Brussels was first out the blocks on Tuesday, when Ministers from Member States formally adopted the EU’s negotiating mandate. The UK followed on Thursday, as Michael Gove took to the despatch box to publish the UK’s 30-page counter proposal.
These statements mark the beginning of the second phase of negotiations, which will formally kick off in Brussels on Monday. They will complex and difficult. Both sides will continue to exercise political gamesmanship, both in private, and public. This will not be without its challenges for businesses.
But we now know more than at any other time since the Brexit vote, on where the UK and EU negotiations are heading. There’s a clarity on what the UK wants: a narrower free trade agreement focused primarily on eliminating tariffs, and minimising disruption in key areas.
To bring businesses up to speed, the CBI has identified nine key takeaways from this week.
1) Zero tariffs – alongside other customs facilitations - remain the ambition for both sides
The government has committed to zero tariffs for manufactured and agricultural goods which matches the EU’s offer. This will be a significant step forward in ensuring some of the most fundamental barriers to the trade in goods between the EU and UK are avoided.
The UK’s mandate includes a positive step for Rules of Origin, with the UK proposing the diagonal cumulation of them between the EU and trading partners, and with this, the welcome move of simplifying of customs processes and documentation. This is ambitious as the EU has not traditionally agreed to include before, stating it will take a “standard approach”.
The UK’s mandate does not mention any mutual recognition of trusted trader programmes and Authorised Economic Operator (AEO) status. If this is not included, businesses across the EU and UK that have gone to considerable lengths to gain AEO status will not see the desired benefits to the facilitation of their goods. However, in the EU’s mandate this is still possible.
However, the UK’s mandate does not mention whether zero quotas will underpin zero tariffs and is unclear as to whether businesses will be able to access zero tariffs without zero quotas.
2) But frictionless trade between the UK and EU will end
The UK has outlined the intention to secure an agreement that avoids unnecessary regulatory barriers to trade, including: cooperating on technical regulation, conformity assessments, accreditation, market surveillance, marking and labelling. However, the lack of detail on how such rules will operate will result in additional checks at the border, leading to more red tape and higher costs for firms.
The UK’s mandate acknowledges the need to reduce friction for sectors including motor vehicles, chemicals, pharma, organic products and marine. And whilst ambitions have been set out, details remain vague. Businesses should see the lack of specificity as deliberate, giving space for UK negotiators around the negotiating table. However, the EU has tied the level of market access to alignment on standards and other level playing field rules – more of that later!
3) The UK has upped its ambition on services
Both sides have committed to negotiating a comprehensive agreement for services that draws on existing EU FTAs such as CETA, with scope to go beyond provisions in key areas.
- In the UK’s mandate, sectors, such as professional and business services and digital trade are areas where the UK government is seeking to go beyond global commitments
- The UK also outlined its intention for an agreement in air transport, aviation safety and securing a continued collaboration on air traffic management
- And, for the first time, audio-visual services were included in the UK’s mandate, which audio-visual businesses will see as a victory as the EU has traditionally excluded this sector
- On financial services, the UK negotiating mandate reiterates a commitment to regulatory cooperation to support cross-border financial services businesses. Both sides have committed to carrying out unilateral equivalence assessments for financial services, distinct from the Agreement
- On energy, the negotiating mandate reiterates the need for close cooperation with the EU in order to ensure security of supply and continued electricity and gas trading across borders. However, there is no mention that future interconnector projects between the UK and EU will be viable, which is vital to ensure the exchange of ideas, innovation and technology to support the decarbonisation agendas
- However, whilst there are strong commitments for transport services, there is a lack of details on rules for telecommunications and delivery services.
4) Businesses will welcome objectives on mobility
Commitments on mobility continue to be positive. The UK mandate goes beyond ‘mobility to directly provide a service’ and includes short-term business visitors. The UK also wants to establish reciprocal provisions on social security coordination.
On mutual recognition of professional qualifications, it is promising the commitment to a pathway to secure this and ensuring there are no unnecessary barriers to trade in services. While it is disappointing not to see a direct reference to youth mobility scheme and youth exchanges or mobility of researchers, thus far it has not been excluded. The UK mandate is much more and ambitious than the EU’s so far.
5) Data remains a priority for negotiators
Both sides have outlined their intentions to negotiate a data adequacy agreement, critical for continued cross-border data flows for all sectors. The UK has said it wishes to conclude this before the end of transition on 31 December, a welcome and ambitious commitment vital to safeguard the UK’s £73bn data economy.
But timelines are tough, and while the UK has stated it will have an independent policy on data protection, the unprecedented alignment on data between the UK and the EU should focus minds to secure an agreement to provide certainty for firms.
6) A mixed picture for continued UK involvement in EU programmes
The mandate includes a welcome commitment to negotiate access to Horizon Europe. Although, more needs to be done to agree a basis for the UK’s full association, so that businesses and universities can access all parts of the programme.
On Erasmus, the government have said they will consider options for participation in elements of Erasmus+ on a time-limited basis. Business is clear about the benefits of our participation in this, with in-coming EU students contributing £420m each year to the country. A domestic alternative will not be able to replicate these benefits. That is why it is so important the Government commits to participating in Erasmus+ fully and for the long-term.
7) Big political blocks need to be removed
To agree a deal that meets the UK’s ambitions, the EU want commitments on the so-called “Level Playing Field” issues of the environment, labour, climate change and state aid. It also wants access to UK waters for EU fishing vessels at levels roughly equivalent to what’s currently going on.
The UK finds both these incompatible with its goal of regaining sovereignty and autonomy in these areas.
If these big political blocks cannot be surmounted, the prospects of no deal will rise quickly. These areas will be the focus of much media attention.
8) Tough talking on timelines
The election has given the UK government the mandate to move with breakneck speed. It has made clear it will not extend the transition period beyond 2020, under any circumstance, which means we have fewer than 10 months to draw up, negotiate and ratify an FTA.
But this has not stopped the government putting extra pressure on negotiators, with Boris Johnson threatening to walk out of talks in June if sufficient progress has not been made. All eyes will be on the European Council meeting on 22 June, when the European Council – and the UK - will assess progress.
9) It’s time for businesses to find their voice again – and the CBI can help
With negotiations now in touching distance, it’s never been more important than to help shape the CBI’s positioning on Brexit and how we communicate the business view to government and the EU.
From the future economic relationship to government engagement structures, the CBI’s EU negotiations team is working on a range of issues. You can get involved here.