After nine months of tortuous negotiations, and with just over three weeks left until the UK leaves EU’s single market and customs union at the end of the transition period, there are two issues that continue to dog the talks, described by EU leaders on Sunday as “major unresolved topics.” These are the future level of access to British waters given to the EU fishing fleet and, more significantly, the “evolution” or “ratchet clause” to ensure that regulatory standards do not diverge to such an extent that British or European businesses are left at a significant competitive disadvantage in the marketplace over time.
In Brussels, the issue of fishing access is not seen as a deal-breaker. “The negotiation is transactional, not about principle, and so is eminently doable,” said one official. In London, the sentiment is not shared. Johnson has repeatedly emphasised its importance to the EU side. But either way the political sensitivity of the issue, with loud fishing industries on both sides to satisfy, makes it a difficult one to land. And there do remain some genuine points of difference to nail down even at this late stage.
The UK is leaving the common fisheries policy and taking back control of its exclusive economic zone: 200 nautical miles from the territorial sea baseline or to the halfway line in smaller stretches of water. Downing Street wants annual negotiations with the EU on what European fishing fleets will be allowed to catch in its sovereign waters based on “zonal attachment”.
This means shares would be set according to the percentage of fish inside each side’s exclusive economic zone. It is argued that this system would be fairer and more scientific. It is already used by the EU in its annual quota-setting talks with Norway. The UK also has priority stocks – around 80% of all the stocks in its waters – where it expects to enjoy an increase in catch. And it wants the six- to 12-mile area around its coast to be exclusively used by British fishing vessels.
The EU is resisting both “zonal attachment” and annual negotiations as it does not offer security to its coastal communities. It also wants to keep the British gains to around 15-18% of the fish caught by EU boats in UK waters. The UK is seeking a far higher windfall – 60% of the EU’s current catch in British waters. Meanwhile, France and Belgium, in particular, say they have fished for centuries in the six- to 12-mile area off the UK coast and they will not allow their vessels to be forced out.
The UK has offered a three-year transition period to phase in the changes. The EU has proposed a standstill transition period of 10 years. The two sides are likely to settle on a time period between those two stances of five to seven years.
There is agreement on “non-regression” clauses, which would ensure that neither side can undercut a common baseline of standards after the transition period ends on 31 December 2020, but Brussels wants to go further.
The row is over divergence on environmental, labour and social standards, ranging from emission reduction targets to health and safety regulations and food standards, that could leave companies on one side with a lower cost base when they try to sell goods into the European market. As the EU develops its rulebook on working conditions or the environment, for example, it is seeking a mechanism to ensure that European businesses are not left at an economic disadvantage if Britain fails to step up as well.
As time goes by, it is argued, the minimum standards protected by non-regression will become obsolete. Initially the EU was proposing that where one side failed to upgrade its standards, the other should be able to apply tariffs automatically to correct the terms of trade. The thinking moved on sometime ago, however.
It is instead argued by Brussels that it should be possible for either side to propose a revision of the common minimum standards when the time comes. There should be a forum for discussion, it is argued, and a system for dispute resolution, possibly through independent arbitration, should one side be foot-dragging. In extremis, there could then be tariffs applied.
The UK has a few problems with this approach. It wants to know what the test will be for judging whether one side has been put at a competitive disadvantage. Is it simply a risk of trade being distorted or tangible evidence of it having occurred? It wants to know how the new minimum standards will be set. Downing Street says it surely cannot be whatever EU law might be. And the application of tariffs needs to be controlled. The UK wants it to be clear that tariffs should only be applied in areas of trade where distortions can be shown to have emerged due to regulatory divergence rather than cross-cutting across all sectors of the economy.
The UK says that without assurances over the mechanism, it poses a threat to its sovereign right to make its own way from 1 January. The UK’s chief negotiator, David Frost, claims that fear of countermeasures could lead to Britain being dragged into the EU orbit. Officials in Brussels suspect there is another motivation behind the UK’s scepticism: a future Labour government could agree to upgrades in standards that a future Conservative administration would be powerless to peel back. Once the clause has ratcheted up a policy, there is no way to ratchet down.