The U.K. Turns up the Heat Ahead of the Next Round of Brexit Talks

The desire to avoid further economic disruption amid the COVID-19 crisis will keep the United Kingdom and European Union focused on reaching a limited trade deal before London exits the EU single market on Jan. 1. But threats on both sides to abort negotiations are again increasing the possibility of a no-deal Brexit that would force the European Union and the United Kingdom to trade under costly World Trade Organization (WTO) tariffs. The latest round of EU-U.K. trade talks began in London on Sept. 8 and will end on Sept. 11. On Sept. 7, U.K. Prime Minister Boris Johnson said his government would walk away from the negotiations if there is not a deal by Oct. 15. The U.K. government is also expected to unveil a bill on Sept. 9 that "clarifies" certain aspects of the Withdrawal Agreement it negotiated with the European Union late last year, including London's interpretation of customs and trade rules in Northern Ireland.

In response to the upcoming U.K. Internal Market Bill, the European Union warned London on Sept. 7 that it cannot change the terms of the withdrawal agreement.
On Sept. 8, Northern Ireland Secretary Brandon Lewis admitted the bill will break international law, albeit "in a very specific and limited way."

The Johnson government's threats and reservations regarding elements of the Withdrawal Agreement are creating additional friction with Brussels. But the U.K. Internal Market Bill is likely also aimed at establishing how the agreement should actually be implemented in case of a no-deal British exit from the single market. Under the current agreement, Northern Ireland is subject to EU state aid rules. But according to London, some parts of the document remain subject to interpretation. Goods passing between Great Britain and Northern Ireland broadly considered "at risk" of then being transported to the Republic of Ireland are also subject to EU tariffs. London said its new bill will clarify both of these issues.

The negotiations between the European Union and the United Kingdom are entering a critical phase, with less than three months to reach and ratify a deal to avoid costly WTO tariffs after London exits the bloc's single market next year.
London and Brussels have been unable to overcome their disagreements over issues including fishing rights, as well as the European Union's demand that the United Kingdom remain aligned with the bloc's norms and regulations.

The economic outlook precipitated by the COVID-19 pandemic and the close trade ties between the United Kingdom and European Union still point to a limited trade deal by the year's end that covers goods and some services, while leaving other aspects of the bilateral relationship up for negotiation in 2021 and beyond. London will probably prioritize maintaining trade ties with its main partner, the European Union, to minimize the economic fallout from its impending exit from the bloc's single market. And Brussels, too, will want to avoid disrupting its member states' trade ties with London for fear of further weakening their pandemic-rattled economies.

In 2019, 43 percent of the United Kingdom's exports went to the European Union, while 51 percent of its imports came from the bloc. The United Kingdom is also an important export destination for EU countries — accounting for roughly 6 percent of German exports, 7 percent of French exports, 8 percent of Dutch exports, 6 percent of Spanish exports and 10 percent of Irish exports.
The United Kingdom has made only modest progress in renegotiating the trade deals with Japan and other countries it has enjoyed as an EU member, while its negotiations of new trade deals with countries such as the United States have moved slowly.
On Sept. 7, the United Kingdom's Institute of Directors — which represents British company directors, senior business leaders and entrepreneurs — said that a trade deal with the European Union was essential for the U.K. economy.