Here is the first edition of a new Week in London column by Chris Horseman! As Britain’s trade policy agenda becomes ever denser, we’ll have a column to match our Friday Week in Brussels series to keep track of all the important developments on trade in London.
UK preparing the ground as EU FTA deal moves closer
There has been a growing disconnect between the rhetoric and the substance surrounding the talks on the future EU-UK future relationship.
Recent headlines have been dominated by tales of division and confrontation – UK prime minister Boris Johnson promising to walk away from the negotiations unless a deal is done by 15 October, Commission President Ursula von der Leyen announcing the initiation of legal proceedings against London, the European Parliament threatening not to ratify the eventual deal – and so on and so forth.
But all the while, officials have been continuing in the background with the quiet work of getting as close as they can to a deal within the constraints set out for them by their political masters. And on Wednesday (7 October), there was just a glimpse on the UK side of how the rhetoric and the substance may yet be reconciled.
Giving evidence to a House of Commons committee, David Frost, the UK’s chief negotiator in the post-Brexit talks, hinted that UK opposition to an agreement which would constrain the UK’s ability to grant subsidies to its domestic industry may be softening.
The UK, he said, was willing to discuss a settlement on state aid that would “go further than you normally do in a free trade agreement”.
In the context of months of prior insistence that London was looking for nothing more than a ‘standard’ FTA with the EU – and that it would refuse absolutely to submit state aids to the scope of dispute resolution within the EU-UK FTA – this represented a significant concession.
The EU has already stepped back from its earlier and rather ambitious insistence that the UK should align fully with EU state aid rules.
State aid constraints work both ways
Frost told the Committee on the Future Relationship with the European Union that the gap between London and Brussels on the state aid issue was “unfortunately … still quite wide, through maybe not quite as wide as it was couple of months ago.”
Perhaps even more significantly, Frost noted the fact that many leading EU member states had historically made much more use of state aid than had the UK.
“Whatever the final agreement, whatever form of dispute settlement is ultimately put in place, we’d be at least as assiduous a user of [the dispute settlement mechanism] as the EU will be,” he suggested.
Does this represent the start of a pivot towards a new internal UK narrative on the state aid question – that the UK will seek to present an agreement on state aids as a helpful mechanism in keeping in check the unfortunate statist tendencies of their key EU competitors?
The public rhetoric is important at this stage, given that any agreement will have to be presented as a negotiating triumph by either side to their respective public and parliament.
Signs of compromise over fish
The first signs of compromise are also evident in the other major area of EU-UK friction, namely access to fishing grounds.
Here, the EU appears to be accepting that the UK will inevitably end up with a bigger share of the resources in UK waters than is the case at present – but a deal which leaves EU fishermen completely in the lurch will clearly not be acceptable to the French government in particular.
That point too was accepted by Frost, who acknowledged that a transition period for a phased introduction of the new regime was now on the cards.
“There needs to be a huge change in access to fish stocks, and there will inevitably be an effect on EU fishing communities. Providing the end point is right, in terms of the final agreement, there could be some kind of ‘glide path’ to get us there. And we are trying to find a way to get there.”
2:1 chance of a deal, says Gove
So what are the chances now of a deal being done before the end of the year?
UK cabinet office minister Michael Gove, who faced the hearing alongside Frost, told MPs he was “66% confident” of a deal – that percentage having fluctuated up and down in recent weeks, according to the minister.
Frost declined to give a percentage likelihood, but contented himself with saying that a deal was “eminently achievable”. He added: “We’ll have to see what the next few weeks bring.”
And as for that 15 October ‘make-or-break’ deadline – that can be safely erased from the diaries.
On the EU side, Michel Barnier has been clear that there is no chance of tying up all the outstanding loose ends by next week, having told the European Parliament last week that his aim was to present a deal to MEPs by early November.
And Frost too dampened down fears – or hopes among some British observers – that the UK would walk away if no deal was done by Johnson’s 15 October deadline.
“We’ve been working hard to get a deal. My job is to get as far as we can by October 15 and then advise the prime minister as to whether elements of a deal are in place,” he told MPs.
