01 November 2017

The Brexit Secretary says that no matter what happens with EU negotiations, “we will have some sort of basic deal”. Alex Stojanovic argues that even the most basic deal will be difficult to agree and disruptive to trade.

When questioned on no deal by the European Union Select Committee, David Davis used a number of terms to describe what this would mean in practice: a "basic deal", a "bare bones deal" or a "basic bones deal".

From his comments, it is clear that he believes this basic deal is not one agreement but a raft of 'side deals' to cushion the impact of leaving the EU without a comprehensive future agreement on trade. Davis appears to regard these side deals as a given.

Broadly speaking, these side deals could look like any of the existing EU agreements with other non-EU members. Some important examples Davis mentions include data protection and aviation. Others have pointed towards deals on customs cooperation and mutual recognition as potential options for the UK.

Relying on side deals as a fallback for no deal is a huge gamble

It is far from safe to assume that the EU will be ready to agree any side deals in the event of no deal.

If, for example, the talks break down with no withdrawal agreement or agreement on the exit bill, then the EU is more likely to attempt to increase the pain of a chaotic exit to force the UK back to the negotiating table. If this was to occur, the EU is unlikely to want to make life easier for the UK by agreeing any side deals. In his evidence to the Treasury Select Committee Ivan Rogers, former permanent representative to the EU, argues that we should take this possibility “very seriously”.

But there could be another scenario where both sides fail to find a way through on trade, even after agreeing the terms of withdrawal. In this case, they could agree to put in place arrangements that the EU has with other countries with whom they trade, but without a free trade agreement. 

Agreeing a raft of future side deals will not be easy

Without an agreement on data, for example, transfers of personal information between the UK and the EU would be severely disrupted. Based on existing precedents, a side deal here is not so much an agreement but a judgment from the European Commission that the UK will comply with EU data protection laws. But this judgement could take years. Elizabeth Denham, the UK Information Commissioner, says that achieving 'data adequacy' on day one of leaving the EU will be challenging. The UK’s departure could complicate a potential deal on data as it is unclear how the UK will share data with other countries in the future.

On aviation, the UK could maintain all the rights its airlines enjoy now as there are examples of non-EU and non-EEA countries participating in the Common Aviation Area. But that means accepting the jurisdiction of the European Court and regulatory oversight by the European Aviation Safety Agency. The EU would also argue for broader rules on state aid and working time.

Before you know it, negotiations for a quick aviation deal would turn into talks on cross-cutting regulation and institutional oversight – the very areas that are likely to prove contentious in a full free trade agreement. If the UK doesn’t accept ECJ jurisdiction, we could argue for something similar to the Open Skies Agreement between the US and the EU. But even this took four years to agree; and it does not afford US airlines the right to operate intra-EU flights (or vice versa). 

Side deals would not avert customs disruption and regulatory checks at the border

The Government wants future trade to be “as frictionless as possible”. Customs cooperation is one tool to assist with this, as part of either a free trade or a stand-alone agreement. They normally cover trusted trader schemes to reduce clearance times and provisions for data exchange.

But they do not remove the need for a hard border. Outside the Customs Union and the Single Market, there would still need to be a wide range of customs checks at the border and associated infrastructure to stop and inspect lorries. There would still be a large risk of delays and it would be impossible to avoid a hard border with Ireland. Customs cooperation alone would not avoid a backlog of queues in key ports like Dover.

It’s possible that the EU might agree “mutual recognition of conformity assessment”, which would mean UK bodies checking goods against EU standards. This would cut out duplicate testing at the border, but document checks would still remain. For heavily regulated sectors, such as chemicals, there are no mutual recognition agreements; this is because testing is just the tip of the iceberg when it comes to meeting all the regulatory requirements. 

A mattress under the cliff

What matters here is the context in which these side deals would be agreed and the scope of their impact. If negotiations end up in a cul-de-sac, it is difficult to see how even conventional side deals can be agreed in a short space of time. They still require a high degree of trust and cooperation.

Even if a series of side deals could be agreed, this would be a dramatic change. Yes, they could cushion the fall from crashing out with nothing – but it amounts to putting a mattress under the cliff. 

Comments

A sensible, yet realistic assessment; an approach I'd like to see more often in the political debate. I looking forward to reading other comments along these lines. Ugo Bechis , Co-Chair of the Lafferty Brexit Council

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