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UK-EU trade deal? Here’s what Europe’s officials and business leaders want
The U.K. is about to take the momentous step of leaving the EU on January 31 and it has an ambitious deadline to strike a trade deal with the bloc by the end of 2020.CNBC spoke to European officials, political leaders and business executives at the World Economic Forum on Thursday to get their take…
The U.K. is about to take the momentous step of leaving the EU on January 31 and it has an ambitious deadline to strike a trade deal with the bloc by the end of 2020.
CNBC spoke to European officials, political leaders and business executives at the World Economic Forum on Thursday to get their take on the future relationship between the U.K. and EU, the potential for a trade deal, and a post-Brexit Europe.
“The EU is ready to all that is in our power to have the best possible relationship with the U.K.,” Paolo Gentiloni, European commissioner for economic affairs and a former prime minister of Italy, told a CNBC-moderated panel in Davos.
“Most of the results depend on the decision of the U.K. government. If the U.K. government wants to have very large access to the single market, if they want to have very good relations with the single market, we are ready to do this. But it's not up to us to decide. We have our rules, we expect a level playing field from this agreement,” he said.
Gentiloni said if the U.K. wanted zero tariffs on its exports to the EU after Brexit, it would have to adhere to a criteria of no “dumping,” the practice of selling products at a competitively low price.
“We can't have zero tariffs and dumping together. We need zero tariffs and zero dumping,” Gentiloni said.
Italian Economy and Finance Minister Paolo Gualtieri said a potential sticking point would be “the balance between the depth of the free trade agreement (FTA), its comprehensiveness, and also the capacity to ensure a level playing field.”
“We first want a deal that is as much as possible, deep and comprehensive, but we know an FTA is not the single market so there will be change and differences.”
Mark Rutte, the prime minister of the Netherlands, told CNBC Thursday that maintaining a ‘level playing field' – that is, fair competition between the U.K. and EU – was the most important thing.
“That will be the main sticking point in discussions,” he said. “My energy will be channeled to getting a full trade deal, not a phased trade deal, by the end of the year. That will be difficult … It can be done if the Brits are willing to think again by April or May about whether an extension is needed or not,” he said.
Magic formula
The U.K.'s Prime Minister Boris Johnson, emboldened by a snap election in December that gave his Conservative government an 80-seat majority in Parliament, announced that the U.K. had imposed a deadline for a trade deal to be done by the end of 2020, although it had the option of more time.
It has a vested interest in striking a deal quickly as it cannot ratify trade deals with other countries until the post-Brexit “transition period” with the EU ends.
But eleven months to negotiate a trade deal is ambitious and many European officials have questioned the feasibility of that short time frame when most FTAs take several years.
Gualtieri said it is important not to lose time and to quickly define the principles of the deal which he said seemed to be an FTA focused on goods and “zero quotas, zero tariffs,” ensuring fair competition and maintaining internal and external security.
“That will hopefully minimize disruption to supply chains and … to financial markets as much as possible,” he told the panel hosted by CNBC's Sara Eisen.
Deutsche Post CEO Frank Appel warned that there was still a risk of a hard-Brexit, however, a scenario in which a trade deal was not established and that World Trade Organization (WTO) rules kick in — these rules are used by countries that don't have FTAs.
WTO terms would mean the U.K. and EU could place import tariffs and quotas (i.e. limits) on each others' goods — although the U.K. has already stated that the majority of imports from the EU would remain tariff-free in this scenario.
“For a long time, we have also been preparing ourselves for a hard Brexit. It's less likely but we're prepared to help our customers. (To do that) you're looking into contingency planning, looking into drivers' licenses, looking for extra people for customs clearance, looking for extra space. All that we have done already … But we are still hoping we get to an agreement,” Appel told the panel.
Aside from falling back on WTO rules, the U.K. and EU both have a vested interest in striking a deal in order to maximize their growth potential, according to Deutsche Bank's CEO Christian Sewing.
“What we really need in Europe is a platform for growth, and in case uncertainty comes back, it plays badly for the U.K. and badly for Europe. (In terms of growth rate) we are already behind the regions in Asia, China, but also the U.S. and we have to make sure that we, as Europeans, do everything to accelerate growth, and for that we need an agreement.”
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