Brexit: EU-UK Trade Talks at a Stalemate over Disagreement on So-called “Level Playing Field”

On 15 May 2020, after the conclusion of the third round of trade talks between the EU and the UK, both sides stated that negotiations had become deadlocked over the UK’s refusal to commit to EU environmental, social, labour and regulatory standards. The stalemate underlines the lack of progress that has been made so far. The two sides remain deeply divided ahead of a high-level summit due to take place between EU leaders and Prime Minister Boris Johnson in June 2020.

Hong Kong traders will want to be aware that, despite the strict timeframe for negotiations, the EU and the UK have made little progress towards arriving at an agreement for the future relationship. As the UK has consistently insisted that it will not seek any extension to the transition period, there remains a high chance that the UK could leave the EU’s single market and customs union with no trade deal when the transition period expires on 31 December 2020.

The UK’s Chief Negotiator David Frost blamed the EU for the deadlocked negotiations. “We made very little progress towards agreement on the most significant outstanding issues between us,” Frost stated, adding that it was “hard to understand why the EU insists on an ideological approach which makes it more difficult to reach a mutually beneficial agreement.” Referring to the issue of the level playing field, Frost commented that “[it would] bind this country to EU law or standards, or determine our domestic legal regimes, in a way that is unprecedented in free trade agreements.”

Furthermore, Prime Minister Boris Johnson has previously threatened to walk away from negotiations if insufficient progress has been made by next month’s high-level summit between the Prime Minister and EU leaders. The UK has put forward that it could leave with an “Australia-style” deal, where it would trade with the EU on basic World Trade Organization terms, similar to a no-deal Brexit. However, the UK also announced that it will publish its draft legal texts of a trade deal prior to the next round of talks in order to facilitate the negotiations.

Michel Barnier, the EU’s Chief Negotiator, responded by accusing the UK of seeking to retain access to the EU’s single market while attempting to escape its rules. “Why should we help British businesses to provide their services in Europe when we would have no guarantee that our businesses would get fair treatment in the UK?” Barnier said. “We are not going to bargain away our European values to the benefit of the British economy. Economic and trade fair play is not for sale. It is not a ‘nice to have’, it is a ‘must have’.”

Barnier also rejected the suggestion that the UK could accept tariffs as “the price” of avoiding EU standards: “Even if we are to get rid of 98%, 99% of tariffs and not 100% that we are proposing … we will [still] require the same strong guarantees of a level playing field,” he stated, and warned that such a detailed and “very sensitive negotiation” would take years and need an extension of the transition period.

In another sign of the deep divide between the two sides, the UK has accused the EU of obstructing the progress of negotiations relating to trade in services, which has been moving quicker than other areas. Barnier denied the EU was using such tactics; however, he reiterated that the EU wanted all areas of the talks to progress at the same time. “Parallelism is a condition for progress,” he said. “It is not a tactic.”

With one more round of talks scheduled to take place before the high-level summit between the EU and the UK, each side is attempting to put the fault on the other side for the stalled negotiations. On the UK side, Frost stated that “[w]e very much need a change in EU approach for the next round” of talks, while, on the EU side, Barnier insisted that “[t]he UK will have to become more realistic, it will have to move beyond its lack of understanding, it will have to change its strategy.” 

Additionally, 30 June 2020 is a legally binding deadline whereby a decision must be made on extending the transition period beyond 2020, although the UK has been stringent that it would neither request nor agree to any such extension.

In short, Hong Kong traders should take note that the EU-UK negotiations on the future relationship seem to have become deadlocked, much like the withdrawal negotiations had been. The publication of the UK’s draft legal texts of a trade deal will provide some clarity, and it is expected that progress will be made during the EU-UK summit in June 2020. However, the UK maintains that there will be no extension to the transition period. Thus, the possibility of a no-deal scenario remains.