Brexit begins: what do the UK and the EU want from a trade deal?

With Brexit now done, the trade talks can begin. But who wants what from a UK/EU trade deal, and how likely are they to get it?

Now that we’ve left the EU, the talks can begin. The talks formally begin in March, and the transition period (during which nothing changes, even although the UK has left the EU) ends at the close of this year. But today, both sides set out their initial stall.

For the UK, prime minister Boris Johnson called for a Canada-style free trade deal, or else the UK will revert to the Withdrawal Agreement (which is basically World Trade Organisation rules). The choice, said the prime minister, “is emphatically not ‘deal or no deal’. The question is whether we agree a trading relationship with the EU comparable to Canada’s – or more like Australia’s. In either case, I have no doubt that Britain will prosper mightily.”

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

A Canada-style deal would imply most tariffs on goods being eliminated. The flow of services is more restricted, but the UK would aim to have a better deal on this front. A Canada-style deal would also imply less need to abide by EU regulation. An Australia-style deal – well Australia doesn’t really have a deal with the EU yet, so it’s arguably just another name for “no deal” or “WTO deal”.

On the behalf of the EU, chief negotiator Michel Barnier said that there was a “highly ambitious trade deal” on the table, but that in effect, the more access Britain wants, the more it will have to abide by EU rules. Put very simply, as Helen Thomas of Blonde Money puts it, “the UK position is zero tariffs, but also zero alignment” whereas "the EU position is [that] zero tariffs requires full alignment.”

Advertisement
Advertisement - Article continues below

In short, it’s going to be a tricky negotiation, as you’d expect. Fisheries and financial services are among the first issues to be tackled, and while the former is much less important to the UK economy than the latter, it’s quite possible that there will be a lot more headlines about fish than about funds.

A lot of pre-Brexit discussion has gone on around the question of who holds the most cards in these debates, with the EU normally being depicted as the most powerful player. That smacks of a simplistic "win/lose" mentality rather than the understanding that trade deals are meant to be “win/win” – where both parties get something out of it rather than trying to beat each other down.

But one interesting illustration that the traffic may not be all one way is that motoring group Nissan has – according to the FT, although the company denies it – come up with a contingency plan which puts the UK’s Sunderland plant front and centre in its strategy. In the event of a Brexit deal that results in tariffs being imposed on car exports, the contingency plan apparently involves Nissan shutting its factories in France and Barcelona, in order to “double down” on its UK plant, which employs 6,000 staff and is the biggest such site in the UK.

The idea is that being made in the UK would give Nissan a massive advantage over its Europe- and US-based rivals (such as Ford and VW), enabling it to grow its market share from the current 4% to as much as 20%. According to the FT, the drop in demand for diesel cars has whacked demand for Nissan’s vehicles in mainland Europe in any case. Meanwhile, Peugeot has indicated that it would boost its own presence in the UK in a “hard" Brexit scenario.

Clearly a lot of this falls under the category of “who knows how this could all pan out?” But the FT is not known for being an ardently pro-Brexit publication and if nothing else, it does show that things aren’t as clear cut as some might have argued before the UK withdrew.

We’ll keep you up to date as the talks evolve. Oh, and do subscribe to MoneyWeek magazine for more in-depth analysis – you can get your first 12 issues for £12 right now.

Advertisement

Recommended

Visit/519022/money-minute-wednesday-4-december
Economy

Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures

Today's Money Minute looks ahead to the UK's latest all-sector PMI survey, and America's private payrolls report.
4 Dec 2019
Visit/516840/another-brexit-delay-so-what-happens-now
Economy

Another Brexit delay – so what happens now?

Last week’s excitement over a Brexit deal getting done proved to be premature. John Stepek looks at where we are now, and what it means for your money…
21 Oct 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/516396/brexit-will-we-stay-or-will-we-go-and-what-does-it-mean-for-investors
Share tips

Brexit: Will we stay or will we go? And what does it mean for investors?

Brexit has descended into a farcical war of attrition. John Stepek looks at what it all means for your money – whatever the eventual outcome – and pic…
10 Oct 2019

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/stockmarkets/601101/has-the-stockmarket-hit-rock-bottom-yet
Stockmarkets

Has the stockmarket hit rock bottom yet?

The world's stockmarkets continue on their wild and disorientating rollercoaster ride. Investors are still gripped by fear. So, asks John Stepek, have…
2 Apr 2020
Visit/economy/small-business/601073/furlough-what-does-it-mean-and-how-does-it-affect-me
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020