Deutsche Bank: Johnson timeline for Brexit trade deal ‘almost impossible’

Tom BelgerFinance and policy reporter
Yahoo Finance UK
Johnson's timeline for a free trade deal is 'almost impossible.' Photo: David Cliff / SOPA Images/Sipa USA
Johnson's timeline for a free trade deal is 'almost impossible.' Photo: David Cliff / SOPA Images/Sipa USA

The UK government will find it “almost impossible” to negotiate a free trade deal with the EU before the end of Britain’s Brexit transition period next year, according to analysts.

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Deutsche Bank analysts said in a note that complex and wide-ranging trade negotiations would be extremely difficult to wrap up in just 14 months if parliament backs prime minister Boris Johnson’s agreement.

The deal struck by Johnson with Brussels is largely focused on the terms of Britain’s exit, with the EU’s future relationship with the UK to be negotiated during a transition period after Brexit.

But the UK government only agreed to a short transition where the UK will stay under EU rules, risking another dangerous cliff-edge moment when the transition comes to an end in December 2020.

The UK could find itself in a similar situation to its current predicament, facing a stark choice between crashing out without a deal, further delays through an extension or compromising from a weak negotiating position to rush through an agreement.

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Analysts Oliver Harvey and Sanjay Raja wrote in a note to clients: “Will it be possible to conclude a future economic deal with the EU27 in the space of 14 months? In our view, this is highly unlikely.”

They said most recent EU free trade deals had taken much longer, with a Japan deal taking seven years to negotiate after an agreement had been reached.

They suggest UK and Brussels negotiators may not even have 14 months, given the chances of a general election in Britain to break the deadlock which would delay talks.

A change of leadership at the European Commission could also delay negotiations, with new teams potentially waiting “several months” to secure their mandate from EU member states on priorities for trade talks.

They also note that the current agreement includes a cut-off date for deciding an extension in July 2020, noting: “This creates a potentially hard deadline in eight months' time to avoid a new no-deal Brexit.”

The likelihood of another no-deal cliff edge marks a key difference between Johnson’s deal and his predecessor’s deal, according to the analysts.

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“The bottom line is that with the replacement of the UK-wide backstop of prime minister [Theresa] May's deal with the Northern Ireland-specific solution in Mr Johnson's deal, the default outcome in the event the UK and EU27 cannot agree a future economic relationship during the status quo transition period will be a new no-deal Brexit, rather than a relatively close economic relationship.”

“If the transition is extended, Mr Johnson's deal leaves the future economic relationship between the UK and EU27 up for grabs. The stated preference of the UK government is for a limited future free trade agreement, which would carry significant economic costs. However, such a relationship is not locked into the existing deal.”

They say the next general election and the Conservatives’ parliamentary room for manoeuvre will be crucial in determining both the direction of a future deal, and the chances of crashing out without one.

“In our view, a large Conservative majority should deliver at least an extension to the transition period, if not a close economic relationship. By contrast, a small Conservative majority or strong performance by the Brexit party materially increases the risks of no extension to the transition period.”

They conclude that parliament approving the deal this week and leaving the EU on 31 October would not resolve Brexit, and instead “simply turn the page on the latest chapter.”

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