Will there be an EU trade deal? Five indicators that a deal is on the cards
As we move towards the endgame in UK-EU trade talks, the ‘no deal’ noises will become ever louder. No10 has upped its briefings to sympathetic newspapers about the government’s willingness to revert to WTO terms unless the EU shifts on its level playing field (LPF) asks. On the EU side, Michel Barnier warns that, unless the UK produces its compromises soon, time will be up.
Business should treat these manoeuvres for what they are: public negotiating with an eye to domestic audiences. We still think that a deal is the likeliest outcome, not least because the competence questions keep piling up for Johnson, and are eating in to his once-formidable poll lead. We have already seen the government move on one of the three big outstanding issues – governance – despite its sovereignty implications. However, Boris Johnson wants to hold back the key UK moves until the real endgame, into September and even October, to present his party and business with a stark ‘my deal or no deal’ choice.
So looking past the noise, how will businesses know if a deal is on the cards? Here are five indicators to watch.
- A domestic State aid policy. This is essential for any deal with the EU, but the government first needs to agree what the policy is. This is a live debate: the Treasury argue that a robust subsidy regime, based on agreed limits with the EU, is in the UK’s interests; Dominic Cummings and the ex-Vote Leavers in No10 want a free hand to subsidise economic recovery and ‘levelling up’. Without a new UK policy, enshrined in legislation, EU State aid rules (‘saved’ in domestic law) will continue to apply. And if Parliament simply repealed the current rules, the UK internal market would face a free for all where the Scottish government, for example, could subsidise local firms or effectively restrict English imports. Siding with Frost and Cummings to keep the government’s hands free on State aid would almost certainly mean no deal, a huge gamble for Johnson. Agreeing a UK policy, in outline at least, is more likely, and we will know when that happens. That would also be the biggest single indication that we are heading for a deal. Ultimately, that would need legislation, and we would see that coming down the track well in advance.
- UK compromise text leaks. During September, the UK will have to make a move on level playing field. David Frost has to negotiate a UK offer with Barnier, who then needs to sell it in the EU27 capitals. With trust low, that can only be done with draft legal text – and it may take more than one negotiating round among the 27. Several weeks will likely be needed and, inevitably, compromises will leak. This is the stage that No10 are most worried about – with UK moves exposed to hardline anti-EU backbenchers and the British press, but no certainty that they will be enough to secure a deal.
- Secondary issues are dropped. We have already seen the UK ditch some services asks, in an attempt to negotiate down the EU’s LPF demands. As talks narrow onto this point, we can expect the UK to silently drop already-rejected requests e.g. for mutual recognition of assessments (MRA) in medicines, chemicals and cars. But we may also see a very few issues thrown publicly back into the mix – as with road haulage rights recently – to try to secure some additional wins, or pressurise the EU. An ever-smaller UK wishlist shows that we are heading for a deal.
- A big political intervention. In the end, the political principals will have to cut – or more likely, bless – a deal. Only Boris Johnson can decide how far he will concede, and what he thinks the real EU bottom line is. Last October, Johnson made his move on a walk in Cheshire with the then-Irish Taoiseach, Leo Varadkar. This time, it may be with Angela Merkel, who holds the rotating EU Council Presidency, or even with Emmanuel Macron, the most hard line EU leader against concessions to the British. Johnson is likely to want a moment of political theatre, which could come at the next EU summit, on 17-18 October, though that would be cutting it fine. Look out for an earlier invite, say to a bilateral meeting in Berlin or Paris.
- A deal is served with Fish. This will be the final part of the package. Access to its fishing waters is the UK’s biggest negotiating card, and will be used to close out a deal. Although an emotive and binary issue, in purely negotiating terms this is straightforward: lower fishing quotas for EU fleets balanced against more years of certainty before the UK negotiates those rights again. That will only come right at the end, and could mean some last-minute brinkmanship in Paris and other capitals before a deal is sealed.