Publications
Partners
London - With Brexit talks about to get started on a post-divorce trade deal with the European Union, and just a year until Britain leaves the bloc, the two sides still have fundamentally different visions of what their future relationship should look like.
British Prime Minister Theresa May has rejected agreements along the lines of those struck by the EU with Norway and Canada. That’s because the former would require Britain to accept free movement of people, as well as EU laws and regulations without any say in setting them.
A Canada-style deal would mean less access to each other’s markets, and customs checks at the border. That leaves Britain seeking a deal that falls somewhere in between.
But officials in Brussels say May is trying to cherry pick the best bits of single-market membership, and that’s unacceptable. The UK won’t be allowed to opt in and out of rules according to its interests and can’t expect mutual recognition of rules, which is May’s plan to protect the City of London.
So with just months to go until a deal is due, what is the UK asking for, and what does Brussels say?
Northern Ireland border
Upholding the peace agreement in Northern Ireland must be at the heart of any Brexit deal, May says. That means preserving free movement across the border with Ireland of both goods and people. But she wants to leave the single market and customs union that makes the current invisible border possible. May also rules out any border between Northern Ireland and mainland Britain.
What the EU says: It also wants to avoid a hard border on the island of Ireland but fears that outside the customs union and without a common external tariff on imports, Britain could become a conduit for smuggling into the bloc. Its fall-back proposal is for Northern Ireland to retain the same rules as the Republic of Ireland - in effect moving the hard border so that it splits Northern Ireland from mainland Britain.
Financial services
May is seeking to “break new ground” with a deal on services, including financial services, one of Britain’s key industries.
While Britain won’t seek to retain existing passporting arrangements for banks because it’s “intrinsic” to membership of the single market which the UK is pulling out of, May said the goal should be for the EU and the UK to retain access to each other’s markets, “based on the UK and the EU maintaining the same regulatory outcomes over time, with a mechanism for determining proportionate consequences where they are not maintained”.
What the EU says: Mutual recognition doesn’t work outside the single market, the commission says. Any market access would have to be “under host state rules”, according to the EU’s negotiating guidelines. Stefaan De Rynck, an adviser to EU chief negotiator Michel Barnier, on March 5 underlined the risks posed by integration without common oversight.
Customs union and trade
May will pull Britain out of the customs union so it has the freedom to broker its own free-trade deals with other countries. At the same time, she wants "frictionless" trade with the bloc to be enshrined in a bespoke trade agreement that covers more sectors than any existing deal. There should be no tariffs or quotas on goods.
She’s proposed two ways to achieve these goals:
• A customs partnership in which the UK mirrors EU tariffs and rules of origin at the border for goods whose final destination is in the EU, but sets its own requirements for goods for domestic consumption.
• A “highly streamlined customs arrangement” involving joint EU-UK measures including “trusted traders” programmes and IT systems to minimise disruptions at the border.
Under this scenario, small traders operating across the Irish border would be allowed to operate as they currently do, while bigger exporters and importers would have access to the trusted trader programme.
What the EU says: Negotiators have pushed back against a bespoke deal, suggesting the UK could aspire to a Canada-style accord with its current red lines. Divergence in rules and tariffs “necessitates checks and controls to uphold the integrity of the EU single market,” the commission said in its draft negotiating guidelines.
The EU is skeptical that the two customs options laid out by May are workable.
Role of European Court of Justice
May has long said she wants Britain to escape the jurisdiction of European courts after Brexit. On March 2, she softened her position, stating that “even after we have left the jurisdiction of the ECJ, EU law and the decisions of the ECJ will continue to affect us.”
UK courts will continue to use ECJ judgments as a reference in some cases, she said. And Britain will have to respect the ECJ remit over any EU agencies that the UK participates in, she said. One red line remained, however: “that the ultimate arbiter of disputes about our future partnership cannot be the court of either party,” she said.
What the EU says: The EU says that the only way for the UK to get the benefits of the single market is by signing up to ECJ decisions. May’s determination to put an end to ECJ rulings is one of the reasons that the bloc is only offering a Canada-style trade deal.
EU regulations, agencies and programmes
The EU boasts an array of agencies, regulators and programmes that cover everything from medicines to air travel and nuclear power. Britain’s commitment to high standards means regulations “will remain substantially similar in the future,” according to May.
She says the UK may keep rules on state aid and competition “in step with the EU’s,” and promises that Britain won’t engage in a “race to the bottom” on workers’ rights and environmental protections.
May also said she would like to explore the UK remaining a part of agencies governing the chemicals, medicines and aerospace industries, while having a “close association” with the nuclear regulator, Euratom.
What the EU says: The EU says this is impossible. It’s another example of cherry-picking and the single market is indivisible. De Rync suggested on March 5 that the plan to remain in any EU agencies may be unfeasible because they “operate in a context where single-market principles operate.”
Security
May has pledged to unconditionally continue security and defence cooperation with the EU after Brexit.
“Europe’s security is our security,” she said in a speech in Munich last month. She’s proposed a new treaty to underpin the relationship that would include collaboration such as the data exchanges that currently take place through Europol, and extraditions using the European Arrest Warrant.
The treaty would respect each other’s sovereignty - and crucially Britain would respect the ECJ remit over any EU agencies it participates in.
What the EU Says: Because Britain is currently the EU’s biggest defence spender, the EU is keen to maintain the security relationship. It’s a rare point of agreement.
Agriculture and fisheries
The UK will leave both the EU’s Common Agricultural Policy and its Common Fisheries Policy. While May said she “fully expects” British standards to remain as high as those in the EU, the country needs the flexibility to set its own policies.
On fisheries, she said Britain and the EU will continue to manage shared stocks together, but she’s seeking “a fairer allocation of fishing opportunities for the UK fishing industry”
What the EU says: In its draft negotiating guidelines, the bloc said zero-tariff trade in goods would be on offer in the context of reciprocal fishing rights: an unpalatable trade-off for May.
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER
