, but the last five per cent is always the trickiest bit. Ursula von der Leyen, President of the European Commission, confirmed yesterday that it is the three familiar issues of fishing, governance and the level playing field that remain unresolved.
Risks remain. Perhaps one of the biggest is that the EU, and Emmanuel Macron in particular, misjudges the UK mood and refuses to yield on fishing. It may be macro-economically insignificant to the wider UK economy, but it is particularly important for communities in Scotland and therefore the politics of the Union. The Prime Minister must be able to claim a victory on the issue.
The two sides are reportedly discussing whether review clauses and transitional arrangements can ease the path to an agreement. One suggestion is that the EU could retain part of its current fishing quota for several years, after which the arrangements would be reviewed.
In practice, this would not necessarily present a major concession from the UK, since it does not currently have a big enough fleet to catch all the quota in its waters. According to the latest available statistics, EU vessels landed an annual average of 790,000 tonnes of fish in UK waters, while UK boats landed 546,000 tonnes in domestic waters and a further 94,000 tonnes in EU waters. Therefore, a transition period could make sense, providing the UK with additional quota immediately and time to increase the capabilities of its domestic fleet.
The question is what happens at the end of any transitional period. The UK would want to move to annual negotiations. The EU negotiating team is apparently willing to consider the concept of a transitional period, but only if a review clause was linked to the broader UK-EU economic relationship.
Another idea is that a review mechanism might establish the possibility of imposing tariffs on trade in goods if Britain no longer wanted to abide by the agreement’s terms on level playing field areas such as state aid. The obvious risk is that these issues simply return to destabilise the wider trade relationship in the years to come. It would be better to settle these issues now, but agreeing to disagree may be the only way through at this point.
At this late stage, negotiators have no doubt mapped out a multiple of technical fixes that could be employed. This is now about political decisions and choreography.
With difficult compromises required, it has suited both sides to run down the clock in the hope the other would give ground. And compromises will inevitably leave some constituencies on both sides unhappy. Reducing the time available for any grievances to fester is not necessarily unhelpful to politicians’ efforts to ensure a deal sticks at home.
Both sides had previously insisted that a deal had to be reached in October in order to allow for the process of ratification and, just as importantly, to provide traders with details of the new rules and processes they will need to operate under next year. However, deal-making within and by the EU is often done at the last minute and, all along, the only genuine deadline has been the December 31, when the transition period is due to end.
Nevertheless, with little over a month to go until the new year, time is actually running out. If a political deal is done in the next week or so, there are procedural challenges to ensuring it is in force by the January 1.
On the EU side, time is needed for so-called “legal scrubbing” and translation of the text. The agreement is likely to be defined as a “mixed agreement”, which means that it covers powers conferred exclusively to the EU institutions and those reserved by the member states. This means that a deal must be ratified by EU leaders, the European Parliament and every national, and in some cases regional, parliament.
EU leaders can defer national ratification until next year by agreeing to “provisionally apply” any deal. However, the European Parliament must consent by year end and is planning an emergency session on December 28. MEPs might complain about the timetable but would not be expected to scupper a deal.
On the UK side, we don’t yet know exactly what the parliamentary process will look like. David Frost previously told the House of Lords EU Select Committee that the Government’s assumption is that “there will have to be primary legislation for at least some elements” of the agreement. Civil servants are reportedly drawing up a “future relationship bill”, which will need parliamentary approval at breakneck speed before the end of the year.
It is noteworthy that there is apparently a debate within the Shadow Cabinet on whether to back a deal or abstain. However, this is more about internal Labour Party politics, since abstentions would not hinder the passage of a deal. Implementing primary legislation would be amendable but it is unlikely that the Labour Party would have the votes required to do so.
It has been suggested by some that the economic difference between the likely “thin” trade deal on offer and no deal is not that significant, so in the end no deal might be the more politically palatable option for the Government. Only time will tell.
However, this Government explicitly sought a “Canada-style” deal from the outset of the negotiations, accepting that some friction on UK-EU trade was worth exchanging for greater independence over UK regulatory and trade policy.
The economic benefit of a so-called “thin” deal – provided that the compromises on fishing and governance are acceptable – is that it would provide for tariff-free trade, which remains important for certain sectors, such as automotive, chemicals and agriculture.
Equally, while there is unlikely to be a formal implementation period for a deal, if both sides are invested in the agreement, a pragmatic approach can be taken to border checks and greater priority given to the free flow of trade. This goodwill would also help to resolve the disputes over the implementation of the Northern Ireland Protocol.
A deal might provide a platform for greater engagement and cooperation in the future. Or it might need to be revisited in the event of future disputes. However, a no deal would likely result in further immediate and bitter negotiations on the fallout. It would probably suit the UK and the EU to draw a line and move on, for now.