What does the UK’s negotiating mandate mean for the chances of an EU trade deal?
The government’s mandate for EU trade talks, published today, is very political – but not in the way many were expecting. While stressing that the UK will deal with the EU only as a “sovereign equal” with full control over its own rules and standards, the mandate in fact asks for a lot more than a basic free trade (FTA) deal with the EU – especially in regulated goods, services, agri-food, and data. No10 briefing that the UK would ask for little, to avoid strengthening the EU’s negotiating leverage, is not reflected in the mandate’s lengthy list of asks, which in some areas – like road transport, data, professional services, and the right to access health care and pensions while living in the EU – feels like an attempt to ensure that very little changes after 31 December this year. David Frost’s team combed through existing EU FTAs to cherry pick helpful precedents, almost all from distant trade partners – Canada, Japan, Mexico, New Zealand. This will cut little ice with the EU, which has already settled its own mandate on the basis that geographic proximity and ‘economic interconnectedness’ mean that the UK will have to match EU standards more closely for similar market access.
This is an opening bid, and we have little sight yet of how No10 would prioritise trade-offs between these various negotiating objectives once talks begin. The government emphasises its willingness to walk away into no deal (now an ‘Australia’ deal) unless good progress is made by the June rendezvous summit. And the gulf in approach on a small number of issues – notably State aid – is huge; perhaps big enough to prevent any agreement. But on most of the other contentious issues – level playing field standards, governance and dispute resolution, fisheries – while there is a big difference of view, there is also a potential landing zone for a deal. Everything now depends on what trade-offs the government is prepared to make to secure its core priorities. Ultimately, Boris Johnson will probably have to choose between tariffs on 31 December (no deal), or a limited deal with the right to diverge in future, but at the likely cost of EU tariffs.
What are the UK’s main asks?
State aid looks like being the decisive ‘deal or no deal’ issue. Just as the EU stated bluntly that it wants its State aid rules to apply to the UK, so the UK mandate asserts that the UK will have its own policy on subsidies, and that it wants this and competition policy outside the remit of any dispute resolution mechanism. That would be a deal-breaker.
On level playing-field more generally, the UK again commits “not to weaken or reduce” standards on labour market and environmental rules – which is not far from the EU position. However, the UK wants to exclude these areas from the scope of any dispute resolution mechanism. The EU Member States – who toughened their position to demand maintaining standards “over time” – will want to ensure that they have retaliatory weapons (tariffs or closing off market access) should the UK undercut their standards in these areas in future.
On goods, as we knew, the government wants a zero tariff, zero quotas deal. Today they have added defining Rules of Origin in ways that would minimise disruption for UK firms integrated into global (not just EU) supply chains. In technical terms, the UK wants not just ‘cumulation’ (EU inputs to products counted as UK inputs and vice versa for each other’s markets) but also ‘diagonal cumulation’, bringing in parts from other countries with which the parties have trade deals (so parts from Japan could be used to used to assemble a car in the UK while still counting towards its ‘British’ origin). That’s unlikely to be conceded by the EU easily, given the desire in many EU capitals to entice business away from the UK.
There are also specific asks in the regulated sectors – those most exposed to leaving the Single Market; chemicals, medicines and medical products, cars. Here, the UK wants wide-ranging mutual recognition of conformity assessments, testing and approvals (including of GMP certification, batch testing and clinical trials for medical products, for example). This is essentially (as the UK mandate implicitly recognises) seeking the kind of mutual recognition levels which Switzerland has with the EU on, for example, medicines. The Barnier team have told us that they are under pressure from EU capitals not to agree such mutual recognition, especially while the UK is offering so little on meeting EU standards, since that reduces the incentives for business to move those operations.
Among the regulated sectors, the UK has a big ask on agri-food in particular, something close to equivalence for UK and EU food standards, to significantly reduce border checks. There is also a request for mutual recognition of each other’s organic labelling. In the particularly sensitive area of food, the EU is unlikely to accept UK standards as equivalent to its own – certainly not without tough, legally binding oversight and enforcement.
On services, the UK wants mutual recognition of professional qualifications, ‘national treatment’ (i.e. non-discrimination) for services providers, ‘local presence’ rules and agreement on ‘Mode 4’ services (freedom for people to come and provide the services in the EU). This package would smooth the disruption for UK services, especially big professional services providers, who have a big net trade surplus with the EU. The EU is likely to be tougher – its track record on services access through FTAs is, like most countries and economic blocs, pretty limited.
Again, the UK is seeking special treatment in its areas of strength. There is a specific ask to include audio-visual services (which the EU has, as usual, excluded from its mandate) and for an ambitious deal on digital services, going beyond any existing FTA. These probably won’t get far with the EU.
On financial services, the UK wants “structured processes for the withdrawal of equivalence”, going beyond the EU’s standard 30-day rule.
The UK also wants an early data adequacy decision from the European Commission, and to remove this from the scope of a trade deal. The EU, on the other hand, will likely keep this and financial services equivalence decisions in play until other issues such as fisheries are resolved.
On road transport, the UK asks for rights to continue to transport goods “to, from and through” each other’s territories – going beyond what the EU has proposed. That’s unlikely to be on offer, especially since the UK says that its hauliers shouldn’t have to follow EU rules, but only international standards (though some of these are shaped by the EU, which provide some wriggle room).
On aviation, the UK wants a comprehensive, fairly ambitious aviation transport agreement (CATA) allowing UK to EU flights (which should be negotiable), no ‘unnecessary’ ownership and control requirements (which the EU may use aggressively), unrestricted code-sharing and wet-leasing, and mutual recognition on cargo on the basis of equivalence (which brings into play the wider dispute about standards and enforcement). This would be flanked by a bilateral air security agreement (BASA) with wide mutual recognition of safety standards.
The UK mandate says little about dispute resolution, clearly preferring a more political approach. But, while it says that there can be no European Court of Justice (ECJ) role in dispute resolution, this does not preclude agreement. The ECJ’s role – legally non-negotiable for the EU – would be to rule on interpretations of EU law if these were in dispute, not to settle trade disputes between the UK and EU.