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Boris and Barnier spar in first Brexit trade skirmish

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
European Brexit negotiator Michel Barnier, left, and UK Prime Minister Boris Johnson delivering their speeches on Monday. Photo: Adam Berry/Frank Augstein - WPA Pool/Getty Images
European Brexit negotiator Michel Barnier, left, and UK prime minister Boris Johnson delivering their speeches on Monday. Photo: Adam Berry/Frank Augstein - WPA Pool/Getty Images

The EU and UK are on a collision course when it comes to trade.

Two speeches on Monday set out the contrasting aims of the EU and UK, foreshadowing clashes likely to take place when post-Brexit trade talks begin.

UK prime minister Boris Johnson and European Commission chief Brexit negotiator Michel Barnier both set out their stalls. Both talked of wanting to strike an ambitious free trade deal but their respective visions differed greatly.

Barnier said access to the EU’s Single Market would depend on the UK following EU standards and said there must be “mechanisms to uphold the high standards we have on social, environmental, climate, tax, and state aid matters.” Addressing journalists in Brussels, he called for continued access to UK fishing waters and “stable quota shares.”

READ MORE: EU offers UK 'best in class' trade deal but wants fishing access

Johnson spoke around the same time as Barnier but parts of the prime minister’s speech sounded like a direct rebuttal.

“There is no need for a free trade agreement to involve accepting EU rules on competition rules, subsidies, social protection, the environment or anything similar,” the prime minister said.

The UK would be open to a deal on fishing access, he said, but any quotas would have to be reviewed annually “using the latest scientific data, ensuring British fishing grounds are first and foremost for British boats.”

Britain's Prime Minister Boris Johnson reacts as he delivers a speech at the Old Royal Naval College in Greenwich, south east London on February 3, 2020. - Britain on Monday said it wanted a "thriving trade and economic relationship" with the European Union, as it set out its position for future trade talks after it left the bloc. But Prime Minister Boris Johnson pledged: "We will not engage in some cut-throat race to the bottom. We are not leaving the EU to undermine European standards. We will not engage in any kind of dumping, whether commercial, social or environmental." (Photo by Frank Augstein / various sources / AFP) (Photo by FRANK AUGSTEIN/AP/AFP via Getty Images)
Boris Johnson reacts as he delivers the speech outlining his aims for trade negotiations with the EU. Photo: Frank Augstein/AP/AFP via Getty Images

The two speeches highlight just some of the flash points in trade negotiations.

The EU fears poor quality UK products will be dumped in their market, undercutting local producers. Brussels also fears unfair boosts for British industry through state aid or side-stepping regulations.

The UK, on the other hand, thinks adhering to EU standards defeats the point of Brexit — why leave if you keep following the rules?

Brussels will use the size of the single market as a negotiating tool. Barnier emphasised the fact there are 450 million citizens the UK could sell to.

Downing Street, meanwhile, are threatening a ‘no deal’ at the end of the year if the EU doesn’t play ball. Johnson on Monday threatened to walk away with an ‘Australia’ style deal, which would see the UK revert to World Trade Organisation rules with the EU.

READ MORE: Pound slides as Boris Johnson threatens hard Brexit

Such a move would undoubtedly hurt both sides but experts said the UK would be worse off.

“The risks of a go-it-alone trade policy appear to have been underestimated at a time of rising of global trade tension, which could have significant implications for the UK’s economic welfare,” Peter Dixon, a senior economist at Commerzbank, wrote in a note to clients last week.

BRUSSELS, BELGIUM - FEBRUARY 3, 2020: European Commission's Head of Task Force for Relations with the United Kingdom (UK Task Force/UKTF) Michel Barnier gestures during a news conference on Jebruary 3, 2020 in Brussels, Belgium. The European Commission has today issued a recommendation to the Council to open negotiations on a new partnership with the United Kingdom. This recommendation is based on the existing European Council guidelines and conclusions, as well as on the Political Declaration agreed between the EU and the United Kingdom in October 2019. It includes a comprehensive proposal for negotiating directives, defining the scope and terms of the future partnership that the European Union envisages with the United Kingdom. These directives cover all areas of interest for the negotiations, including trade and economic cooperation, law enforcement and judicial cooperation in criminal matters, foreign policy, security and defence, participation in Union programmes and other thematic areas of cooperation. A dedicated chapter on governance provides an outline for an overall governance framework covering all areas of economic and security cooperation. (Photo by Thierry Monasse/Getty Images)
European Commission's Michel Barnier gives his speech in Brussels, Belgium. Photo: Thierry Monasse/Getty Images)

The pound fell 1% against the dollar (GBPUSD=X) and 0.8% against the euro (GBPEUR=X) in the wake of Johnson’s threat to walk away without a deal.

“The way the two sides have come out, traders are starting to consider no-deal risks again,” said Neil Wilson, chief market analyst at Markets.com. “The EU and UK look in very different places right now.”

Trade negotiations are set to start later this month after EU leaders approve the draft negotiating proposals.

“Even Brexit supporters acknowledge that the hard work is only now beginning and 2020 will be another difficult year, both economically and politically,” Dixon wrote.

READ MORE: Firms demand 'seat at the table' in post-Brexit trade deals