Although the UK formally left the EU at the start of 2020, a trade deal has yet to be agreed. We are currently in a 12 month post-Brexit “transition period” in which the two sides are looking to agree a trade deal. However, the clock is ticking and the end of the transition period is nearing. Despite this, there have been positive signs on a prospective agreement in recent weeks. There will be significant implications for sterling from whether or not a trade deal can be agreed.
The UK and EU are still locked in negotiations over a trade deal that would shape their future relationship in the post-Brexit era. If no agreement has been formally signed by 1st January 2021, the UK will come to the end of its transition period and leave the EU with no agreement on the shape of their trade relations. The UK and EU will then revert to trading on World Trading Organization (WTO) rules.
An agreement is needed to avoid significant tariffs and red tape impacting on businesses. It is therefore broadly agreed by most people (aside from perhaps the most ardent of Eurosceptic people) that a trade deal is in the interests of both sides.
Progress being made, but not enough, yet
A soft deadline of the October EU Summit came and went with no agreement. However, in late October negotiators felt that enough common ground for agreement was present that would persuade the sides to step up talks into a phase of intense negotiations. Importantly, the talks have not yet entered the “tunnel” stage (the final and crucial stage) but hopes are that this can be seen soon.
What’s holding up an agreement
There are three significant stumbling blocks to an agreement.
- Fishing rights – the UK wants to restrict the amount of access that EU fishing fleets has to UK waters and their plentiful fishing stocks.
- Competition rules – the so called “level playing field”. The EU wants the UK to play fair and engage in a convergence of standards and practices for businesses. EU Chief Negotiator Michel Barnier said that they needed to make sure that future common standards should “evolve over time”. This is something that the UK is vehemently against. They will not agree to anything that ties the UK to the EU’s standards.
- Furthermore there is yet to be an agreement on the mechanism for resolving disputes. However, in a potentially key development, Barnier has agreed to keep separate police and judicial co-operation from any potential futures sanctions over trading disagreements. This is an important concession that could certainly oil the cogs towards an agreement.