During the last five months, the world has come to a stop because of the global COVID-19 pandemic. Trade negotiations have not been exempt from this and the EU-UK negotiations have been severely affected. We discussed the impact of COVID-19 on Brexit with several experts whose insights you can read below.
What has COVID-19 changed?
“The UK – EU negotiations have been delayed by the pandemic. The issue of fair competition between UK and EU businesses has become even more important and the pressure on businesses, supply chains and customs that would result from a no-deal exit of the UK would increase with any potential future outbreaks. The talks have been slowed down by the pandemic that has required governments to manage the spread of the virus and implement financial and macroeconomic measures to prevent a recession. Both parties are now having weekly meetings in preparation for the next rounds of trade talks scheduled for July and August. One main issue has been the “level playing field” – a set of EU rules for fair competition. The UK has stated this “would bind this country to EU law or standards”. For the EU, compromising on the “level playing field” would cause additional hardship for EU businesses and major challenges to recovery. While the EU has said they are considering compromises, they have not specified what these could be. Future outbreaks of COVID-19 would have an impact on the private sector and supply chains and customs would face additional challenges if no deal is reached and the UK has to trade under the WTO rules.”
“After captivating headlines and polarising debate for so long, Brexit, like so many other issues, has been held in abeyance in recent months. The expectation is however that interest in its repercussions shall return with a vengeance. Already in January 2020, analysts had suggested that London’s unequivocal objective to finalise the relationship with Brussels by the end of the year was unrealistic, given the complexity of the issues involved, ranging from export tariffs & residual rights of free movement to security & law enforcement. In any event, the question of a possible extension of the 12-month transition period has now become moot, as the deadline for parties to concur on a mutual postponement passed in June.” (The opinions reflected in this commentary are entirely personal)
Can the December 2020 deadline be extended and, if so, until when?
“According to the Withdrawal Agreement, the transition period could have been extended by up to two years but the deadline for extending the transition period passed on July 1. However, there are factors that could lead to an extension but this could not be done under the Withdrawal Agreement and would require new EU legislation. Both the UK and the EU aim to complete the negotiations during the summer. Since the deal has to be ratified by EU governments, the British Parliament and the European Parliament before December 31, the negotiations have to be completed by October, according to German officials. It is critical for businesses on both sides to have the deal ratified as soon as possible to give them time to prepare, particularly given the overlap of the pandemic and the UK’s exit from the EU. If the deal includes specific areas for which member countries have to give their approval, the EU has to consult with 40 national and regional parliaments. Therefore, ratification could be delayed which could mean extending the transition period into 2021. However, the UK and the EU are intensifying the talks to ensure the trade deal is ratified by December 31.”
“Hence, the short and unadorned answer is that the new framework will have to be decided by 31 December 2020. If an agreement has not been signed and ratified by that time, then the UK will become a third country, with everything that this entails. The crux time to reach a settlement would be by October, as the ratification process of any covenant would require several weeks. Regardless, the negotiations are not a zero-sum-game and the safer bet remains that some sort of deal will be reached by then.” (The opinions reflected in this commentary are entirely personal)
What does this mean for international aid?
“The UK – EU trade negotiations and the deal that is reached will have an impact on how UK aid is distributed and which countries will be the beneficiaries. The UK aid strategic objective that relates to trade is the promotion of global prosperity in the developing world, to “contribute to the reduction of poverty and also strengthen UK trade and investment opportunities around the world”. The UK is strongly committed to spending 0.7% of its Gross National Income annually on international development. In 2019, UK aid reached £15.2 billion and, from this budget, close to £1 billion went to the European Union development budget and the European Commission, funding programmes in Asia, Latin America, Eastern Europe, the Middle East and North Africa, Caribbean and Pacific countries and 25 EU overseas countries and territories. The UK and the EU are currently discussing the UK’s participation in future EU development programs and therefore the regions mentioned could be directly affected. The aid budget could be reduced or reallocated among programs in the above-mentioned regions to meet the UK’s strategic objective of reducing poverty while increasing trade and investment opportunities for UK businesses.”
“The global recession is already forecast at ca. 6%, without taking into account potential successive waves of the disease. Simply put, there will be much less spare change in state coffers to go around than previously. On straightforward arithmetic, the total amount of Overseas Development Assistance (ODA) will be reduced on a global level. In parallel, aggravation of income disparities in most donor states may be bringing to the fore an ab initio reassessment of the fundamental rationale for Development Aid expenditure in the 21st century. It will become increasingly politically unpalatable for governments to transfer funds for poverty reduction in far-away places when the amount of deficiencies in welfare, housing, healthcare and social security at home continue to exacerbate. In Whitehall, Downing Street has already initiated the merger of the Foreign Office with the hitherto separate Department for International Development and has more recently announced budget cuts of £2.9 billion on the UK’s ODA commitments for 2020, effective immediately. These are unmistakable indicators of a strategic adjustment in the British approach to aid spending. Macroscopically, such a shift is likely to be followed by several other government donor agencies, since adherence to the previous decoupled model could result in a competitive disadvantage for the country in question. With the exception of emergency humanitarian assistance and disaster recovery, Development projects may subsequently be expected to demonstrate quantifiable secondary benefits to trade, investment, employment or regional influence for the originator.” (The opinions reflected in this commentary are entirely personal)
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