Can a UK-EU trade deal be negotiated in two years?

Posted in WTO and international trade

As the British Prime Minister stated and as was reiterated in the Government’s White Paper, the UK is seeking an ambitious and comprehensive free trade agreement (FTA) with the EU, as part of a new strategic partnership..

Is it feasible that this can be agreed in two years provided for in Article 50 of the Treaty on the European Union for negotiating the UK’s exit from the EU and the “framework” the future UK-EU relationship? Anything is possible, but two years is a very short period of time when one considers the factors involved in negotiating an FTA.

The “ambitious deal” desired by the UK government is expected to be broad in scope and depth. It will deal with areas of trade as diverse as manufactured goods, agriculture, services and investment, amongst others. Each subject and, in some cases, terms for individual sectors will be negotiated  as separate “chapters” to the putative agreement. This necessarily makes for a very long and very detailed document. For example, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU – perhaps the most comprehensive FTA the EU has negotiated to date – has 30 chapters and runs to 1598 pages.

The number of chapters to be negotiated will need to be determined near the outset of the negotiations, during initial meetings between the parties’ chief negotiators when the two sides will agree on the structure and agenda for the negotiations.

Each chapter will be negotiated by a separate team on each side. On the UK’s side, for each chapter the government will need to undertake intensive consultations with different national constituencies, including industry and other parts of the civil society. These consultations will be crucial for the government to identify: national interests and national positions, negotiating proposals, the country’s BATNA (Best Alternative to a Negotiated Agreement), specific red lines and possible trade–off scenarios. The EU can be expected to run a similar process, with the added complication of consulting first-and-foremost with the governments of the remaining 27 EU member states, who will in term consult with national interests.  Pan-EU industry and other interest groups will also play a role in seeking to influence the EU position. And then there’s the role of politics on the EU side to consider … .

While negotiating positions are informed by economic, trade and industrial policies, as in any negotiation, positions on particular issues will remain subject to trade-offs and might not be reflected in the final package. Hence, the importance of setting red lines through national consultations.

Consultations will also encompass a detailed analysis of trade data, statistics, market access requirements in terms of tariffs and non-tariff barriers; as well as an evaluation of previous concessions made by the EU (including the UK) in other trade agreements.

The preparatory work will result in the government tabling initial negotiating proposals being exchanged with the EU’s own proposals. From there, we can expect to see multiple rounds of negotiations. As the negotiations evolve, the parties will inevitably encounter political and technical constraints in negotiating individual chapters. These will need to be taken back to London and Brussels for further internal consultations with stakeholders, before returning to the negotiating table.  

In normal FTA negotiations this “toing and froing” takes many rounds of negotiations, the duration and timing of each also depending on the complexity of the subjects and the parties’ willingness to reach an agreement as soon possible. Measured against previous negotiations where both sides were determined to achieve a speedy outcome, two years from start to finish seems an extremely ambitious timetable for the EU to conclude agreement even if the UK is able to deploy the necessary capacity on its side to make it happen. The CETA negotiations, for example – with Canada, a very experienced trade negotiating country – started in 2009 and concluded five years later in 2014. But there are examples of FTA negotiations taking less than two years – for example the agreement between the EU with Colombia and Peru, and the agreement between the US and Australia – although it might be said that both agreements were less comprehensive than the agreement envisaged by the British Prime Minister. 

The UK–EU FTA will be unique. This follows from the fact that the parties are departing from the highest level of economic integration that is provided by the single market.This entails convergent policies and harmonisation of rules in almost every area of the economy, and the negotiations will be about how much of this can be retained rather than seeking alignment from divergent starting points – as applies in most other trade negotiations. In some ways this level of existing alignment could mean the parties will be able to curtail much of the “toing and froing” that applies in FTA negotiations, and accelerate the conclusion of an agreement. This does not mean that negotiations will be free of challenges and difficulties. Aiming at the maximum level of market access for goods and services, the UK will strive to maintain a zero tariff with the EU and to minimise any non-tariff barriers to trade. While other FTAs normally pursue quite similar objectives – tariff liberalisation and elimination of non-tariff measures – in the UK-EU context, the devil will not only be in the detail or levels of concessions, but in the guarantees that parties grant to each other for the maintenance and exercise of those concessions.

Two years from start to finish is not therefore impossible but it remains a very ambitious target. And this assumes that the EU will negotiate a trade deal at the same time as negotiating the terms of the UK’s exit. But what this reality emphasises is the need – on both sides – for a pragmatic view to be taken very early in the process about what can be achieved within two years. The best solution might be to concentrate initially on agreeing either an extension of the negotiating period or a WTO interim agreement for negotiating an FTA  – as we explained in our previous blog post

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