Don’t forget the rest of the FTA
The risk now is that with so much focus being placed on achieving high-profile breakthroughs on the ‘big-ticket’ political issues such as fisheries and state aid, one of the other myriad unresolved issues will come along to trip the process up at the last minute.
Rules of origin, chemicals regulations, road transport, mutual recognition of professional qualifications – all of these vital issues need to find their own ‘landing grounds’ in the next couple of weeks. And that is without mentioning the small matter of Northern Ireland and the UK’s plans to act in breach of the 2019 Withdrawal Agreement.
At least the Paris Agreement on climate change should not now be a source of last-minute friction between the two sides, as had earlier seemed possible. The UK was this week reported to have agreed to build a commitment to comply with the Paris accord into the FTA, as demanded by the European Parliament.
A deal is ultimately the most likely outcome, because it is so obviously desired by both sides. But there are so many political landmines still to navigate past in such a short space of time than the outcome is by no means secure.
Legal blow to UK on data privacy
The European Court of Justice has complicated the UK’s bid to achieve data transfer ‘equivalence’ at the point where it leaves the EU single market by ruling a key UK law from 2016 to be in contravention of EU data privacy laws.
The Court ruled on Tuesday (6 October) that Britain’s Investigatory Powers Act, which requires internet service providers to retain personal data and forward it to national security agencies on demand, is illegal under EU law.
Such powers, the Court said, are incompatible with the EU’s e-Privacy Directive and the famous GDPR regulation, which put strict limits on the types of private data which ISPs can hold, and for how long.
The issue is problematic for the UK because from next year onwards British IT businesses will only be able to freely transfer data to and from companies in the EU if the UK’s rules on data privacy are classed by the European Commission as being ‘adequate’ in the sense of having powers equivalent to those of the EU.
The granting of ‘equivalence’ status is not formally part of the EU-UK negotiations on the future relationship, but it is viewed as a prerequisite for tech businesses in the UK to trade effectively with the EU from next year, after Britain has left the EU single market.
Clearly, it will be harder for the European Commission to grant an adequacy ruling if the UK’s laws are in contravention of EU laws – although the ECJ’s ruling also applied to national legislation in France and Belgium as well as the UK.
At the same time, there seems little chance of the UK amending its own national laws in response to an ECJ ruling – at a time when the Johnson government has expended so much political capital in trumpeting Britain’s impending independence from the EU legal infrastructure.
UK government gives go-ahead to new freeports
The UK is forging ahead with plans to introduce a network of freeports around the country, in a move which the government claims will “create national hubs for trade” in UK port towns and cities.
But the initiative appears to be driven by the UK’s new regional and industrial strategy, rather than being a trade policy initiative per se.
Sea, air and rail ports in England will be invited to bid for freeport status before the end of the year, with the government aiming for the first of the new sites to be open for business in 2021.
Import duties will be suspended on goods coming into the freeport areas. These will be protected by fences to offset the risk that they become hotspots for smugglers.
Heavy emphasis is however also being placed on the fact that freeports will also be supported by tax reliefs, planning concessions and regeneration funding – and these policy tools are thought likely to have more economic impact than duty exemptions.
Trade experts have already pointed out, moreover, that goods imported duty-free into a freeport normally become ineligible for tariff benefits under a free trade agreement. This would have consequences for any plans to establish the UK as a trade hub for products moving on from the UK into the EU market.
“Freeports won’t fix anything,” tweeted independent customs expert Anna Jerzewska.
“There is no reason not to go for them. It’s just that [the UK government] is overpromising and overstating their benefits – again.”
UK confirms accession to WTO’s Government Procurement Agreement
The UK was already a member of the WTO in its own right, but the GPA was signed by the EU only.
This means London had to undertake negotiations to be accepted as a full member in its own right for the plurilateral agreement after it had left the EU. Agreement in principle on its participation terms – which largely match Britain’s current rights and obligations, was reached in late 2018. But the final deal was announced at this week’s Committee on the Government Procurement Agreement.