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18 February 2020

Why the threat of a no-deal exit by the UK from EU rules remains

The distance between the British government and Europe may prove too great to overcome by the end of the year. 

By Stephen Bush

The government’s chief Brexit negotiator, David Frost, has laid out his – and by extension the British government’s – thinking on the next stage of the Brexit talks and what they want in a speech at ULB Brussels University.

It reiterates what we know will be the big sticking point of the negotiations – both sides know that they are in the hunt for a free trade agreement, but the big disagreement is over rules. On the British side, the government thinks that a trade agreement of the same depth and access level as Canada’s ought to carry with it the same level of regulatory autonomy as Canada. On the European side, the European Commission and member states think that because the United Kingdom is so much closer to the European Union’s borders, there has to be a greater set of limits on the UK’s regulatory freedom in any trade deal. 

As I’ve written before, the row ultimately comes down to whether you think that geography matters or not. Those at the top of the British government don’t, those at the top of the EU27 do.  It’s a divide of worldview as well as one of policy.

It’s the bridging of disagreements like that which means that trade talks go on for such a long time. It’s not because trade negotiators are overly fond of run-on sentences or carve their agreements in stone, but because finessing gaps like that is not easy. You can sign trade deals quickly – but the speed comes because the smaller partner accepts that its interests are better served by acquiescence to the demands of the larger one. 

Will the UK ultimately do just that? I’d say that the bits of Frost’s speech most worth looking over are his scepticism about the economic costs of erecting regulatory barriers to trade between two developed economies. Frost believes that the literature on the economic cost is too heavily influenced by extrapolating backwards from the economic gains of developing and newly-democratised countries as they open up to the world. 

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Is he right? Well, we don’t know: no nation in the modern world has ever entered a trade negotiation planning to erect barriers to trade. The more important question is: does Boris Johnson believe he’s right, or is it just a negotiating ploy? 

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If Johnson believes he’s right, then the most likely endpoint of these negotiations is a no-deal Brexit on 31 December. But on the EU side, the consensus is, largely, that the British government’s position is a bluff. 

They look at a government which has not yet matched its rhetorical ambition on divergence after Brexit with policy ambition as far as the necessary infrastructure at British ports are concerned, and they conclude, rightly or wrongly, that the UK is bluffing and therefore the EU can behave in the way that the bigger trade bloc almost always does in trade talks, which is to enforce its will on the smaller partner. 

While the UK and the EU are much closer together in this stage of talks than they were at the start of the last, it may be that the last hurdle is simply too large to be overcome: and the UK may well have a no-deal exit at the end of the year.