The EU and UK are on a collision course when it comes to trade.
Two speeches on Monday set out the contrasting aims of the EU and UK, foreshadowing clashes likely to take place when post-Brexit trade talks begin.
UK prime minister Boris Johnson and European Commission chief Brexit negotiator Michel Barnier both set out their stalls. Both talked of wanting to strike an ambitious free trade deal but their respective visions differed greatly.
Barnier said access to the EU’s Single Market would depend on the UK following EU standards and said there must be “mechanisms to uphold the high standards we have on social, environmental, climate, tax, and state aid matters.” Addressing journalists in Brussels, he called for continued access to UK fishing waters and “stable quota shares.”
Johnson spoke around the same time as Barnier but parts of the prime minister’s speech sounded like a direct rebuttal.
“There is no need for a free trade agreement to involve accepting EU rules on competition rules, subsidies, social protection, the environment or anything similar,” the prime minister said.
The UK would be open to a deal on fishing access, he said, but any quotas would have to be reviewed annually “using the latest scientific data, ensuring British fishing grounds are first and foremost for British boats.”
The two speeches highlight just some of the flash points in trade negotiations.
The EU fears poor quality UK products will be dumped in their market, undercutting local producers. Brussels also fears unfair boosts for British industry through state aid or side-stepping regulations.
The UK, on the other hand, thinks adhering to EU standards defeats the point of Brexit — why leave if you keep following the rules?
Brussels will use the size of the single market as a negotiating tool. Barnier emphasised the fact there are 450 million citizens the UK could sell to.
Downing Street, meanwhile, are threatening a ‘no deal’ at the end of the year if the EU doesn’t play ball. Johnson on Monday threatened to walk away with an ‘Australia’ style deal, which would see the UK revert to World Trade Organisation rules with the EU.
Such a move would undoubtedly hurt both sides but experts said the UK would be worse off.
“The risks of a go-it-alone trade policy appear to have been underestimated at a time of rising of global trade tension, which could have significant implications for the UK’s economic welfare,” Peter Dixon, a senior economist at Commerzbank, wrote in a note to clients last week.
The pound fell 1% against the dollar (GBPUSD=X) and 0.8% against the euro (GBPEUR=X) in the wake of Johnson’s threat to walk away without a deal.
“The way the two sides have come out, traders are starting to consider no-deal risks again,” said Neil Wilson, chief market analyst at Markets.com. “The EU and UK look in very different places right now.”
Trade negotiations are set to start later this month after EU leaders approve the draft negotiating proposals.
“Even Brexit supporters acknowledge that the hard work is only now beginning and 2020 will be another difficult year, both economically and politically,” Dixon wrote.