ANDREW FARRAN. Brexit, the ‘final ‘ stages. Will Europe be the same again?

Jan 28, 2020

In the highly complicated and complex negotiations soon to be underway between the UK and the EU, and others, to complete Brexit, it cannot be assumed that truth will displace ‘fact’ or that international trade law will be respected in the process

Nor can it be assumed that all will come out fine by 31 December – without some major political repercussions along the way and at the end. So hold on to your seats.

By January 31 the UK will have formally exited the UK. The status quo on trade and other arrangements with the EU will continue for the next eleven months. By January 2021 these will either be confirmed or have been renegotiated. All should be known about that by July this year when the UK and the EU will hold a summit to assess progress. That will be the UK’s final opportunity to request an extension of the transition period beyond December, but UK Prime Minister Boris Johnson has categorically ruled that out regardless of the state of negotiations at that time. Could this be another cliff-hanging event over which the threat of trade and business anarchy in Britain and Europe may reappear.

Not altogether improbable. On signing the Withdrawal Agreement for the UK on 24th January Boris Johnson declared it to be “a fantastic moment… which brings to an end far too many years of argument and division”. What the UK will be dealing with in this compressed period are numerous agendas covering everything from trade, fisheries, education, transport and communications, financial services, data flows and security, and even a realignment of foreign policy as the competing interests of the EU and the US in Britain contend. Over and above, Boris Johnson rates the biggest prize will be an exceptional trade deal with the US. How likely is all that?

The UK is required to submit its proposals to the EU Commission by March when they will be considered and negotiations get underway in earnest, with clear outlines to be settled by June for the UK/EU summit in July (as noted above).

Within hours of the Withdrawal Agreement being signed the French warned that a 25 year-long deal after Brexit on EU access to UK fishing waters, an explosive issue for both sides, was a prerequisite for a trade deal with Brussels. EU fishermen take nearly 5 times more fish from these waters than the UK, but nearly three-quarters of the fish caught by British fleets is sold in the EU. However that may be resolved disputes will inevitably arise and the mechanism for resolving disputes in this and all the other areas subject to renegotiation and agreement has yet to be settled given the UK’s refusal to accept any longer the jurisdiction of the European Court of Justice.

Issues likely to arise concern the ‘alignment’ of product standards, the ‘adequacy’ of data flows (essential for monitoring trade and people movement), and ‘equivalence’ in regard to access and regulation of financial services. In Davos recently the Chancellor of the Exchequer, Sajid Javid, told British businessmen to ‘adjust’ to the new reality where Britain will no longer be aligned with EU rules. “There will be no alignment” he said. “We will not be a rule taker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year”.

If there is one thing the EU fears is that the UK will increasingly diverge from EU rules to gain competitive advantage for specific industries, goods and services. But any one specific advantage may result in disadvantage for others as intricate supply chains across Europe (notably for the car industry) are disrupted, as the EU retaliates and a typical trade war is ignited.

This would be at a time when the WTO dispute settlement structure has been immobilised by the US and while the latter may be seeking advantages over Europe in its projected free trade agreement with the UK, possibly in defiance of WTO rules which the UK may by then be relying on in other respects. The UK may have less ‘right’ or scope to ‘diverge’ from EU standards as all too readily assumed so far.

As the areas for new sector settlements are so varied the EU has been giving thought to how these can be protected from unfair unilateral action and may propose that such action be subject to a single strong set of enforcement rules, so that violations could be met with fines or loss of preferential access to markets – or even, in a strong case, to the suspension of the sector agreement as a whole.

At this early stage it should be kept in mind that the EU’s negotiating arm, the Commission, does not yet have a mandate to speak for all European nations in these negotiations. Some outcomes will require the consent of all 27 members and could be held up for lengthy periods as occurred in the EU/Canada free trade negotiations when the whole deal was blocked by a single province of Belgium.

Closer to home, a free trade agreement with Australia will not be easy sailing, especially on agriculture – namely beef, sheep meat, wine, sugar, butter and cheese. As Australia seeks to take over existing UK concessions to Europe in these products the EU countries adversely affected may seek substantial compensation in return, greatly complicating outcomes across the board.

And there will be strong political dimensions to these matters as they begin to take root. Security will be front and centre. Unless the participants can maintain cordial relations the stresses on existing exchange arrangements will increase, involving Europe, the UK, the US and Australia. Central to that may be the Huawei issue. Australia and the US won’t have Huawei in the 5G mix, while the UK and Europe are less categorical. The US motivation has as much to do with its objective of splitting the world in two in the technology sphere, whereas the UK and Europe (including Germany) rightly suspect ulterior US motives. They respect the quality and efficiency of Huawei products on their merits, as there are bound to do in accordance with free trade terms and WTO rules.

A right wing Parliamentary group from Australia recently visited Britain to persuade it to go the US way, but interestingly Andrew Parker, the head of MI5, the UK’s domestic intelligence service, stated publicly that “there was no reason to worry” that Huawei’s involvement would compromise the sacrosanct Five Eyes intelligence-sharing arrangements between the US, the UK, Canada, Australia and New Zealand.

In these highly complicated and complex negotiations across so many fields, it cannot be assumed that truth will be conspicuous at any stage, that international trade law will be respected in the process, or that they will come out fine by 31 December – without political repercussions along the way and at the end.

Note: My colleague Professor Gary Sampson of the Melbourne Business School and I plan to post occasional commentaries on the negotiations and spot weaknesses and irregularities in the process.

Andrew Farran is a former diplomat, law academic, and trade policy adviser. He has followed Brexit from the start.

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