The final countdown

The seventh round of UK-EU negotiations concluded in Brussels on 21 August, with both sides citing a lack of progress.

Contrary to the negative mood music, some headway has been made. The UK has compromised on a number of market access requests (like professional qualifications, legal services and rules of origin) and accepted a unified governance structure for the future relationship. There has also been progress on certain technical issues, such as energy cooperation, the UK’s participation in EU programmes and anti-money laundering procedures.

However, there are still a number of areas of contention that are presently proving insurmountable including fisheries, state aid and the “level playing field”. The discussion relating to fisheries revolves around establishing agreeable quotas and access to UK fishing waters. UK-EU negotiators have struggled to agree post-Brexit rules on state aid, subsidies and competition. The UK has consistently refused to accept being subjected to a set of common rules and standards (level playing field) in areas such as workers’ rights, taxation and environmental protections. The EU fears that without such an agreement UK companies could undercut their European rivals.

Deadline approaches

Under the Withdrawal Agreement, if no settlement can be reached by the end of this year, the UK will start to trade with the EU under World Trade Organisation rules come 2021. This would mean that firms would operate in an environment with trade barriers that would likely consist of new tariffs and quotas, additional customs checks and import/export certificates.

Earlier this year the UK published its new tariff regime, the UK Global Tariff (UKGT). This will replace the EU’s Common External Tariff on 1 January 2021 at the end of the Transition Period. Firms would also have to adapt to regulatory restrictions that would limit or prohibit the selling of certain products and services. Management teams may need to operate within a diverging regulatory environment and with talent pool restrictions.

While a no-deal Brexit might result in increased costs, complexity and fundamental changes to business models, the true level of disruption might be less dramatic than suggested in the run up to previous deadlines. Companies have now had more than four years to prepare, policymakers have promised unlimited support and businesses may well finally welcome some much needed clarity.

Deals, deals, deals

There are also signs that trade agreements with countries outside the EU have been gaining some early momentum, helping to offset the long-term impact. Although, whatever happens, Europe is, and will continue to be, the UK’s most important trading partner. In 2019 UK exports to the EU were £300bn, or 43% of the total.

The most likely outcome suggests a very thin trade deal being agreed this year. In practice, while this prioritises trade in goods, it is likely to mean restricted market access for services since the UK would be signing up for fewer obligations. The UK’s position appears to be that minimal market access is a price worth paying for sovereignty. However, there are still several rounds of negotiations to come and much could change between now and the end of the year.

Timeline

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