London and Brussels face a race against time to strike agreement before the transition period expires at the end of the year.
The first round of post-Brexit trade talks were due to start on Monday, with the two sides well apart on a final agreement on the future relationship between the United Kingdom and the European Union.
David Frost, the European policy advisor to Prime Minister Boris Johnson, and his team of negotiators will travel to Brussels to kick-start the negotiations in dozens of policy areas – from trade in goods and services, to fishing and farming, the environment, employment, data sharing, security cooperation, transport and more.
The deadline is the end of the year and the expiry of the transition period that began when the UK formally left the EU on January 31. The British government has threatened to walk away from the talks if no overall framework is agreed by June.
Both sides have been outlining sharply contrasting positions as they flex their muscles in advance of the formal negotiations. Trust has emerged as a potentially major factor, amid nerves in Brussels that London may not stick to the commitments laid out in the Brexit divorce deal.
Here is an overview of each side’s stance and the potential areas of conflict.
What does the UK want from the EU?
Boris Johnson is aiming for a radically different arrangement from that sought by predecessor. While Theresa May was ready to keep the UK in the EU’s orbit to preserve frictionless trade, her successor prioritises maximum freedom for the UK to determine its own policy.
“We aren’t frightened by suggestions there is going to be friction, there are going to be greater barriers. We know that and have factored this in and we look further forward – to the gains of the future,” says the UK’s chief negotiator David Frost.
The UK wants a “comprehensive free trade agreement” similar to deals struck by Brussels with the likes of Canada, Japan and South Korea. These agreements remove most tariffs and the countries are not obliged to stick closely to EU rules.
It argues that the deal should cover “substantially all trade," not just goods. It should also minimise barriers for services – which form the majority of the UK economy.
Beyond trade, the UK envisages a series of separate agreements covering fisheries, security, and other areas such as aviation and nuclear cooperation. The Johnson government intends to develop “separate and independent policies” in matters such as immigration, competition, the environment, social policy and data protection.
Regarding oversight, the UK foresees governance and dispute settlement arrangements “appropriate to a relationship of sovereign equals”.
Britain has ruled out extending the transition period – and says it is ready for “no deal” at the end of the year which would see the UK and EU trade on World Trade Organisation (WTO) terms.
What is EU willing to agree?
EU27 ministers approved the EU negotiating mandate on Tuesday (February 25). While setting out “to have as close as possible a partnership” with the UK, the EU also stresses that Britain “cannot have the same rights and enjoy the same benefits as a member”.
Brussels describes the envisaged partnership as “ambitious”, covering trade but also other areas including fisheries, law enforcement and criminal justice, foreign policy, security and defence.
Top of the list of EU concerns is how to ensure the UK commits to a “level playing field” over a wide range of issues. The guidelines call for “robust” guarantees to ensure that competition is fair and standards protected.
Brussels is offering the UK full access to the EU single market – but with conditions. European Commission President Ursula von der Leyen has said that to gain “zero” tariffs and quotas, the UK must commit to “zero dumping."
The EU has not adopted French demands for “dynamic alignment” from the UK, implying a high degree of conformity to EU rules. Instead, it says the UK must keep its own rules in areas such as the environment and employment broadly in line with EU regulations in future — but must apply EU restrictions on state aid.
The EU says a new governing body should oversee the partnership, respecting the autonomy of either side’s legal orders. Decisions may be referred to an independent arbitration panel whose decisions will be binding.
What are the main obstacles to a deal?
Interpreting the “level playing field” looks set to spark some fiery discussions. As part of the divorce deal struck in October 2019, various assurances were made to ensure fair competition in areas including state aid, social and workers' rights, the environment and climate change.
However, the UK is determined to forge an independent path; the EU is determined to avoid being undercut. The British negotiating document makes no mention of the phrase, and EU officials are concerned that the UK may take advantage of the non-binding nature of this part of the divorce deal, to ignore it altogether.
The degree of UK alignment with EU rules, and the question of governance, promise to be major issues in the talks. Brussels’ negotiating mandate says EU standards should be a “reference point” in developing the agreement.
Johnson has written that the UK rejects "any regulatory alignment, any jurisdiction for the CJEU (European Court of Justice or ECJ) over the UK's laws, or any supranational control in any area". His chief negotiator says rejecting EU supervision is "the point of the whole (Brexit) project".
Brussels says that if EU law needs to be interpreted, the arbitration panel should refer cases to the ECJ and follow its rulings.
Although the UK wants to keep the issues separate, the EU is linking fishing policy to the trade talks. The UK is determined to become an “independent coastal state” and take control of its fish stocks; the EU wants to “uphold” mutual access and divide quota shares with the UK.
Fishing accounts for a tiny proportion of both the UK and EU economies but is of huge importance – for Britain and also countries such as France and the Netherlands.
Arrangements for financial services could also prove problematic, in particular regarding how to determine "equivalence", where each side recognises the other's regulations.
Another issue has reared up which it was hoped had been settled in the divorce deal: Northern Ireland. EU leaders have been alarmed at comments from the British side suggesting there will be no checks and “unfettered access” between Britain and Northern Ireland.
The Withdrawal Agreement keeps Northern Ireland subject to some EU rules, and effectively creates a regulatory filter in the Irish Sea to avoid a hard land border between the North and the Irish Republic. EU leaders have warned that failure by the UK to develop the necessary infrastructure could scupper the talks.
War of words
Each side has turned on the other in the run-up to the talks. Downing Street has accused the EU of reneging on an original offer of a Canada-style trade deal.
In fact – as several observers and trade experts have pointed out – the UK’s geographical proximity to the EU, compared to other countries such as Canada, has always been highlighted as making a difference.
The European Commission was also accused of manipulating a chart to exaggerate the difference in trade volumes. It has since produced a revised version.
More widely, Brussels is concerned that the UK may seek to take advantage of the fact the text is non-binding, to squirm out of commitments the EU say were agreed in good faith.
Chief negotiator Michel Barnier says the EU’s demands are contained in the Political Declaration – the part of the divorce deal covering future relations to which both the EU and the UK signed up.
Despite the early clashes and the UK's declared readiness for "no deal," several trade experts believe an agreement is within reach this year – although it may be several months before meaningful compromises take place.