Topline: Prime Minister Boris Johnson has called for the United Kingdom to be free of European Union rules in any post-Brexit trade deal while EU leaders have warned any agreement hinges on maintaining a “level playing field.”
- Johnson is pushing for a ‘Canada-style’ trade deal. This would supposedly see zero tariffs on the majority of goods traded between Britain and the EU. He reiterated calls for the agreement on Monday, in his first speech since the UK left the EU on Friday. The pound fell 1.1% to $1.305 against the US dollar on the news.
- Johnson added that, in order for a free trade deal to go ahead, there is no need for Britain to accept EU rules on “competition policy, subsidies, social protections, the environment or anything similar, anymore than the EU should be obliged to accept UK rules.”
- But in separate comments on Monday, the EU’s Brexit negotiator Michel Barnier urged a “level playing field” i.e. fair competition between the UK and the EU. He added that he was open to making an “exceptional” offer, but that it hinged on the UK aligning itself with EU standards, particularly on the environment, climate, tax and state aid regulations.
- Barnier, tasked with negotiating the EU’s post-Brexit relations with Britain, reiterated his call for an “ambitious” partnership but added: “When you are not a member of the EU, objectively speaking, your position is different and less favourable.”
- Britain left the EU on Friday after three years of post-referendum negotiations, but the work begins now to define what Britain’s future relationship with the EU will look like, during an 11-month transition period that ends on December 31 2020.
- The U.K. must remain aligned to EU rules and regulations during that transition, but it has no representation at EU level.
What to watch for: Trade talks between Britain and the EU begin in March. If this morning’s discord is any indication, Barnier and Johnson seem to be setting themselves up for another deadlock, unless they can agree to a compromise on future trading relations.
- A trade deal similar to the one struck by Canada with the EU would mean that majority of goods won’t face tariffs but will face border checks. Crucially a Canada-style deal would mean that the UK services, including Europe’s financial hub London, could face barriers operating in the trading bloc. The UK’s services sector currently accounts for 81% of national GDP.
- Meanwhile, the U.S. has indicated that it could agree on a deal with Britain this year, but this is likely to hinge on a number of conditions that Britain might not be willing to meet, particularly if its recent policy decisions on 5G and the digital sales tax are any indication.
- The EU set out its proposals for trade talks with the UK in a 33-page document on Monday.
Key background: Britain can now negotiate its own trade deals with countries around the world, although any agreement struck cannot be enforced until the end of the transition period. Aside from the EU, the U.S., Australia and African nations are on the priority list. Relations with the EU, the UK’s biggest trading partner, remains key as UK businesses with customers and suppliers in what is the world’s largest trading bloc. But Barnier has warned that 11 months is not long enough to thrash out a trade deal. Meanwhile markets, which initially cheered a break in the Brexit deadlock last year, could be forced to weather another period of uncertainty if a deal between Britain and the EU is not worked out, analysts previously told Forbes. Johnson does not want to extend the transition period beyond 2020, adding extra pressure.
Tangent: Johnson also urged a review of an automatic early release policy for terrorists in prison, following an attack on a south London high street on Sunday in which a recently released convicted terrorist stabbed two people.
