No Deal risks rise as trade talks develop into standoff

Barnier and Frost at EU27-UK talks

Most companies are rightly focused on the managing the impact of the Covid-19 pandemic. But the risks of a No Deal Brexit at the end of the year are rising.  We can only hope next week’s final round of EU27-UK talks produces a sudden breakthrough.

The issue is that the timetable set up under last year’s Withdrawal Agreement allowed for a 2-year transition period after the UK left the EU last January. But it required this to be agreed by the end of June. And as we discussed last month, the UK government seems more inclined to simply leave by the end of the year with No Deal.

The recent ‘mood music’ in the negotiations certainly seems negative, with UK negotiator David Frost writing to his opposite number, Michel Barnier:

“We find it perplexing that the EU, instead of seeking to settle rapidly a high-quality set of agreements with a close economic partner, is instead insisting on additional, unbalanced, and unprecedented provisions in a range of areas, as a precondition for agreement.”

And Barnier’s reply suggests that attitudes are hardening in Brussels:

“The UK cannot expect high-quality access to the EU Single Market if it is not prepared to accept guarantees to ensure that competition remains open and fair. The EU has been clear about this since 2017.”

One key issue is that EU27 are clearly becoming more focused on addressing Covid-19 issues at the expense of Brexit.

This week has seen the launch of a proposed new €750bn (£675bn) EU recovery fund – which will require a lot of negotiation before it is finalised. It also seems possible that the EU27 are no longer so worried about the impact of No Deal on their economies:

  • The pandemic has already broken existing supply chains and reduced demand
  • If EU companies have to rebuild, then reshoring production from the UK to the EU27 might help to protect jobs and reduce costs

In the meantime, the UK has confirmed our view that there will indeed be a need for border checks on goods crossing the Irish Sea after the Transition period ends. The government is also aiming to recruit 50,000 new Customs staff to handle the extra 400 million Customs Declarations needed each year.

June will be a critical month in the Brexit process.  As always, we will be focused on keeping you up-to-date with the key developments.

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