Brexit Talks: Why ‘Sufficient Progress’ is Critical to European Trade Stakeholders - Global Trade Magazine
  December 14th, 2017 | Written by

Brexit Talks: Why ‘Sufficient Progress’ is Critical to European Trade Stakeholders

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  • Negative news reports indicated Brexit talks were headed for a hard “no deal.”
  • There is a glimmer of certainty that the UK and EU may achieve a timely overall Brexit agreement.
  • There is a glimmer of certainty that the UK and EU may achieve a timely overall Brexit agreement.

Amid waves of negative news reports that Brexit talks were headed for a hard “no deal”, the European Commission made a significant announcement last week. The commission now recommends to the European Council that “sufficient progress” has been achieved in the first phase of talks to negotiate the terms of the United Kingdom’s exit from the European Union.

Finally, there is a glimmer of certainty that the two sides will achieve a timely overall agreement which is so critical to the interests of concerned stakeholders, but especially for European traders and multinationals.

That glimmer of hope was likely welcomed by US business interests, who have substantial investments in US-UK trade. In fact, according to recent testimony by the US Chamber of Commerce to the House Foreign Affairs Committee’s Subcommittee on Europe, Eurasia, and Emerging Threats, two-way trade between the US and UK amounts to more than $235 billion annually and 2.5 million US jobs depend on US-UK trade. That testimony described a “no deal” outcome of the Brexit talks as “a disaster for US companies” and also noted the adverse impact it would have on British consumers in terms of price increases.

According to the EU provisions under Article 50, there must first be sufficient progress declared prior to further negotiations regarding a future arrangement between the EU and UK. The European Council will take the official vote on 15-December, but are fully expected to follow the recommendation of the Commission.

The UK and EU Brexit negotiators issued a joint report. Briefly, the key points include:

Agreeing on a financial settlement methodology that will result in an exit fee amounting to €40-45 billion (conditional on an overall agreement), including all previous financial obligations and the UK’s share of the EU budget through to the end of 2020.

Giving the European Court of Justice jurisdiction to sunset after eight years following Brexit Day to allow certainty for business concerns.

Providing reciprocal protection for EU and UK citizens, to enable the effective exercise of rights resulting from Union law and based on individual circumstances.

Assuring that the border with Ireland will not require border checks, there will be free access for Northern Ireland’s businesses, and affirms the 1998 Good Friday Agreement.

Regarding the future arrangement, the UK may be seeking a hybrid agreement; stronger than what Canada has in the Comprehensive Economic and Trade Agreement (CETA), but without as many restrictions as Norway has today under the European Free Trade Association (EFTA). The plan would be to complete the negotiations by the fourth quarter of 2018 to allow time for consent of the European Parliament and approval by the UK before March 29, 2019.

There remains much work to do with little time remaining before Brexit. However, there is hope on both sides the declaration of sufficient progress will reduce the oftentimes acrimonious tone and constant posturing that has characterized the negotiations thus far and lean towards clear and orderly decision making. International traders need details – currently scant – to support their strategic plans on such things as duty and tax exposure, broker and clearance procedures, system updates, regulatory changes, and free trade agreement administration.

Both sides have the incentive to get this right and retain a seamless flow of goods between the UK and EU. They know the risks of a “cliff’s edge” outcome. And the importance of getting it right extends beyond Europe. Many multinationals, like those in the US, use the UK as an entry or exit point for European trade. They fear the potential of disparate regulatory regimes between the two entities and the possibility of ongoing regulatory shifts in the UK for key sectors like pharma and aviation.

There will likely be at least a two-year implementation period. This will give the governments and businesses alike more time to make the necessary arrangements. Additional extensions may be possible in certain industry sectors.

At a high level, an anticipated future agreement must still focus on the EU’s four freedoms; freedom of movement of goods, people, services and capital over borders. Both sides are probably largely in sync on three of the four. The sticking point of the ensuing negotiations, and the crux of the Brexit referendum from the beginning, is the movement of people. The question is, how much are the two sides willing to give and take on that point?

There is still much opportunity for relations to turn sour, but the accomplishment that is the declaration of “sufficient progress” shouldn’t be understated and should be recognized and relished. The negotiators worked hard to reach this point and for the sake of trade between Europe and its partners, the momentum must continue.

Philip Sutter is Director of Strategic Analysis in the Global Trade Management division of trade services firm Livingston International


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