The lead EU negotiator, Michel Barnier, has indicated that negotiations on trade and other aspects will not commence until an agreement has been reached on the divorce and the free movement of people. Given the potentially fractious nature of these discussions and ensuing delays, this could result in the UK exiting the EU without a formal trade agreement in place or even without transition agreements that may need to last at least five years or more. Unsurprisingly, the UK wishes to pursue parallel negotiation streams, with trade negotiations progressing alongside other discussions.
The chief UK negotiator, David Davis, has prompted alarm in recent weeks by suggesting that the government did not have sufficiently detailed projections of the economic impact of leaving the EU without a formal trade agreement, reverting to trade under the Most Favoured Nation status of the World Trade Organisation. Nonetheless, he acknowledged that certain industries could face tariffs of 30-40% on exports to the EU under those circumstances and that financial firms would lose their ability to passport services to the EU. May has stated, “No deal is better than a bad deal,” a startlingly blithe approach in the absence of a comprehensive assessment of the impact and the likely implications for the UK economy.
Negotiations of this magnitude are typically slow and ponderous. To provide context to the scale of the complexities of the trade agreement negotiations alone, discussions on the recent Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada started in 2009 and concluded in August 2014 (although final ratification took a further two years, and did not occur until early 2017).
Sinead Colton and Jason Lejonvarn – Mellon Capital, a BNY Mellon company