That deal: winners and losers

So, who won and who lost? It is worth starting by saying that ultimately, trade deals are about politics more than economics. In particular, under what conditions will I give another party preferential access, and to what. It doesn’t make a huge economic difference, but to individual sectors it can make all the difference. It also matters to sovereignty, what controls I am prepared to give up being a huge question, writes David Henig.

The EU has more trade deals than anyone else, which reflects that they have an established process, and by now quite a bunch of precedents for deciding what to do. It isn’t usually a pretty process, but their top priorities in some sort of order are to protect the social market from what they would see as undercutting, protect and promote EU agriculture and in particular Geographical Indications, and promote the EU regulatory system as a global leader to emphasise the Brussels Effect, making it easier for EU companies to sell globally.

For the UK negotiation you could add the protection of the livelihoods of fishing communities, and the avoidance of a land border in Ireland. And subtract the GI (Geographical Indication) issue already resolved in the Withdrawal Agreement. A strong position in general, and usually helped by some of the preferential access sought by partners actually helping the Brussels Effect.

Weak UK hand

The UK’s priorities and indeed red lines are by contrast immature. This reflects the turmoil of the last four and a half years, and in particular successive governments that have failed to establish consensus on next steps. Among the priorities or red lines the UK may have had were no reference to the European Court of Justice, overturning various parts of the Withdrawal Agreement including on GIs and the Northern Ireland protocol, no strong level playing field provisions to ensure maximum freedom for the UK, zero tariffs and quotas in particular to protect UK car manufacturers, mutual recognition in manufacturing and professional qualifications, participation in selected EU programmes on beneficial terms, and restoration of control over UK fishing waters. The UK also stated frequently that they were prepared to walk away with no deal.

When a larger player with a more clearly defined objective goes up against a smaller, newer one without such clarity, and a lead strategy of threatening to walk away which does not convince the other side, the outcome is unsurprising. The larger player, the EU, will get most of what they want, the smaller player, the UK, will get a sprinkling of success but mostly not on their terms. Thus is the outcome of the UK-EU talks.

One thing the UK has persistently got wrong during the four and a half years is to ignore the importance of the internal negotiation. The EU is slow, but its negotiating position is checked and verified as it goes along, and it knows how to use internal tensions, such as the permanent French desire to take things more slowly, to their benefit. The UK by contrast think their unity and speediness of decision-making is a benefit, but in fact over successive negotiations has suffered from not having enough tensions to make positions robust and realistic, such that the EU, correctly, never fully believed in our red lines.

Nobody ‘wins’ trade deals anyway, both sides always have to make compromises. But in general the EU delivered their top priorities, with the most stringent level playing field terms ever seen in a trade agreement to protect the social market, maintenance of the previous text on Northern Ireland and geographical indications, and a good outcome on fishing with a long transition period in which EU fleets can have continued strong access. They probably did not particularly win on the lowest priority of promoting the EU regulatory system, with the UK desire for regulatory independence proving strong, but in doing so also denied UK asks such as mutual recognition which contradicted other UK asks.

The UK had less success with stated priorities, perhaps reflecting that these weren’t in the end the real priorities. There is a single reference to the ECJ required to stay in the EU Horizon programme, a case of priorities clashing. Confirmation of Northern Ireland being in a separate regulatory zone. Those stringent level playing field rules and the minimal EU cut and long transition period on fishing particularly disappointing results for two issues that the UK held out on settling, suggesting earlier resolution could have been beneficial. UK stakeholders may not have been ready for these results in June, but this reminds us again that the chief negotiator must settle their consensus domestically as soon as possible, and then explore how to deliver this against a counterpart with their own mandate.

Empty threats

In the end for the UK it seems the fear of losing car manufacturing, coupled with fear of border chaos, were a higher priority than fish or the level playing field. But this meant that the UK settled on other issues such as fish without any reward. The threats to walk away turned out to be empty, perhaps a legacy of the acerbic departed chief adviser Dominic Cummings who had also made much more of EU asks on state aid and level playing field that were perhaps warranted. UK asks for example on financial services and rules of origin for electric vehicles were not fully granted, though the latter has a transition period. Even what should have been a straightforward ask to reduce checks on food exported to the EU through equivalence did not happen. The UK now faces high non-tariff barriers, even if there are some minor facilitations, with a framework in place that should allow others to be achieved in the future potentially by a government prioritising better EU trade links.

UK politics has been somewhat confused since 2016 on the EU question, and continuing that theme there has so far been a strange reaction to the deal. The Labour Party, which should be happy with a trade agreement that lays the basis for further cooperation with unprecedented labour and environment (level playing field) conditions, threatens to tear itself apart in a pointless argument over abstaining or voting for it. The Conservative Party, which could be angry at UK red lines being crossed, instead mostly declares itself delighted that we can now move on, racing to forget about them. Which probably explains why the Conservatives tend to win elections.

Don’t underestimate either the EU survival instinct, though often in a not particularly pretty way, or the Conservative Party’s instinct for power. In a negotiation between them, they are both declaring victory. Business will ultimately face more barriers, and the Conservatives will have to come to terms with the realities of the new trading relationship. But as seems likely, without admitting what these are, with the EU or even between Great Britain and Northern Ireland. Trade agreements have become a numbers game for the UK government, with the content not particularly important, and a Prime Minister who now has a double precedent of breaching his stated red lines. In time there may be an economic reckoning or an impact on future trade talks such as with the US, but maybe few will notice, life will go on, and EU relations will go back to being an obscure subject.

Who won? If perception is reality, the usual suspects.

David Henig is Director, UK Trade Policy Project at European Centre for International Political Economy (ECIPE). First published by him on LinkedIn