This is no time to ‘get Brexit done’
The coronavirus is crushing plans for an orderly end to the UK Brexit transition period on December 31.
It was always going to be a stretch – a meaningful settlement on the future UK-EU trading relationship in the 11 months following the January 31, 2020 UK-EU separation. But the devastating health and economic tempests whipped up by coronavirus make it implausible to believe the schedule can now be met without causing further ineffable damage to the economy and already battered businesses.
So, what has been achieved since Brexit? And how could a postponement materialise?
Negotiations limp back into life
Following the January 31 exit of the UK from the political institutions of the EU, it remained within the trading structures of the Single Market, Customs Union and EU VAT regimes. This meant that for trade, nothing changed. The plan was, and remains, to negotiate future trade relations and conclude a Free Trade Agreement (FTA) by the end of December. At this point, the UK is out of the EU arrangements for goods and services regulations, customs and VAT. If no trade deal is finalised by then, that means lots of customs declarations, border controls and VAT complexity.
At the start of March, both sides produced negotiating mandates, covering aims and initial positions. The EU was looking for rigid alignment with its trade standards if the UK wanted to retain full access to the 500 EU consumers and markets. A concession the UK would never accept as it would restrict its freedom to negotiate ambitious agreements with the US, China and others. However, the UK chose not to make its paper publicly available which hints at a major gulf with the EU.
Then the coronavirus hit in mid-March, including laying low both sides’ lead negotiators. They recommenced two weeks ago on a curtailed schedule of webex talks. These are already exposing major differences on the framework of the future deal – the EU wanting a controlling, overarching deal but the UK chasing loose sector-by-sector agreements. This difference is based on the EU obsession that the UK keep a ‘level playing field’ on tax, employment rights, state aid and competition rules. But the UK views this as ‘taking orders’ from Brussels.
Ignore the noise; June is decision time
There will be a lot of public noise for the next six weeks around the discussions, including threats of walkouts. This is largely negotiating theatrics. The EU will offer an inflexible line of attack; the UK will boast of exciting trans-Atlantic deal successes in attempt to intimidate the EU into concessions. Northern Ireland will be a major talking point as the UK begins to grasp the implications of its compromise on the area’s status within the UK customs, regulatory and VAT union.
In June, both sides are due to review at the highest level the progress of talks and June 30 is the deadline for the UK to request a transition extension. That is when both sides will take stock of the long-tail effects of coronavirus, and whether they want to put themselves through the transition rupture at year end. Both sides’ governments and civil servants are deeply crippled and distracted from Brexit by coronavirus. They probably don’t want fraught negotiations and implementation demands any more than businesses do at the moment.
There is gossip that both sides have already quietly agreed to have the EU request a delay, which the UK can then magnanimously agree to. Whilst perhaps unfounded, it is an appealing scenario since it would let the UK off the hook for any domestic politics and media backlash.
The Brexit Withdrawal Agreement only allows for a single extension of up to two years. The EU may insist on this – not wishing to re-tread the repeated cliff edge negotiations of 2019 Brexit. But the EU could concede a UK early break clause, if any, when an FTA is done. This would give settlement that the UK could sell to domestic voters and a sensible breathing space to besieged businesses.
In short: hold your breath until June 30. But a decision is needed by then as governments like Belgium are already asking UK businesses to re-register their tax status as non-EU which requires extra spend.
It could have been worse; but it could still be collapse
It is worth remembering that Brexit could have been much worse. The UK threatened a ‘cliff edge’ exit from the EU four times. It eventually staved off possible complete economic chaos with the October 2019 settlement. We can only be grateful that we are not now dealing with a no-deal Brexit in the midst of the coronavirus collapse.
Ardent Brexiters should take their victory – the UK is out of the EU and will not be able to return for at least a generation. Now is not the time to force a totally pointless seismic trade overhaul on UK businesses which are facing an existential battle to stay alive.