Boris Johnson will threaten to walk away from Brexit trade talks if negotiations have failed to progress by June, focusing instead on preparations for a hard exit on World Trade Organization terms at the end of the year.
The prime minister, who on Thursday presented Britain’s mandate for trade talks with the EU to parliament, wants to avoid the prospect of Brussels running down the clock in talks as the December 31 deadline for a deal approaches.
The mandate says that if good progress has not been made before a European summit in June, Britain could instead shift its focus to preparations for leaving on WTO terms, which would include new tariffs and quotas on trade.
“The government will need to decide whether the UK’s attention should move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion,” the mandate says.
The pound fell as the government set out its strategy, giving up earlier gains to trade 0.2 per cent lower against the US dollar at $1.2880.
Mr Johnson has refused to commit to publishing an economic impact assessment of his preferred “Canada-style” trade agreement, which would remove tariffs and quotas but would still involve new friction at the border.
He has also declined to commit to saying what costs he is prepared to impose on the British economy if he carries out his threat to leave on WTO terms — a fallback position now redesignated by Number 10 as an Australia-style exit.
A government assessment in 2018 suggested that a Canada-style deal could knock 5 per cent off Britain’s economic growth over the next 15 years compared with current forecasts, while a WTO exit would result in an 8 per cent hit.
The publication of the mandate confirms that Mr Johnson wants to negotiate a trade deal based on the “precedent” set by the EU’s deals with Canada, Japan or South Korea. It would mainly focus on removing tariffs and quotas for goods, with only limited coverage for services, which account for around 80 per cent of the British economy.
The mandate also confirms that Mr Johnson wants to secure an arrangement with Brussels under which the City of London has access to the EU based on “regulatory co-operation” based on the recognition of “equivalence” of each party’s rules.
However, Britain will seek “structured processes for the withdrawal of equivalence findings”; Brussels says it will continue to reserve the right to suspend market access at 30 days’ notice, if it believes the UK is deviating from agreed norms.
British negotiators will attempt to ensure a mechanism that is “less random” and provides more certainty for the City.
The biggest flashpoint in the trade negotiations is likely to focus on the EU’s demands for rigorous level playing field arrangements — ensuring that Britain does not undercut the EU through aggressive deregulation of its economy.
Mr Johnson’s allies denied on Thursday they were walking away from commitments made by the prime minister last October in a political declaration with the EU to a “robust” framework in areas such as state aid, labour and environmental regulations.
Rather, they claimed it was the EU that had reneged on that commitment by going much further than what had been agreed in October by suggesting that the UK should in some aspects remain subservient to Brussels laws.
Brussels’ demand that EU state aid rules should apply in the UK in perpetuity is seen as “a complete non-starter” in London, while its insistence that EU laws should be a “reference point” for the new regime is also rejected by Number 10.
However, the UK mandate does agree that in areas such as labour laws and environmental standards both sides should commit to not undercutting existing regulations, suggesting there is some room for manoeuvre for negotiators.
Fisheries are expected to be another big sticking point in the talks; the UK mandate confirms that Britain wants to regain full control over its fishing grounds, agreeing annual quota deals with the EU in the same way as Iceland or Norway.
The likely fishing dispute could derail other aspects of the trade negotiations, but Mr Johnson wants to avoid the prospect of talks dragging into the autumn as the December 31 deadline approaches.
Businesses are being advised by government to prepare for a possible exit on WTO terms, although many of those preparations — including customs declarations and other related paperwork — would also be required under a Canada-style agreement.
Additional reporting by Philip Georgiadis