What's Happening With Brexit?

Although the UK officially left the European Union on the 31st of January 2020, the UK still remains in a transition period until the 31st of December 2020. During this period the UK has agreed to continue to abide by EU rules, while negotiating a new trading arrangement. We examine the stated aims of the EU and UK negotiating positions, and look to the types of deal that each side is looking to conclude.

What deal does the UK government want?

A detailed account of the British approach to the Brexit deal has been published by the UK government, and can be found here. The UK is clear it is seeking a free trade agreement, or FTA similar to Canada’s arrangement with the EU.

Traditionally the main advantages of an FTA are in their ability to allow countries to compete, often through deregulation. In removing regulation, FTAs also make way for an influx of Foreign Direct Investment, or FDI. However, an FTA would also allow the UK to diverge from EU restrictions on state aid, which would allow the UK to prop up industry and business in a way that would otherwise breach EU state aid law. Moreover, both the PM and the UKs chief negotiator, David Frost, have given assurances that the UK will maintain high standards post-Brexit.

What deal does the EU want?

The EU have clearly stated they are seeking a Level Playing Field. This would prevent the UK deviating from EU regulations in its trading arrangements with other nations. A level playing field would allow the UK to continue to trade fluidly with other EU member states on similar terms as those governing trade at present. Further, it would enshrine in law commitments by the UK, not to undercut EU standards in order to compete. The EU want this level playing field arrangement to form the basis of a future trade agreement.

What happens now?

The UK have stated that a level playing field is an unacceptable condition. David Frost has argued that it would “defeat the purpose of Brexit”. This means that without significant concessions from either side, it is unlikely the UK will secure a Canada style deal with the EU.

If both sides fail to come to an agreement the UK will seek an ‘Australia style deal’. An Australia style deal would necessitate trading with the EU on World Trade Organisation (WTO) rules. This would lead to tariffs being introduced on goods being bought and sold between the UK, and the EU. In many ways an Australia deal is effectively a ‘No Deal’ however it is important to remember that the UK and EU have already come together to sign a ‘Withdrawal deal’ which agrees solution and resolution to a number of key issues including the border on the island of Ireland. In summary the UK and the EU have until the 31st of December 2020, to break the impasse, which is the EU desire for a level playing field, against the UK desire for an FTA.

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