Five Big Sticking Points in Britain’s Trade Talks With the EU

(Bloomberg) --

As they prepare to sit down next week to begin trade negotiations, the U.K. and European Union share a surprising amount of common ground.

Both want to reach a tariff and quota-free trade deal on goods. Both agree they want to uphold high environmental protection standards and protect workers’ rights. And both want to co-operate on security matters. Privately, EU officials say they’re quite heartened by the extent to which it looks like the U.K. sees eye-to-eye with the bloc.

But on five key issues, the two sides are still worlds apart. The biggest battle is set to be over squaring the EU’s demand that Britain should continue following its standards in areas such as subsidies, environmental protection and labor law with the U.K.’s insistence that it will regain its legal independence. It won’t be the only issue dividing the two sides when negotiations start in Brussels on Monday. Here are the major points of contention:

Standards

The EU refers to the “level playing field” 13 times in its 46-page negotiating mandate. It’s not mentioned once in the British version. For the EU, getting Britain to stick to European standards will be the kernel of any agreement, and it wants the U.K. to uphold “corresponding” high standards “over time.” For the U.K., “whatever happens, the government will not negotiate any arrangement in which the U.K. does not have control of its own laws and political life.”

Subsidies

When it comes to government support for ailing companies, the U.K. is adamant that the issue shouldn’t be a matter for the EU. “The U.K. will have its own regime of subsidy control,” but, in an indication that there may be some room for compromise, suggests that each side should “notify the other every two years on any subsidy granted within its territory.”

For the EU, it’s a big issue. “The envisaged partnership should ensure the application of” EU “state aid rules to and in the U.K.,” according to its mandate. And on competition policy, the U.K. says there must to be no “legal or regulatory alignment.”

What’s so strange about this argument is the country that lobbied hardest for the EU to introduce restrictions on state aid and promote competition was the U.K.

Architecture

It sounds a minor issue but the two sides have a fundamental disagreement about what the deal should look like -- and this needs to be sorted out early if there’s going to be progress.

The U.K. wants several individual agreements for each issue, each subject to different dispute resolution mechanisms. This is similar to the way Switzerland’s relationship with the EU is structured -- one which the bloc considers unmanageable. It wants one over-arching agreement with a strong governance process.

Disputes

The U.K. makes clear many times that there can be no role for the European Court of Justice in the future relationship.

But, for the EU, nobody else can rule on matters covered by EU law. If there is any dispute between the two sides, an arbitration panel should refer the case to the ECJ “for a binding ruling.”

This is a major sticking point and EU officials say they don’t see how it can be fudged.

Fish

Both sides have committed to getting a deal on fishing rights by the end of June.

Today, the U.K. shares its waters with European vessels, and the amount each country can fish is set every year under the EU’s Common Fisheries Policy.

The EU wants to keep things as they are. The U.K. is happy to share its waters and allocate part of the catch to EU members, subject to annual negotiations -- and a different way of calculating fish stocks. That would probably mean British boats will be able to catch a bigger share. The EU (and, in particular, France) opposes this.

To contact the reporter on this story: Ian Wishart in Brussels at iwishart@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Edward Evans, Richard Bravo

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