Deal or No Deal: Withdrawal Agreement, Trade Treaty or No Deal

There are two, separate aspects for Britain in reaching a deal with the EU, the Withdrawal Agreement and a new trading arrangement.

The Withdrawal Agreement

The UK Withdrawal Agreement was negotiated with the EU and rejected by Parliament on 15 January 2019, but a revised deal was agreed between the new PM Johnson and the EU, passed second reading in Parliament on 20 December 2019 and is due to come into force on 31 December 2020. It provided a legal basis, to be enshrined in a treaty, that involved:

  1. A Financial Settlement, whereby the UK would pay the EU the estimated amount of about £39bn.
  2. Protection of citizens’ rights: a guarantee of existing rights for both EU citizens legally resident in the UK and British citizens in EU countries, but omitting freedom of movement for British citizens in the EU between EU countries, which would be left to be discussed during the trade negotiations.
  3. The Northern Ireland “Backstop”: a provision to ensure no hard border between Northern and Southern Ireland would arise if the two sides failed to reach a trade agreement within a specified time during the transition (see below). This was the contentious issue that led to May’s defeat on 15 January and later was a principal reason for her departure on 24 July 2019. The revised deal negotiated by Johnson in October 2019 instead largely keeps Northern Ireland in the customs union and single market, with an effective customs border in the Irish Sea.
  4. A transition period: Britain would leave the EU but remain within the single market and customs union until 31 December 2020, with an option for a one or two-year extension, while the Trade Agreement was negotiated. It is thought that the time available to negotiate a new Trade Treaty is far too short.

The Trade Agreement: options

This would be a separate treaty. There are a number of options that can be used. They are:

The Norway option: This would mean that, on leaving the EU, Britain would stay in the EU Single Market but leave the Customs Union. She would retain full access to the Single Market for both goods and services, but would have to continue to abide by the EU’s “four freedoms”, the freedom of movement of goods, services, capital and people. It would have to accept the EU rules and regulations, without having a say on making or changing them in the future. The UK would be subject to the European Free Trade Association Court (EFTA) rather than the ECJ (though that court follows European Court of Justice (ECJ) judgements). The UK would be free to pursue its own independent trade policy, though in practice EFTA often negotiates as a bloc.

The Turkey option: Under this option Britain would be leaving the EU Single Market and EU Customs Union, but creating a new customs union with the EU. This would ensure tariff-free trade for goods covered by the new customs union, but mean applying the EU’s common external tariff for trade to those goods imported from other countries. Following the Turkey model would eliminate most checks and controls for industrial goods, but would still mean businesses had to comply with varied border documentation, which does not create a seamless and frictionless border. Accepting the EU’s common external tariff would also constrain the UK’s ability to strike new trade deals and require the UK to comply with substantial numbers of EU products regulations.

A Free Trade deal: Leaving the Single Market and Customs Union, but negotiating a new bespoke bilateral free trade and customs agreement, which is what Mrs May has proposed. There could be three alternatives:

  1. Swiss model: Multiple bilateral deals: Switzerland has a bespoke arrangement with the EU, based on more than 120 bilateral agreements developed over the last two decades. The Swiss have tariff-free trade with the EU and limited access to the EU Single Market for services. In return, however, the Swiss accept free movement of people and comply with the EU’s regulations in relation to the parts of the Single Market they access, without having a say on the rules. They can pursue an independent trade policy, though in practice they often negotiate together with other EFTA countries in what is called the EEA.
  2. Ukraine model: Often called a Deep and Comprehensive Trade Area, the Ukraine’s association agreement with the EU provides for nearly-full access to the Single Market through a special arrangement designed as a potential first step towards full EU membership. This provides Ukraine with an unprecedented market access for goods and services, particularlu financial services. Ukraine must abide by the EU’s regulations and acquis, but there is no free movement of people. This arrangement also covers issues going beyond trade, such as security cooperation.
  3. Canada model: A Comprehensive Economic and Trade agreement, which took 7 years to negotiate, it allows tariff-free trade with the Single Market for industrial goods and some agricultural produce but very limited access for services. Canada does not have to comply with the EU’s regulations, but there is mutual recognition where each side accepts the other side’s regulations for market access to some services. It can follw its own trade policy but that means customs controls and compliance with the “rules of origin” checks. This option has often been mooted by Brexiters and is similar to the revised deal PM Johnson negotiated in 2019.

World Trade Organization (WTO): This is often referred to as the “No Deal” option, and preferred by many Brexiters. It means leaving the EU Single Market and Customs Union without a deal, and almost certainly without the Withdrawal Agreement or payment of the financial settlement or other elements of that agreement. There would be no future trade agreement. The UK would revert to trading with the bloc of 27 member states on WTO terms, meaning that both the EU and UK would apply tariffs to trade between them. With no agreement on regulatory equivalence between the EU and UK, there would be no preferential access to the EU market for services. There would also be no flanking bilateral agreements to ease the flow of trade – an unparalleled situation given that no major country trades with the EU on WTO terms alone. It is seen as the most costly option for the UK but Brexiters consider that this would be outweighed by the trade deals that could be negotiated with other countries outside the EU such as the USA.

It should be said that the EU has a preference for “off the shelf” agreements such as the ones above, since they are already developed and largely tested. The British side has argued for a “bespoke” agreement.

It will be seen that each option has its advantages and disadvantages and that some compromise is needed to reach agreement.

No Deal Brexit

More on government preparations in case the UK leaves without a Withdrawal Agreement having been ratified (No Deal Brexit): click here

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