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June 1, 2020

UK/EU: No extension request in June, but not yet a cliff edge in December

BY Carsten Nickel

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Negotiation teams will this week convene for one final round of talks before the highly anticipated leaders’ meeting later in June, but the slow progress so far renders a breakthrough unlikely. As the deadline to extend the transition period beyond 31 December is looming at the end of June, a formal request for more time seems unlikely. But this does not mean that a cliff-edge at year-end is already certain: a basic free trade agreement (FTA) and perhaps even some sort of “phase-in period” might still be possible by early 2021. Beyond that, talks about the new EU-UK relationship will likely keep policy-makers busy for the rest of this decade.

After this week’s talks, all eyes will turn to PM Boris Johnson’s meeting with the heads of the EU institutions, Ursula von der Leyen and Charles Michel, expected around the 18-19 June European Council. As during every major stage of the Brexit process over the past half-decade, there is speculation once more in the UK about direct involvement of EU leaders from key member states.

But rather than striking a political deal with the UK, it is more likely that, once the June deadline passes without a request for an extension, member state politicians decide to marginally increase their negotiation team’s leeway, to raise the odds of an at least basic FTA before December. As discussed in the past, this might entail excluding altogether the thorny issue of fish, and perhaps even leaving some questions of overall governance for further talks later this decade (once economic and political issues require talks beyond the basic FTA).

On such a basis of somewhat greater leeway, the domestic political compromise between UK Leavers and pragmatists could perhaps combine two aspects this autumn: on the one hand, no extension request in June and merely a zero tariffs/quotas FTA in autumn; on the other, perhaps some sort of short period for phasing in the new border regime during the first months of 2021. As previously noted, under European law, this would no longer be possible under article 50 at that stage. Instead, it would require the relevant agreement to be ratified by parliaments across the 27 EU member states.

For the duration of such a transition extension in all but name, the UK would have to pay into the EU budget and accept freedom of movement. But this would probably only last for a handful of weeks, until the new border checks required under a basic FTA are operational and companies have prepared for them as well as they can. As discussed in the past, the border regime under a basic FTA would require everything from customs declarations to rules of origin checks, changes to VAT regimes and product standard controls.

Public and private actors could use a short phase-in period to get the logistical infrastructure in place as far as possible. Given the degree of frictions on the borders in both scenarios (basic FTA and no-deal by year end), companies might start their preparations anyway in H2.

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