10 Dec 2019
EU Warns of “Fair Playing Field” Requirement for Free Trade Agreement with UK Post-Brexit
On 6 December 2019, the new EU Trade Commissioner Phil Hogan shed a note of optimism during a speech, by claiming that many aspects of a free trade agreement with the UK may be negotiated relatively quickly, before the end of 2020. However, the Chief Brexit Negotiator for the EU, Michel Barnier, had – just a few days previously – re-stated that the UK would have to agree to maintain a “level playing field” and not undercut EU regulations if it wanted to secure a free trade agreement post-Brexit. Meanwhile, both sides are preparing for trade negotiations to begin immediately once the UK has left the EU by 31 January 2020 in order to conclude a EU-UK FTA before the end of the transition period post-Brexit on 31 December 2019.
Hong Kong traders may like to know that Michel Barnier, who led the Brexit negotiations for the EU, has been re-appointed by the European Commission for the negotiations on the future relationship. Barnier has once more stated that if the UK sought to diverge from EU regulatory standards that would weaken environmental and worker protection, then there will never be a free trade agreement. He has previously said that the EU would be ready to launch trade negotiations with the UK “the day after” the withdrawal agreement was ratified, but also that tariff and quota-free access to the EU were linked to a “level playing field” between the EU and the UK.
This is confirmed in the Draft Conclusions of the European Council published on 2 December 2019 which state that “the [European Union] reconfirms its desire to establish as close as possible a future relationship with the UK in line with the Political Declaration.” The political declaration between the EU and the UK is intended to be used as the basis for developing the future relationship, but, unlike the Withdrawal Agreement, it is a non-legally binding document. Nonetheless, the UK has committed in the political declaration to a level playing field in the areas of state aid, competition, social and employment standards, environment, climate change and in relevant tax matters.
In the event that UK Prime Minister Boris Johnson, who leads the Conservative Party, wins the UK general election on 12 December, he has promised to pass the Withdrawal Agreement in Parliament before Christmas and to begin trade negotiations with the EU as soon as possible. However, Barnier has warned that, should the election fail to break the political deadlock in the UK and deliver another hung parliament, the risk of a no-deal Brexit would increase.
Johnson has also promised that a new post-Brexit trade deal with the EU would be concluded by the end of next year, and has ruled out extending the transition period, scheduled to last until 31 December 2020, that will follow once the UK ratifies the Withdrawal Agreement and formally leaves the EU. Additionally, the European Council, which is made up of all the political leaders of the EU, has invited the European Commission to submit “a draft comprehensive mandate for a future relationship with the UK immediately after its withdrawal”, and has also called for negotiations to “be organised in a way that makes the best possible use of the limited time available for negotiation and ratification by the end of the transition”.
Officials on both sides have expressed scepticism that a comprehensive trade and political agreement could be finalised, and ratified, by the end of next year. The shortest free trade agreement the EU has ever concluded was the EU-Korea FTA which took two and half years to negotiate, and an additional eighteen months for approval and ratification. For its part, the EU-Canada Comprehensive Economic and Trade Agreement, which is often cited as being a potential model for the future relationship between the EU and UK, took around seven years to negotiate and is only provisionally applied today, still awaiting ratification by all of the EU Member States before it can fully enter into force. Sir Michael Leigh, a former EU chief enlargement negotiator, stated that while “[t]he UK’s trade is, indeed, fully integrated with the EU today … once the UK leaves, it becomes a “third country” and any new trade deal has to be built from the ground up, brick by brick, covering all aspects of the new relationship.”
However, the new Commissioner for Trade Phil Hogan stated in a speech on 6 December 2019 that it should be possible to negotiate “many areas of alignment relatively quickly, due to the high level of convergence already in place” and that parties "should not engage in this academic exercise ... about whether an extension of the transition period beyond December 2020 will be required to complete a Free trade agreement". Prime Minister Johnson has also argued that it will be easier and quicker for the UK than other third countries because the UK is already fully integrated and aligned with the EU. This has raised the prospects of a “bare bones”’ trade agreement involving duty-free, quota-free trade in goods, but excluding agricultural products and trade in services, that could be put in place without needing to wait for ratification by national parliaments throughout the EU.
Nonetheless, Hong Kong traders may be relieved to learn that, although the Prime Minister has said that he will not extend the transition period beyond its current expiry date of 31 December 2020, the Withdrawal Agreement does provide for the possibility of extension. According to the Withdrawal Agreement, the transition period can be extended by mutual agreement between the EU and the UK, so long as this decision is taken by 1 July 2020. In practice, each time the UK has requested an extension of the withdrawal date, it has been granted by the EU, and the current Brexit deadline has been extended three times so far, since the original departure date of 29 March 2019.
In short, Hong Kong traders will want to be aware that both the EU and the UK are preparing for the departure of the UK by 31 January 2020 and to begin moving on to the next stage of negotiations during the transition period in order to conclude a free trade agreement as quickly as possible. It is hoped that the UK election on 12 December 2019 will bring an end to the Brexit deadlock in the UK; however, it is also feared that the election could result in another hung Parliament and more uncertainty.