Brexit talks enter the final stage — maybe

Brexit negotiations have reached a “critical stage,” according to the UK government.

What that all means for the prospect of a Brexit deal is, well, still pretty unclear.

The United Kingdom and the European Union are trying to work out their future relationship, after the UK formally left the bloc in January. In fact, they’ve been working on this for many months, but major sticking points have prevented the two sides from reaching an agreement. And after a few self-imposed deadlines, the actual deadline of December 31 is now just a few short weeks away.

The urgency of the moment is underscored by this “last ditch” effort to get to an agreement. The EU’s chief Brexit negotiator, Michel Barnier, has said that negotiations can continue to midweek, but not beyond that. That’s in part because while December 31 may be the official deadline, both the UK and the European parliaments must ratify and implement any agreement by then.

European Commission President Ursula von der Leyen and UK Prime Minister Boris Johnson spoke Monday to figure out if there’s a real way forward. Based on their statement from the meeting, signs of progress are scant. But it’s also not quite over. Johnson plans to head to Brussels for this last push toward an agreement.

“We agreed that the conditions for finalising an agreement are not there, due to the remaining significant differences on three critical issues,” Johnson and von der Leyen said in a joint statement. “We asked our chief negotiators and their teams to prepare an overview of the remaining differences to be discussed in a physical meeting in Brussels in the coming days.”

The result is a Brexit the world is accustomed to: time running short, deadlines looming, the EU and the UK at an impasse despite the threat of a no-deal crash-out.

This time, though, the stakes are even higher, as it all comes against the backdrop of a pandemic and massive economic disruption on the continent. A failure to strike a deal could exacerbate the economic crisis, especially in the UK.

Few experts are optimistic about the prospects of a deal — yet no one is quite ready to give up on the chance that the UK and EU will pull something through at the end. “It’s still, I think, quite uncertain,” Steven Peers, a professor of law at the University of Essex, told me. “Either way, really, somebody has to compromise. One side has to compromise, and there’s no sign of it sufficiently yet.”

What’s holding up this Brexit deal

The United Kingdom formally left the European Union in January 2020, but it entered into an 11-month transition period in which it continued to follow EU rules.

The point of the transition period was to give both the EU and the UK time to figure out their post-breakup relationship. The two sides need to come up with a trade arrangement, but they also have to deal with a slew of other issues, from fishing to security cooperation.

Those negotiations have dragged on for months, held up by three main issues: fisheries, governance, and state aid, or the so-called “level playing field.”

The fisheries issue is a relatively minor economic question for both the UK and the EU, but it’s taken on an outsize role in the debate. It accounts for a very small percentage of the UK economy — as the New York Times reported, Harrods department store contributes more annually to the UK economy — but it’s a politically important industry, and symbolically tied to the Brexit ideal of reclaiming sovereignty, including over UK waters.

But the UK doesn’t take all the blame for this. Fishing is also a politically important and symbolic industry in some EU member states, who want to retain access to UK waters. France wants to keep the current arrangements, and French President Emmanuel Macron has insisted that he will not sacrifice France’s fishing industry in any deal. Macron is under a lot of political pressure at home, where his support is flagging, most recently around a controversial security law.

Governance is also an issue, which is basically how any deal will be enforced and what penalties — like additional tariffs on certain goods — will exist if one party breaks the terms of any agreement.

This is a particularly sensitive subject for the European Union, which is afraid the UK won’t live up to its commitments, especially after the UK introduced a bill that would have violated parts of the Brexit deal Johnson reached with the EU last year. That legislation, known as the Internal Market Bill, was returned to Parliament on Monday, where MPs re-added some clauses that would have breached the protocol around Northern Ireland. However, the UK has reportedly extended something of an olive branch, with the government saying it will take out those provisions if the EU and UK can get a deal.

And then there’s the issue of state aid, often framed as the “level playing field” arrangements. The EU is insisting that if the UK wants tariff-free access to its single market, it can’t try to undercut the EU by subsidizing industries or businesses; the EU also wants to guard against the UK diverging on environmental standards or labor protections post-Brexit.

But the UK sees this as the EU trying to get it to follow the rules of the club it just left. Brexit was supposed to give the UK the power to reclaim its sovereignty and reestablish its own trading regime, so the UK has bristled at these demands.

This is basically where the two sides have been for months, entrenched on these same issues, with each side accusing the other of being inflexible.

“The problem is that both sides want the other to blink first. That’s the root of the problem,” Anand Menon, director of the UK in a Changing Europe, told me. “I’m pretty sure that if the British government gave ground on the level playing field and governance, the EU would suddenly manage a slightly more flexible attitude on fish. Equally, the EU isn’t going to do that until they sense some movement. So there’s a bit of a chicken-and-egg issue.”

