Lack of trust threatens to derail the UK-EU trade deal

Boris Johnson’s conciliatory language towards the EU as the UK formally departed didn’t last long. Three days, to be precise. On Monday the prime minister played hardball in a speech setting out the UK’s goals for a UK-EU trade agreement.

Despite promising during the election there was “absolutely zero” chance of a trade deal not being agreed by December this year, Johnson has now said that Britain would prosper with or without such an agreement.

Just before the prime minister spoke in Greenwich to invoke memories of the UK ruling the waves and world trade, Michel Barnier, the EU’s chief negotiator, set out the EU’s demands. Crucially, for the UK to sign up to EU regulations in return for a “zero tariffs, zero quotas” agreement.

It’s hardly surprising that both sides are talking tough before discussions formally begin early next month. They were not going to announce that their deep red lines are really pale pink, were they?

Despite Johnson’s self-imposed hard deadline of 31 December, officials on both sides of the Channel privately expect the hardball game to last until June. Then in July, time pressure will ensure serious negotiations replace sabre-rattling.

Johnson and his ministers have put a new entry in the Brexit lexicon – an agreement like the one between the EU and Australia. This is misleading, since there is no such free trade deal. It’s a euphemism for trading on World Trade Organisation terms, but if Johnson had admitted that, the media would have called it “no deal” because it fits neatly into headlines and it would become a scarier prospect for the public and business.

Johnson told the EU he wants a Canada-style free trade agreement, but will not swallow the EU’s demand for the UK to stick to its rules on state aid, labour, tax and the environment. His real message was that he will do things very differently to Theresa May, and the EU will get a shock if it thinks he will repeat her mistakes. As one aide put it: “We are not going to be pushed around.”

UK ministers accuse the EU of moving the proverbial goalposts. They insist regulatory alignment would be consistent with a relationship like the EU’s with Norway (inside the single market) but not a looser Canada-style deal. But ministers shouldn’t affect surprise; the EU has always been clear about wanting a “level playing field”. The UK is much closer to the EU geographically and economically than Canada. As one EU official told me: “We are more like twins. Canada is a distant relative.”

Ministers think tough talk will play well with the new Tory voters in the north and midlands. But if there is no deal, tariffs on their manufacturing firms would play less well, and cost jobs. However, Johnson did say the Australian option would apply “in the unlikely event we do not succeed” in getting a deal with “our historic friends and partners” on the continent.

He cheekily suggested the UK would not compel the EU to follow its often tougher rules. He promised not to undercut EU standards, but did not really explain why that could not be written into a trade agreement. He wants to show voters the UK is “taking back control” and ensuring it has the freedom to diverge from EU rules over time, especially in the industries of the future like artificial intelligence. In practice, the UK would probably stick to the vast majority of EU regulations for some years. Although Johnson urged Brussels to “believe me” about not having a “race to the bottom”, the EU would have to assume the worse without guarantees in a treaty.

There is a way of squaring this circle: a flexible trade agreement, with an arbitration system to police disputes and set the balance between UK market access and EU regulation. For now, there is a dispute about the disputes process. The EU hints at a role for the European Court of Justice, but Johnson rejected “anything remotely approaching” that. A panel of three EU and three UK judges will probably be the compromise.