Brexit phase II: Boris and Brussels go into battle

Boris Johnson today delivered what may be one of the most important speeches of his career. At the National Maritime Museum this morning, a monument to Britain’s past as a great naval and trading nation, he outlined his vision of a new, global and free-trading Britain.

Seeking a new role for the British state outside of the European Union, the Prime Minister warned that “protectionists are gaining ground” across the world, choking off free trade and exchange. He said that the UK, now “re-emerging from decades of hibernation”, is ready to become “the supercharged champion of the right of populations of the earth to buy and sell freely among each other.”

Johnson was hoping to reinforce the message that his government will not be wanting close alignment to EU regulations in the upcoming trade negotiations. He echoed earlier remarks, delivered by himself and his Chancellor, Sajid Javid, that the UK desires a “comprehensive FTA (Free Trade Agreement)”, one that will maintain a “thriving trade and economic relationship with the EU” but also allow Britain to strike trade deals further afield. The UK will be a rule maker, not a rule taker, they say.

Meanwhile, over the channel in Brussels, the EU’s chief negotiator in the upcoming trade talks, Michel Barnier, unveiled the EU Commission’s negotiating mandate. What this means is that the EU member states want a single, coherent platform for the negotiations, rather than several informal channels with separate members.

The document for the mandate sets out the ambitions of the EU member states and the Commission’s negotiating team. At the most abstract level, as Barnier outlined in the European Parliament, the goal of the negotiations is the establishment of “a free trade area ensuring no tariffs, fees, charges having equivalent or quantitative restrictions across all sectors”.

In return, however, the EU expects “that a level playing field is ensured through robust commitments”.

This is a statement of an ambition, not a set-in-stone legal guarantee: the more the UK diverges from the level playing field, the negotiators say, the more restricted the trade between the UK and the EU will be.

This trade-off echoes the central message of the negotiating mandate: that (i) the EU wants, and is authorised to negotiate, a favourable trading partnership with the UK – but (ii) that this partnership cannot provide the same benefits as being an EU member. It points out clearly that the UK is a “non-Schengen third country” and “cannot have the same rights and enjoy the same benefits of membership.”

In terms of approach, the mandate declares that the EU wishes to make a single, comprehensive agreement on trade – rather than striking piecemeal deals on separate, standalone issues. They want to secure “an overall governance framework covering all areas of cooperation.”

This will make it more challenging to complete the necessary negotiations by the end of the transition period on 1 January 2021. Providing this framework will be more ambitious than simply establishing a series of smaller agreements on areas such as agriculture, manufactured goods, services, etc. one at a time.

The key, and most controversial, issue is what has been called “the level playing field”. This part of the document has several sections reinforced in bold font, outlining the key red lines and demands which the Commission will require their future UK trading partner to meet.

“Given the Union and the United Kingdom’s geographic proximity and economic interdependence,” it says, “the envisaged partnership must ensure open and fair competition”. The commitment to “a level playing field” will involve agreement on “common high standards in the areas of State aid, competition, state-owned enterprises, social and employment standards, environmental standards, climate change, and relevant tax matters.”

What all this really means is that the EU wants the basic rules applying to member states also to be applied and enforced in Britain. Brussels fears that, otherwise, the British government will be freed from EU laws to slash corporations taxes, supplement companies through state aid, and dismantle regulations.

This would, they believe, create unfair competition that could undermine the Customs Union and give the UK’s goods and services an unfair edge on the EU’s very own doorstep.

The mandate therefore calls, crucially, for “adequate mechanisms” and a “governing body” that “should be empowered to modify the level playing field commitments” and to ensure their implementation domestically in the UK. The EU wants a guarantee that the UK will not renege upon common regulations, taxes, and standards by setting up a body through which the EU will be able to impose retaliatory measures upon the UK if promises are broken.

Johnson has to negotiate between competing demands – between the EU’s request that Britain sign up to certain common regulations to guarantee the terms of trade; and the necessity that Brexit, and leaving the Customs Union, will ensure that Britain is free to devise and determine its own laws independent from Brussels.

It is precisely this tension that makes the EU’s calls for a “level playing field” such a thorny issue. It will be seen in Downing Street as an attempt to prevent Britain from exploiting one of the crucial pay-offs of leaving the Customs Union – the ability to determine divergent regulations and compete in new markets beyond those in Europe.

At the heart of the matter are competing notions of what “free trade” entails – Boris Johnson is urging the UK to become a champion of free exchange across the world, harnessing its competitive advantage to play to its strengths in global markets. Comparative advantage and low tariffs, this philosophy goes, will keep consumer costs low and businesses competitive.

The EU, on the other hand, is more anxious to enforce a base level of terms upon which trade can be conducted within protected and carefully controlled limits. For the Commission, there can be no truly free trade without what they see as fair, regularised rules and protections – and they are happy to put up the tariff wall against those who disagree.

Ultimately, both parties – the UK and the EU – want to gain an upper hand on the future terms of trade. But they have made it quite clear early on where each other’s red lines are for the achievement of a basic Free Trade Deal. Unless these lines move more in the coming months, it looks more likely than not that finding the terms of trade between Britain and the EU will be challenging indeed. Completing Brexit phase two will be a different type of task for Johnson than ending phase one.