Understanding the EU’s negotiating position on trade in the Brexit negotiations

trade containersLuis González García considers the specificity of the EU trade policy to explain the perceived rigidity of the EU negotiators on Brexit. The EU applies two approaches to its trade policy through either integration (strong regulatory alignment and strong market access) or liberalisation (looser arrangements): this explains why an ad hoc model which offers full market access but does not ensure a level playing field cannot be accepted by the European Union. 

Does the EU want to “punish” the UK?

Shortly after the EU summit in Salzburg the Prime Minister of the UK, Theresa May, said that negotiations on the UK’s exit from the EU were at an “impasse”. [1]  Days later, the UK Foreign Secretary, Jeremy Hunt, characterised the EU’s negotiating stance uncompromising, suggested that the Union wanted to “punish” the UK for leaving the EU, and appeared to compare the EU to the Soviet Union.[2]

This “impasse” in the Brexit negotiations is hardly surprising from a trade negotiation perspective. In any negotiation, the ability to see the situation as the other side sees it is key. Negotiating trade is hard and time-consuming. Where trade is concerned, even a small mistake in diagnosing a negotiating situation is likely to prolong talks and complicate mutually acceptable solutions. To talk of the EU’s desire to punish the UK therefore not only misidentifies the cause of the impasse; it also makes the negotiations themselves more challenging.

Trade negotiations are particularly difficult when they involve the EU. This is partially due to the EU’s negotiating style and structure, which make reaching a quick and practical solution challenging. But it is also and very simply due to the EU’s general approach to trade with third countries. As I will outline below in more detail, for European neighbours (such as Norway, Switzerland, and Ukraine) the only offer on the table is alignment and approximation to EU law, aimed at maintaining a level playing field. It is not and has never been a relationship between equals. By contrast, a Canada-style free trade agreement is a straightforward elimination of barriers to trade, accompanied by semi-loose provisions on regulatory cooperation. But this has never been offered to a European neighbour – not even Turkey.  More importantly, neither model obviates the need for some sort of customs and safety controls or potential trade restrictions.

In other words, there is no frictionless trade with the EU unless you are a member of the Single Market and Customs Union. For the EU, no third country could ever have the same benefits which EU27 enjoy. Rather than a deliberate attempt to punish the UK, the EU’s behaviour in the Brexit negotiations is simply the way the EU approaches trade with third countries.

The Brexit trade negotiations will not be easy

Trade negotiations are hard because seeking to obtain market access in the other side’s market while trying to protect their domestic industries creates a politically sensitive clash of interests. Not everyone wins. Moreover, states — especially those with a stronger bargaining power — will fight to preserve and often attempt to expand their policy space while trying to limit the policy space of the other side. This means that the weaker side is likely to feel that it has not been treated fairly by the other side. Technical, political and diplomatic intervention is often required to recognise and fight bargaining tactics.

To negotiate trade with the EU is particularly hard. According to some trade negotiators from third countries, EU negotiators often take a relentless, dominant and uncompromising approach. Although professional and cordial, they often display a take-it-or-leave-it approach to negotiations: they negotiate from a position of strength. At the same time, EU trade negotiators work under heavy institutional and structural constraints. Be it the Commission’s narrow mandate, received from the Member States in the Council, or the strict and complex rules of the Single Market and the web of external trade agreements: the flexibility of EU trade negotiators is limited.

Unsurprisingly, trade negotiators of third countries often get extremely frustrated because these constraints leave a sense of being treated unfairly by the EU. Previously a beneficiary of the EU’s position of strength, UK negotiators are now experiencing this frustration first hand. And this is even more the case as we lack common objectives for the future trade relationship.

The EU’s approach to trade

The EU’s approach is dependent on geopolitical factors. It follows two distinct approaches: (1) the integration model which it uses in its trade relationship with European countries such as the EEA countries, Switzerland, and Ukraine; and (2) the liberalisation model such as the “Canada-style” FTA. Both models are similar in the sense that they offer reciprocal commitments on market access through the elimination of barriers to trade. The difference between the two models is, however, significant. The integration model applies the concept of dynamic regulatory approximation which means that the third country must ensure that its domestic law reflects the development of EU law in trade-related areas. While not all integration agreements provide the same level of participation in the Single Market, they all require full alignment to that of the EU acquis on the relevant economic-related area. The purpose of this ecosystem of regulations is to ensure a level playing field with the member states. Under this model the trading relationship is not between equals. The burden of convergence is always on the third country, not the EU.

The second model is the liberalisation approach and applies to third countries outside the European sphere of influence (such as Canada, Mexico, and Japan). This model is aimed at the elimination of barriers to trade. This trading relationship is, at least in paper, between equals. However, the price to pay is high. It lessens, but it never eliminates border friction. Perhaps the most interesting fact in the Brexit discussion is that the EU has never offered a liberalisation model to a European neighbour and it is doubtful it will offer one to a major European economy such as the UK. The reason for this is that it would not ensure a level playing field. It would also not do away with rules of origin, customs declarations and other technical and safety controls increasing trade costs, thus making physical customs controls at the Northern Irish border hard to avoid.

With regards to the Brexit negotiations what appears to be clear is that along with a customs union or a Canada-style model, the EU will seek a strong mechanism to ensure convergence with EU rules on areas such as competition and state aid, intellectual property and safeguards to prevent unfair competitive advantages through tax, labour, environmental and regulatory measures and practices.  An ad hoc model which does not ensure a level playing field in these areas is highly unlikely to be accepted by the EU.

Conclusion

It seems that any attempt to pursue a liberalisation approach which is not aimed at maintaining a level playing field would be an inefficient way of negotiating with the EU. From an EU perspective, the challenge of maintaining a high level of mutual market access (both goods and services) and a minimum level of disruption can only be achieved by maintaining a common “ecosystem” of regulations (a common set of regulations and a strong supervisory regime). The dilemma for the UK is that in reality this common ecosystem implies a one-way street where the UK would have to converge and align to EU acquis and the relationship would not be between equals.  This then begs the question of whether any of the current EU models can offer an effective and fair system of managing divergence, maintaining high levels of access to both markets, keeping disruption at the minimum and where the UK will be treated as an equal. From an EU perspective, there is only one model which can provide such guarantees. And it is called membership of the EU.


Luis González García is a Member of Matrix Chambers specialised in public international law, international trade and international arbitration.


Note: The views expressed in this post are those of the author, and not of the UCL European Institute, nor of UCL.

[1] New York Times, “Brexit Talks at ‘Impasse,’ Theresa May Says, After a Rancorous Summit”, 21 September 2018. https://www.nytimes.com/2018/09/21/world/europe/eu-theresa-may-brexit-salzburg.html

[2] Jeremy Hunt Speech at Tory Conservative Party, 30 September 2018, https://www.conservativehome.com/parliament/2018/09/never-mistake-british-politeness-for-british-weakness-hunts-conference-speech-full-text.html

 

Photo by chuttersnap on Unsplash

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