How Far Apart Are the UK and EU on a Brexit Deal?

Ellen Milligan
·5 min read
1

(Bloomberg) -- The UK and European Union are poised to enter the final stretch of negotiations over post-Brexit trading arrangements for Northern Ireland. After years of distrust and tension both sides are optimistic that a settlement is within reach.

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Nevertheless, there are a host of important and tricky areas left to resolve before a durable solution is found.

Here are the outstanding issues, ranked in order of difficulty, starting with the easiest to settle and finishing with the hardest.

Most achievable

Customs: This week’s announcement that the EU has agreed to use the UK’s live database tracking goods moving from Great Britain to Northern Ireland lays the foundation for an agreement on customs. The UK has proposed separating goods just going to Northern Ireland and those which will continue into the EU into “green” and “red” lanes, underpinned by a “trusted trader” program. That would significantly reduce checks on goods that stay within the UK. The EU has proposed an “express” lane, which would still require suppliers to complete some customs paperwork.

What now? The two sides take a different approach but aren’t worlds apart — if the EU is confident it can make real-time risk assessments on goods by using the database, a customs deal is seen as the next likely staging post in the talks.

Tariffs: EU chief negotiator Maros Sefcovic sounded optimistic over a hefty EU duty charged on some British steel sent to Northern Ireland last year. The region has a long tradition of shipbuilding — the Titanic was built in Belfast — and a deal could see British steel arriving in Northern Ireland exempted from tariffs.

What now? Willingness to agree means a deal on tariffs is seen as quickly achievable.

More difficult

State aid, taxation: The UK wants to be able to extend subsidy controls and tax breaks, including changes to value-added tax, to Northern Ireland. This would mean EU state aid and VAT rules would not apply in the region — with implications for EU member states who see this as potentially anti-competitive.

This gets to the heart of the problem with Northern Ireland after Brexit: how to regulate for the reality that this region sits within both the UK and the EU single markets. In the end, the UK may be forced to accept that the trade-off for Northern Ireland having access to the EU trading bloc means it follows EU rules.

What now? A UK compromise on state aid would limit the British ability to give financial support to the region, so an agreement will be trickier. Alternatively, a trust-based approach might see the EU accept guarantees that the UK won’t make substantial subsidies, coupled with carve-outs for VAT rules on certain products, like alcohol.

Hardest to achieve

Sanitary checks: Reaching a deal on checks for livestock and agri-foods will be far more difficult. The UK no longer follows EU regulations, so physical checks must be carried out at the Irish Sea border. This is particularly important to the EU, which wants to ensure no disease is passed into their single market.

What now? It will be challenging to satisfy the EU while reducing border checks enough to convince the UK there won’t be a significant disruption to trade. Some exemptions might be made, like enforcing fewer checks for retail goods being sold solely in Northern Ireland. A deal is unlikely unless safeguards are increased — the EU needs to be confident that if a crisis does occur, snapback mechanisms are in place.

Governance: The dispute over the role of the European Court of Justice is a political one for the UK. It wants to strip the court of its role in settling disputes over the protocol, replacing it with an independent arbitration panel. But that’s a (legal) red line for the EU. A compromise might involve a combination of an arbitration body with the ECJ still having oversight of EU law, but the EU might not want to go that far.

What now? Agreement would require compromise on both sides and it won’t be an easy sell to Northern Ireland unionists or Brexit-supporting MPs in Prime Minister Rishi Sunak’s Conservative Party.

Any other business?

Other outstanding issues range from pet passports to the electricity market. The status of Gibraltar — another long-running Brexit sticking-point — as well as a financial services agreement and the UK’s membership of the Horizon research program also remain unresolved.

Can we expect a deal — and when?

There remains a way to go, despite genuine progress this week. Sefcovic and UK Foreign Secretary James Cleverly are due to meet on Monday, seeking to enter the so-called “tunnel” of closed-door negotiations.

While both sides would like to reach a deal — or at least an outline of one — before the 25th anniversary of Northern Ireland’s peace deal in April, there is a risk that significant progress will be made before talks stall on a more challenging issue like the role of the ECJ.

Even if they clinch a settlement, the Democratic Unionist Party may yet reject it. The UK’s main gripe with the protocol is that unionists in Northern Ireland don’t like it, and the region has been without a functioning government for nearly a year as a result. Sunak is also on shaky ground with some in his own party, though Conservatives are less likely to rebel if the DUP endorses any deal.

--With assistance from Kitty Donaldson and Alberto Nardelli.

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