Post-Brexit trade battle

EU countries gear up for post-Brexit trade battle

Michel Barnier’s ticking clock will pose extra problems for the EU in phase two of Brexit.

By BARBARA MOENS AND HANS VON DER BURCHARD

The EU's Brexit unity is about to come under severe strain.

Speaking from one script was Brussels' greatest asset in the first phase of Brexit. It prevented London playing divide-and-rule and ultimately forced concessions from the U.K. in the talks. But while it was relatively easy to forge a common position on the Brexit bill, citizens' rights and Northern Ireland, agreement on trade priorities will be much harder.

Prime Minister Boris Johnson says he wants to conclude the talks by the end of next year, with no extension of the transition period. That's very tight.

“It won’t be possible in this very [limited] time frame to do everything, but we will do everything that is possible,” EU Brexit negotiator Michel Barnier told the European Parliament in Strasbourg on Wednesday.

Just as in phase one of the talks, Barnier is already trying to use the ticking clock to his advantage, by framing the trade talks as a choice between different options made necessary by the lack of time to agree something more bespoke.

“Does the U.K. wish to distance itself, and to what extent, from our regulatory model?” Barnier asked, adding that Britain would have to answer that question “in the next weeks.”

But in truth, the ticking clock also presents new challenges for the EU side. The constricted timescale means it has to make rapid and uncomfortable choices about what to include in the trade deal and what to leave out.

“At a certain point there are going to be trade-offs necessary,” said one EU diplomat. “We have to stay united to get a deal within this timeframe, but it won’t be easy.”

Limited versus ambitious deal

On the EU side, the fight over what to prioritize in the talks is set to begin in early January. The Commission will use input from each of the 27 national capitals to frame a draft mandate by February 1, the U.K.'s first day outside the EU.

The talks are set to be concluded at the end of February so that negotiations with the U.K. can start in March — leaving just 10 months to conclude trade talks and ratify the agreement before the end of next year. Commission President Ursula von der Leyen has called that timetable “extremely challenging.”

A senior German official said that a “standard” trade agreement with the U.K. could still be reached: “We have already shown that you can negotiate a lot in a short time if you set yourself clear goals."

“The more the negotiating partners are of the opinion that they should deviate from the standard in this particular case, for example because the level playing field conditions are different or something has to be added, the longer this takes,” he added.

But other German officials and lawmakers have since tried to downplay suggestions that Berlin was looking for a less ambitious deal.

“There is a fundamental line that is absolutely necessary: To preserve the integrity of the internal market,” said Markus Töns, a German MP and the Social Democratic Party’s spokesperson for European affairs. “I consider it fundamentally wrong to jeopardize this by means of a limited or scaled-down agreement.”

Töns argued that the U.K. could not just gain broad market access to the EU, but would also have to commit to following EU rules as well as social and environmental standards — with the considerable downside of no longer having a say on them.

Based on the Political Declaration that is the blueprint for the U.K.'s future relationship after Brexit, many EU diplomats expect the Commission to draw up a comprehensive mandate that includes the wish lists of all countries.

On fisheries, for example, the Political Declaration said that both sides must reach an agreement by July but did not mention whether this should be handled separately or as part of trade talks. However, countries with big fishing fleets such as Spain and Denmark are pushing for such a link. They fear that without the leverage of trade, the U.K. will not give ground on access to its waters.

“It should be a part of [the trade deal], and we are a number of countries who work for that. And also the signals we get from the Commission is that they see it like that as well,” Denmark’s Fisheries Minister Mogens Jensen told POLITICO.

Financial services is another potential sticking point. “This is going to be a fault line,” said another EU diplomat. “For some Western countries, financial services is a crucial topic. For most Eastern European countries, it’s not relevant at all.”

Instead, Eastern European countries like Poland and Romania want to push for the inclusion of ambitious transport clauses.

The Walloon problem

Pushing for a comprehensive and ambitious deal, even if the U.K. plays ball, will make it even harder to complete on time. If the accord goes beyond exclusive EU competences and touches on “mixed” competences that Brussels shares with member countries, then ratification will likely take much longer.

Such mixed agreements require not only the green light from EU governments and the European Parliament but also the approval of some 40 national and regional parliaments across the EU. It’s a process that usually takes years and risks being held up, as was the case with the EU-Canada trade accord that was on the brink of failure in 2016 when the Belgian regional parliament of Wallonia threatened to veto it.

“It will depend a lot on how things are framed,” said Lorand Bartels, a trade law expert at the University of Cambridge. “For example, when we talk about regulations for car emissions — is that purely trade-related or more environmental policy? The latter would stretch into mixed competence.”

The same would apply to fisheries if the deal went beyond trade or conservation of fish and also touched upon environmental aspects linked to the EU’s common fisheries policy, he added.

“An ambitious agreement will almost certainly become a mixed agreement,” said Franziska Brantner, the Greens' spokesperson for European affairs in the German parliament.

Isabelle Van Damme, a trade lawyer with Van Bael & Bellis, said that even though a future EU-U.K. agreement might touch on shared competences between the EU and its member countries, that would not necessarily mean that EU countries would need to become party to that agreement and thereby request ratification by national lawmakers.

“If they do not exercise the competences, the deal could pass as an EU-only agreement in order to ensure swift ratification and possibly avoid a cliff-edge at the end of 2020,” she said. However, van Damme said that such a ceding of powers by member countries had never happened before in the case of a trade deal, and that countries might not want to create a precedent for other future trade deals.

EU countries are now pushing the Commission to give them more clarity on the likely form of the agreement. While discussing the preparations of the mandate negotiations on Tuesday, diplomats asked for an additional meeting on the legal basis of the deal, according to several people in the room.

“Almost everyone around the table wanted to know what the set-up is,” said an EU diplomat. “Form should follow substance, but the framework matters to all of us. We asked the Commission to brief us on that aspect as well.”

Switch strategy

Some EU diplomats expect that the intra-EU discussions about the scope of the deal — and the consequences this could bring for ratification — will be postponed.

EU countries could agree to a comprehensive mandate in February and then come back to the issue in June, when the EU and U.K. have to consider whether to extend the transition period beyond the end of 2020.

At that point, Brussels could try to put pressure on London to agree to such an extension, despite Johnson’s reluctance, by showing that it was unrealistic to negotiate and ratify a deal before year’s end. If that fails, the EU might then have to switch strategy.

“In that scenario, it will be time to prioritize,” said a diplomat. “Which topics have to be agreed on before the deadline and which are less urgent? That discussion is going to be very tricky.”