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This year – the real ones “Brexi” talks
A year ago a tentative agreement was reached on a transition period. At that time, one of the key points of intersection was the question of the border between the two Irishmen. However, it was decided that even if further negotiations failed, Northern Ireland would comply with some of the EU commodity rules and regulations to avoid border controls.
This year’s talks were doomed to stall. Not only that, all the most difficult issues in future relationships have been left for this year, but the negotiations themselves must take place in record time. It is common for trade negotiations of this magnitude to take many years, but not this time, when a solution had to be found in less than a year and the process itself had been halted by a global pandemic.
Therefore, it is perhaps not surprising that the negotiations have stalled. The situation is not made worse by the fact that the UK Parliament passed an internal market law in late September, which seeks to circumvent the substantive agreement on the Irish border, in violation of international law.
The fight for fish and competition
In essence, the negotiations are hampered by two main points of intersection, which are the failure to reach a free trade agreement: common fishing waters and competition policy.
EU member states use common territorial waters for fishing. UK coastal cities have strongly supported Brexit, hoping that they will have exclusive fishing rights in UK seas. The EU, and France in particular, are working to maintain the current status quo. The water problem appears to be more political than economic in nature, and both sides are trying to show that they are doing everything possible to defend the important interests of their constituents. However, a compromise on this issue is likely in the end.
The other point of intersection, the issue of fair competition, is much more complex. In pursuit of free trade agreements, the parties generally harmonize the rules for a variety of goods, limiting subsidies and other state aid to companies in order to ensure fair competition.
One of the cornerstones of Brexit was moving away from European standards to gain a competitive advantage, but this is difficult to reconcile with the duty-free movement of goods. Fair competition and the integrity of the single market are one of the fundamental principles of the EU, and no major commitments should be expected from the EU here.
Victory at any cost?
Currently, the negotiation situation is reminiscent of the classic game “Chicken Game”. The name of the game comes from the 20th century hooligan. entertainment for mid-US teens.
The rules are simple: two cars facing each other start at full speed and the first to panic and turn to one side loses. The best way to win such a game is to convince your opponent before the competition that you are an irrational madman, determined to run in forks in the name of victory.
The categorical negotiating positions of both parties and the laws that violate international agreements are designed precisely to convince the opponent that hard Brexit is sweeter for him than to make concessions. But everyone sees and understands that this is not true.
Hard Brexit would hurt everyone
The UK is one of the top ten export markets for Lithuania. Assuming the negotiations also fail on January 1, 2021. In the event of a hard Brexit, trade disruptions, tariffs and negative side effects through our other export partners could reduce Lithuania’s GDP to 2%.
This damage would not be catastrophic, but it is certainly undesirable, especially at a time when the economy is still recovering from the shock caused by the pandemic. Of course, with the history of Brexit for years, companies that trade with the UK have had the opportunity to prepare for a negative scenario. This time, however, the Brexit process is overshadowed by a pandemic, unnoticed, and some companies may be caught off guard as a result.
Several more tense weeks of negotiations await in the near future that will determine the end of the Brexit saga. Although there seems to be little hope for a deal at this point, it is worth remembering that the EU almost always finds solutions to difficult problems at the last minute.
Of course, the situation is not alleviated by a pandemic, which worries the parties much more, and there is a risk that the negotiating parties will not pay enough attention to find a compromise. In pragmatic terms, the UK should do its best to find a solution. It is one of the most affected countries in the world by Covid-19, and its economy, particularly dependent on services, has shrunk by more than a fifth this year.
A hard Brexit would seriously worsen the economic situation in the UK, which is already on the brink of depression. The harsh positions of the parties are completely rational and understandable, but if you decide to change course too late, an accident may become inevitable.
Swedbank Senior Economist Vytenis Šimkus.
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