On 1 January 1973, the United Kingdom (UK) joined the European Economic Community, as it then was. Forty-four years later, on 29 March 2017, the UK Government notified the European Council that it wanted to withdraw from the European Union (EU). This happened after a referendum in which the UK electorate was asked whether the country should remain a member of the EU or leave it. The referendum resulted in 51.9% of the votes in favour of leaving the EU. Although the referendum was legally non-binding, the UK Government promised to implement the result. The UK was due to leave the EU on 29 March 2019 but this period was extended until 31 October 2019 in order to complete the withdrawal negotiations. A new trade deal could only be discussed subsequently.

Article 50 of the Lisbon Treaty governs the withdrawal process. It requires that a withdrawal agreement must be concluded with the state in question, taking account of the framework for its future relationship with the EU. Very sensitive matters had to be negotiated. Existing obligations (including budgetary commitments) had to be honoured, while new reciprocal arrangements (e.g. for citizens’ rights and the Irish border) had to be agreed.

There was another unique challenge, in the form of the Irish “backstop” – the mechanism designed to guarantee an open border on the island of Ireland. The EU Commission’s objective was to protect the integrity of the EU. The Irish Republic is a member of the EU, but since Northern Ireland, as part of the UK, would exit from the EU when Brexit finally happens, a “backstop” was necessary. The internal Irish border became a major problem and has not yet been resolved. The EU has to avoid the danger of sending out signals that could undermine the future cohesion of the EU. Concessions to the UK must not encourage secessionist ambitions in other EU member states. And the Good Friday Agreement had to be considered. A hard border in Ireland could jeopardize peace in Northern Ireland.

When Prime Minister Johnson in 2019 won a landslide election victory, he secured a Withdrawal Agreement.[1] It came into force at the beginning of 2020 and remains central to the Brexit process. This is not a temporary arrangement. A new bilateral trade agreement will be a separate legal instrument; to be negotiated during the Transition Period. This period lasts until the end of 2020. Even if the parties would fail to agree on a specific FTA to govern their future inter partes trade, the Withdrawal Agreement continues to apply.

Under Prime Minister Theresa May, the UK argued for a special deal and a bespoke trade agreement; for which there was no precedent. The EU, on the other hand, sought an orderly and comprehensive withdrawal process first, in which the interests and integrity of the EU would be protected. There had, in addition, to be obligations regarding the UK’s post-Brexit practices. The EU insisted on a “level playing field” for the future relationship with the UK.

Once the UK finally leaves the EU, it becomes another third-party trading with the EU. The legal basis for bilateral post-Brexit trade is either a new deal (a UK-EU FTA) or trade under WTO rules. Domestic trade governance has to be re-established in the UK. The private sector must prepare itself for a new trading relationship with the EU and with third countries. It is still not clear what all of this will entail, which existing rights and benefits might continue, and in what format. This causes uncertainty.

The negotiations with Brussels about a future bilateral preferential trade agreement have been tough. At the end of September 2020, there were still no signs of a final compromise. Despite agreement between the two parties about the principle of a new a free trade agreement, with no tariffs or quotas and deals on trade in services, they disagree about important aspects. The two sides remain far apart over access to British fishing waters and rules on state subsidies.

The announcement on 9 September 2020 that the UK will adopt its own Internal Market Bill[2], which could mean reneging on its obligations under the Withdrawal Agreement, threatens the prospects of reaching a final deal before the end of October 2020, which is considered the deadline to allow implementation by 1 January 2021. The Internal Market Bill contains clauses to override provisions in the Withdrawal Agreement relating to Northern Ireland. The EU set the UK government a deadline of 30 September 2020 to withdraw certain clauses in the Internal Market Bill. This was refused, on the basis that these clauses are a safety-net to protect trade between Great Britain and Northern Ireland if no trade deal is agreed by the end of December 2020. The EU has threatened legal action. It argues that the Internal Market Bill would violate the Withdrawal Agreement, which is in force as a binding treaty. Both parties see the EU Summit in mid-October as the last chance for any deal.

The Brexit negotiations are unique. Unlike in other trade negotiations, where solutions to impasses are often found through the exchange of specific concessions and by replicating what is done elsewhere, the Brexit talks must break new ground. The EU has offered wide-ranging tariff and quota-free access to its market to other countries – including Japan, Canada and Singapore – without requiring the same commitments on a level playing field, but it will not do the same for the UK. That’s because the overall ambition of these other agreements was to move towards trade liberalization and regulatory convergence. The UK, in contrast, wants to exit from the most advanced regional integration arrangement in the world and seeks regulatory divergence.

The EU is the UK’s most important trading partner. The negotiators thus face a challenge in finding a solution to a unique situation of two trading partners moving further away from each other. They have about two weeks left to find a solution. If there is no trade deal, WTO requirements, MFN tariffs and quotas will then be applied to goods crossing their borders. Border checks will need to be carried out by both sides. And the administrative burden for businesses will increase significantly. Disentanglement from a deep integration arrangement is complicated and costly.

[1]  pdf Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (Official text) - 12 November 2019 (1.64 MB)

[2]  pdf United Kingdom Internal Market Bill - 30 September 2020 (365 KB)