Brexit goes down to the line: Deal, no-deal or fudge?

October 30, 2020

By Gabriela Baczynska

BRUSSELS (Reuters) – After nearly five years of Brexit crisis, the European Union and Britain are making a last ditch attempt to clinch a thin trade deal that would govern nearly a trillion dollars in annual imports and exports from 2021.

The United Kingdom left the EU last January but the trade deal would kick in when it leaves informal membership – known as the transition period – in nine weeks time.

If a deal can be done before the transition period ends on Dec. 31, the two sides would sign more than 1,000 pages of international treaties covering everything from smoked salmon and cheese to car parts and medicine.

So far, there is no breakthrough, though talks in London and Brussels made progress on unifying texts each side has so far prepared separately. Sticking points remain on economic fair play, fisheries or settling disputes, sources on both sides said.

Here are three main scenarios for Brexit.

1. THIN DEAL THIS YEAR

Even if the two sides do clinch a zero-tariff and zero-quota trade deal, it will be thin.

There will be little scope for closer integration in areas such as services and regulations. Neither would it guarantee continued close ties on many current areas of tight cooperation including on foreign policy, international security and defence.

While far short of the aspirations of both sides following the 2016 Brexit referendum, such a narrow deal is seen as the most economically beneficial option now available. It would keep the bloc’s internal market of 450 million consumers open to the world’s sixth largest economy, and vice versa.

With a second wave of the COVID-19 pandemic ripping through Europe, the bloc hopes to avoid more economic damage. Still, even with a deal, many British exporters expect disruptions at the main borders with the EU in early 2021.

2. TUMULTUOUS NO DEAL

British Prime Minister Boris Johnson ultimately decides that a narrow deal is not in his political interest and the United Kingdom leaves without a deal – possibly amid a row.

After Johnson’s bid to undercut the 2020 Brexit divorce treaty, there are fears that London is employing what one European diplomat said was Madman Theory – a reference to former U.S. President Richard Nixon’s attempt to convince Moscow that he was irrational during the Cold War.

If the negotiators fail to overcome the technical and political differences, Britain and the EU would fall back on World Trade Organization rules, which include trade barriers.

Johnson says he wants a deal but has repeatedly said that he is ready to leave without a deal – on so-called “Australian terms” – if the EU asks for too many concessions.

The EU does not have a free-trade agreement with Canberra and such an arrangement would give Britain trading terms on par with China but worse than many developing countries like Afghanistan or Mali have with the bloc.

The EU does not believe a no-deal split at the end of the year would exhaust the tortuous Brexit saga and a French diplomat predicted the ensuing chaos in commerce would soon force a return to talks.

The EU also insists it would not enact any new trade deal if Britain goes ahead with plans to undercut their earlier divorce settlement, in particular for the sensitive Irish border.

3. MESSY FUDGE

Amid political grandstanding on both sides, pressure from businesses forces a partial compromise on certain areas at the last minute.

The partial deal – covering some key areas where the sides can find agreement – could be temporarily applied without ratification from EU lawmakers should they run out of time.

Such a super slim deal, even thinner than predicted under the first scenario, effectively pushes negotiations on the outstanding issues into 2021 and onwards.

That would give Johnson the sensitive political win of delivering a deal without going back on his promise not to prolong Britain’s way out of the EU beyond 2020.

To what extent the sides would then be able to build on such a half-baked treaty would also largely depend on how far London would push its new right to move away from EU standards.

In particular, the UK would risk erecting a regulatory wall with the EU market if it were to relax its own standards on animal and food safety to win a new U.S. trade agreement, which is crucial to the “global Britain” Brexit agenda.

(Additional reporting by Michel Rose and Philip Blenkinsop, Writing by Gabriela Baczynska and Guy Faulconbridge, Editing by William Maclean)