15 December 2019

Financial Times: The EU must rethink its approach to UK trade talks

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https://www.ft.com/content/e4ece798-1d8b-11ea-97df-cc63de1d73f4

The EU played an indirect but critical part in last week’s electoral triumph for UK prime minister Boris Johnson — and in Brexit.

It was a historic error of judgment by some of the EU’s leaders to collude with Remainers in the UK. Instead, they should have gone out of their way to help Mr Johnson’s predecessor Theresa May pass her withdrawal agreement.

The EU leadership not only overplayed its hand during the negotiations. It committed the critical error of refusing to rule out a Brexit extension from the outset. They contributed to the ensuing uncertainty and the change in the Tory leadership. The rest is history.

As a direct consequence of these errors, the EU will end up with a more distant relationship with the UK than it could have had. Mrs May’s withdrawal deal, while far from ideal, would have been consistent with a future association agreement. By betting the house on an elusive second Brexit referendum, a coalition of EU leaders and the Remain campaign have ended up forfeiting that opportunity.

If EU leaders had any strategic sense, they would now pause for a minute to decide exactly what they want from a new bilateral relationship with the UK. [...]

It would be complacent to think that Mr Johnson will be a pushover in the second phase, the upcoming trade negotiations. What would happen if the EU were to play hardball and only offer a minimal deal, perhaps spiced with demands for EU access to UK fishing waters, or that the UK follow EU labour market rules?

If Brussels were to make such demands, it would give Mr Johnson a rational reason to walk away from talks entirely. The Brexit transition period is scheduled to expire at the end of 2020. At that point, Mr Johnson will still have four more years in office ahead of him, longer than any other EU leader.

There would also be significant economic consequences for the EU’s leaders if no trade deal is struck and the two sides end up in a trading relationship based on World Trade Organization rules. That would put at risk a substantial portion of the EU’s £94bn bilateral trade surplus in goods.

Sceptics argue that a trade deal cannot be concluded quickly. But speed is a political variable. If the EU decided to prioritise a deal with the UK, it could choose to fast-track the negotiations. It is true that the EU would not be able to ratify a trade deal by the end of next year. But if negotiations were far enough along by late 2020, the two sides could find a way to extend the transition period. [...]

Another important consideration for the EU is that the UK is likely to start parallel trade talks with the US. If such a deal were to be concluded first, it might contain passages that could interfere with a not-yet-concluded EU trade deal. For example, American negotiators might insist on access for their chlorinated chicken and genetically modified organisms.

If the EU really wants a strategic partnership with the UK, it is in its interest to conclude that agreement before the US does. If it is the strategic goal of US president Donald Trump to drive a wedge between Britain and the EU, this would be an ideal opportunity.

A full, balanced and fair trade agreement is possible, but that would require the EU to drop its Versailles treaty, victor’s justice mentality. I realise that the European Council does not undertake negotiations itself. But this time it should become more closely involved. We will know that this process is veering off track if we see the two sides reverting to the usual briefing hostilities. [...]

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