The call between Johnson and von der Leyen is a sign that talks at least are ongoing, and Johnson is expected to head to Brussels later this week. But so far there’s been no signal of a real breakthrough. And that may have as much to do with the internal politics around the outstanding issues as with the issues themselves.

As experts told me, the options for compromise are available and are attainable. “The question really is, is Boris Johnson ready in the next 24-48 hours to move that small more distance?” Michael Leigh, a senior fellow at the Brussels-based Bruegel think tank, told me. “And, you know, has [Michel] Barnier got the freedom, particularly now vis-à-vis Paris, to move as well?”

What’s next? A deal. Or maybe no deal.

So is this week really the do-or-die moment for Brexit?

Yes, mostly.

Barnier gave the deadline as this Wednesday, likely because the European Council is meeting later that week, which would allow the leaders of the EU member states to sign off on any agreement. Experts I spoke to didn’t rule out the possibility of the two sides pushing talks to the ultimate last moment, or even fudging some bare-bones deal by the end of December and then resuming talks in January.

But that’s also just a lot harder to do in this stage of Brexit. December 31 is the deadline according to the EU-UK withdrawal agreement (the first Brexit deal), and that’s an international treaty. Both the UK Parliament and the European Parliament need to ratify any agreement, and they need to implement this deal.

This is key. Unlike in the first phase of Brexit, even if there is a deal, the relationship between the EU and the UK will change, and there will likely be disruptions, no matter what.

The UK will be out of the EU single market, and the transition period — which kept everything temporarily the same — will be over. The goal of the EU-UK trade deal is to allow for tariff- and quota-free trade. But even if that happens, businesses will still face new barriers, like new customs rules. Northern Ireland also has a separate trading regime, and there will be checks on goods crossing the Irish Sea to Britain.

This is going to cause some turbulence for both the EU and the UK — but even more so for the UK, as the EU is its biggest trading partner and it’s all by itself.

If less than a month to implement a new trading regime is problematic, it will all be much, much more calamitous if the EU and UK do not reach a deal.

Then all the trade and regulatory arrangements the UK was following will end — and tariffs and quotas will also kick in. Checks and controls could create massive gridlock at ports of entry, which could lead to food and medicine shortages. Tariffs could lead to price increases on food and other supplies. Businesses and industries have already been hammered by Covid-related lockdowns, which will make this potential disorder far more costly.

As the UK’s own government predicted, the country could face “systemic economic crisis” as the transition period ends against the backdrop of Covid-19.

This should in theory provide ample motivation for the EU and UK to make a deal. But it’s not so simple, mostly because of politics.

UK Prime Minister Johnson is under pressure at home over his handling of Covid-19, and he’s facing a rebellion within his own Conservative Party, primarily over Covid-19 restrictions. That right flank of his party is also ardently pro-Brexit — the very same people who don’t want to see the UK concede to the EU and are, at least rhetorically, willing to risk the costs of no deal.

If Johnson is seen as caving to the EU, he may face pressure from these Brexiteers.

Last fall, Johnson sold an “oven ready” Brexit deal that wasn’t exactly that. But Johnson’s signature salesmanship might not work this time around.

“The problem is that when he sold the deal before, the consequences were quite far off in the future. And that’s no longer the case,” Fran Burwell, a distinguished fellow at the Atlantic Council and senior director at McLarty Associates, told me.

A no-deal exit would be very bad, but a deal will also involve some disruptions. If Johnson makes a deal and the UK still experiences a painful adjustment period, he’ll get blamed for making a bad deal.

But if Johnson doesn’t make a deal and there is disruption and even deeper economic pain, he can blame an intransigent European Union, or France, or whatever. “Johnson is a political animal, and I’m not seeing the political incentive for him to make a deal,” Burwell added.

Of course, the EU has its own internal politics. Macron’s position on fishing certainly isn’t helping things, although the bloc has tended to fall in line in past Brexit negotiations. The EU very much wants to make a deal, but it also very much wants to move on. It has to deal with the Covid-19 economic downturn, and it’s dealing with a rebellion from Hungary and Poland over the trillion-dollar aid package needed to do so.

All of this puts both the EU and the UK in precarious positions as talks enter their (maybe) final week.

Experts I spoke to said the prospects of a deal aren’t great right now, but you can never rule it out. This is Brexit, after all — even if nothing ever seems to change, there are always twists and turns.

Deal or no deal, it’s unlikely that Brexit ends this month. Given the short timeline, the UK and EU will likely have additional arrangements and details to work out after the transition period ends. And if there’s no deal, some, especially in the EU, see the UK quickly coming back to the negotiating table, maybe in a much worse position.

“I think this is the forever Brexit,” Glyn Morgan, director of the Center for European Studies at the Moynihan Institute at Syracuse University, told me. “Because it’s not as if you can get out and ignore your trading partner.”

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