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Brexit Nears a Real Deadline

03 December 2020   |  

To date, deadlines around Brexit haven’t actually proven to be deadlines as such—they’ve been at best guidelines. But with December 31 around the corner, the risk the UK and EU will henceforth operate under the rather tariff-heavy World Trade Organization rules looms. Still at issue are three major sticking points.

The Level Playing Field
First is the so-called level playing field, which refers to ensuring companies on both sides of any trade deal are operating under similar regulatory regimes. But the option to operate under an independent regulatory regime was a pretty big motivator for many Brexit supporters—particularly in terms of labor and environmental regulations. So the UK doesn’t want to leave the EU only to still be subject to the regulation from which it wanted freedom. And the EU doesn’t want to promise the UK a zero-tariff, zero-quota arrangement unless the UK is prepared to ensure its companies adhere to the same regulatory restrictions as EU companies. It’s true that EU trade deals with Canada and Japan lack similar language—but it’s also true that the volume of the EU’s trade with Canada and Japan is much smaller than that with the UK. So the stakes are higher in this stand-off with the UK.

Access to UK Waters
EU access to UK fisheries has long been a bone of contention. Under the current regime, EU countries have complete access to waters beyond 12 nautical miles from the UK coast and limits on the volume of fish they can catch. These quotas have for the last several decades been negotiated on a fish-by-fish basis at a days-long annual summit—though they were set to move to a system based on scientific recommendations this year. As things stand, after December 31, the UK will be considered an independent coastal state—like Norway—and the boundary of its waters will extend from 12 nautical miles from the coast to 200. The UK wants to hold annual talks with the EU about access to its waters as well as quotas—as the EU does with Norway. But the EU insists such a process would be overly onerous given the number of species of fish involved.

The UK also wants higher quotas for national fisheries as it argues it has been given unduly low quotas since the Common Fisheries Policy was first agreed in the 1970s. Who gets what quota is complicated by the fact that a fair share of the UK’s quota is sold to EU-based boats. Also complicating things is where the fish are sold: The vast majority of the UK’s catch is exported to the EU—hence why the UK wants the question of market access separated from the question of waters access. Though the overall share of economic activity in question is inarguably small, there are centuries of tradition and ample political influence involved.

As of yet, there’s no enforcement mechanism. Nor is there a dispute-resolution mechanism—both of which will obviously be critical given the high stakes.  

To date, EU negotiators have framed the issues as well-known and only requiring the UK’s moving from hard-lined positions in order to advance a deal. Two of PM Johnson’s long-time advisers and more uncompromising Brexit advocates recently stepped down, raising some hopes for a deal—though it’s unclear whether Johnson prefers a no-deal Brexit to some of the EU’s requested stipulations. Some EU member countries—France, Belgium and the Netherlands—have called for contingency plans in case a deal doesn’t materialize. And as of this writing, it seems review clauses may be the new glimmer of hope—giving both sides a chance to revisit how any compromises are working out sooner than later.

Even when (if?) a deal is struck, both the UK and EU parliaments will need time to analyze and ratify it. Thus far, markets seem to have largely kept their cool—perhaps because there have been ample other sources of volatility . Whether that remains the case if December 31 comes and goes without a deal in place is of course an open question.

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