Negotiation Dynamics in Post-Brexit Trade: Who Holds the Upper Hand?

Since the British government, led by Boris Johnson, has enacted Brexit with or without a deal by the end of 2020, the UK finds itself in a uniquely strong position to negotiate its future trade landscape with the European Union (EU).

The EU vs UK: An Uneven Playing Field

Traditionally, the EU has been viewed as holding the upper hand in trade negotiations, but the current situation dramatically shifts the balance of power. With the UK determined to implement a no-deal scenario or a WTO framework, it now stands as a more uncompromising partner than before. However, the EU’s leverage comes with limitations due to its own economic needs and complexities.

The EU's Strategic Weaknesses

The EU has several strategic weaknesses in its negotiation stance. First, the UK’s enormous size relative to the EU makes it a significant market that the EU cannot afford to lose. Economically, the UK is roughly twice the size of Russia and comparable to the combined area of Russia, Turkey, and Ukraine. This alone makes the UK an indispensable player in European markets.

Second, the EU’s diplomatic approach towards the UK contrasts sharply with its stance towards other major countries like Russia, Turkey, and Ukraine. The EU does not 'talk down' these nations, recognizing their importance to the region. This inconsistency highlights the EU’s lack of clarity on its true strategic interests and the role Brexit might play in achieving them.

EU’s Leverage and Objectives

The EU’s strategic objectives in negotiations hinge on the principle of "better the devil you know." They aim to maintain as much of the existing legal and regulatory framework as possible to ensure the UK remains within their sphere of influence. This is evidenced through their insistence on mutual recognition agreements, customs procedures, and other measures.

However, the UK, under Boris Johnson’s leadership, is more focused on trade and less reliant on the EU’s legislative framework. While the UK desires free trade, the EU also needs to maintain its access to the City of London’s financial markets. Threatening to cut off this vital resource is not credible due to the EU’s deep economic dependencies.

The UK's Negotiating Position

The UK’s main objective is straightforward: open trade. But the EU's desire for continued regulatory compliance and market access creates a significant challenge. The EU’s primary leverage—simply maintaining the status quo—is one the UK can already achieve with a basic "BRINO" (Brexit Renegotiation in No Overall Negotiation) agreement, which would be a copy-pasted no-trade deal.

Bare-Bones Trade Deal vs Full Agreement

The alternative, a "bare-bones" trade deal, offers minimal mutual recognition and convenience measures. For the EU, this represents the least favorable outcome. However, the UK’s newly established majority and different political objectives mean it is less likely to entertain such a deal. The UK sees potential in more comprehensive trade agreements, aligning their interests with the EU's need for financial markets.

Conclusion: The UK’s Stronger Position

Thus, it is clear that the UK holds the stronger negotiating position. The UK desires what the EU values—open trade—and is willing to take a stand on its own terms. The EU has almost no leverage, as evidenced by their attempts to demoralize the UK through belittling rhetoric. This reality underscores the EU’s confusion about Brexit’s true implications and their uncertainty in how to proceed.