In its efforts to not only clarify but establish its new trade relations with the EU post-Brexit, the British government’s first choice appears to be a Canadian or Australia style trade agreement.

Boris Johnson Considering Two Main Trade Deal Options With EU

Nonetheless, the UK does not rule out having relatively loose trade relations with the EU in the future after Brexit. Currently, Prime Minister Boris Johnson is examining two options of a trade agreement in particular. The first is a free trade agreement like that between the EU and Canada. The second deal is a less restricted trade agreement such as that which the EU has in place with Australia.

Reports on Sunday night also indicated that Johnson seeks to free the UK from binding EU rules. For this he also accepts border controls, according to unnamed government sources quoted by British media quoted on Sunday night. The prime minister would be ready for a free trade agreement with the EU modeled on Canada, the report said. He also wanted to present his negotiation goals for the upcoming talks on the future relationship with the EU in a speech on Monday.

Johnson’s Speech

Here, he will also speak to CEOs, entrepreneurs, and ambassadors, though the exact content has not been communicated. However, the indication is that sovereignty for the UK remains more critical than trade if substantial restrictions bind the latter. Johnson is even reportedly willing to accept trade barriers such as tariffs in order to maintain a high degree of sovereignty.

Is There Enough Time To Make A Deal Before Hard Brexit Hits?

Besides Johnson, EU chief negotiator Michel Barnier—who is mandated to carry out negotiations by the 27 remaining member states—will also present his perspective on Monday. After leaving the EU on January 31, the UK has entered a transition phase during which almost everything will remain as it was prior to Brexit. Until the end of the year, the EU and the UK will seek to agree on conditions for future relationships. However, if the latter cannot be facilitated within the time-frame, a hard Brexit will become a possibility again. Considering that the aforementioned trade deal between the EU and Canada took several years before it was finalized, the transition period raises the question of whether or not it might be too short, given the complexity of the issues on hand.

The Canada-UK Trade Deal (CETA)

The current agreement between Canada and the EU is called the Comprehensive Economic and Trade Agreement (CETA). In a nutshell, it allows for 98% of all tariffs on goods traded between Canada and the EU to be duty-free. Thus, Canadian importers do not have to pay €590m in taxes on the goods they receive from the EU, and European importers see tariffs reduced to zero on some 9,000 Canadian products. Moreover, part of the agreement is the opening up of contracts on the local, regional, and federal levels to each other’s contractors. The latter aims to protect EU “geographical indications” (e.g., Canada is only allowed to import goods such as prosciutto di Parma ham or camembert cheese from its countries of origin).

The Australia-UK Trade Deal

Similar restrictions would likely not apply under an Australian style system. The EU and Australia have been conducting their trade and economic relations under the 2008 EU-Australian Partnership Framework, which aims to facilitate trade in industrial products between the EU and Australia by reducing technical barriers and improve trade in services and investment and is governed by a rules-based multilateral trading system, the World Trade Organisation (WTO). In November 2015, however, both sides agreed to start working on a possible future Free Trade Agreement (FTA); and in November 2017, this preparatory work ended, paving the way for substantial negotiations between the two parties, which began in May, 2018.

It remains in both side’s interest to form a coherent trade agreement soon. Johnson’s proclivity for sovereignty may indicate that he favors the Australian model. However, the benefits of almost tariff-free trade will need to be considered. Much will depend on how the UK’s economy shapes up over these next months, but much will also depend on how many concessions the EU is willing to make with the UK after having played hardball since 2015.

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During its time as an EU member state, Britain was one of the biggest contributors to the EU’s budget. In 2018 the British Government paid £13 billion towards it, and EU spending on the UK was forecast to be £4 billion. So this country’s net contribution was estimated at £9 billion.

Although Boris’s Withdrawal Agreement ensures Britain continues to pay into the EU budget until the transition period ends in December, this will be a central issue that Brussels must resolve if they hope to maintain their current spending patterns.

It is unclear which nation will fill the black hole in the EU budget that Brexit will create in the long-term. The money is unlikely to come from Mediterranean countries such as Italy, whose debt to GDP levels are likely to rise to 135 percent this year from its 2018 level of 132 percent.

Germany ended 2019 with a record-breaking budget surplus of €13.5 billion. But the German Government has failed to specify whether it is willing to plug the EU’s spending gap that will emerge post-Brexit. Instead, German politicians want to spend €500 million on their country’s defences and spend the rest of it on significant investments planned for its next budget.

But the most pressing issue for Brussels is: what type of trade deal will they offer the UK? According to the Sunday Telegraph, Boris Johnson is infuriated with the EU at their attempts to frustrate a free trade agreement. As a result, the British Government is no longer committed to a Canada-style pact, in what would be a major hardening in the Government’s Brexit strategy.

Downing Street negotiators intend to pursue a much ‘looser’ trade agreement while simultaneously signing deals that make up 13 percent of the world’s GDP.

The British Government is also refusing to force this country to align with EU rules after Brexit. Chancellor Sajid Javid urged businesses to adjust to the reality of leaving the EU, despite warnings from firms that there will be significant costs and disruption to British trade should Britain fail to to reach a trade deal by December.

There are two outcomes that could emerge from the UK’s trade negotiations with Brussels: they refuse to provide Britain with a free trade deal and this country leaves on WTO terms, or the EU budges at the last minute like they did when negotiating the Withdrawal Agreement last year. But European politicians insist a no-deal Brexit should be avoided at all costs, so it is more likely they will capitulate to the British Government’s demands, especially now that the Tories have a majority.

Brexit is a lose-lose for the EU: whatever conclusion both sides reach in December, it will set a precedent for other nations to leave. But failure to reach a deal will result in the bloc suffering anyway. The BBC reported on a study produced by a Belgian university that discovered the EU would lose 1.2 million jobs in the event of a no-deal Brexit.

Britain’s departure also increases the prospect of EU integration. The UK has always been an awkward partner in its relationship with the bloc. The EU will now have to resolve other challenges like the Eurozone crisis and its ability to act as a unified actor.

It will also have to deal with the deteriorating economic problems countries like Italy face. Although it is currently ruled by a centre-left government willing to comply with the EU, Matteo Salvini won big in last year’s Umbria election. If he returns to power, Rome and Brussels are likely to engage in a future collision course. Regardless of who’s ruling the nation, the Italians are in trillions of debt and could default at any minute, sending shockwaves throughout the world.

There are many other problems Brussels faces now, but Brexit will remind the EU that it faces an existential crisis and it will be interesting to see which path they embark upon now.

L'articolo What post-Brexit challenges are facing the EU now? proviene da InsideOver.