Brexit Extension Hides a Bigger Threat for Boris Johnson

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Boris Johnson's failure to lead Britain out of the European Union as promised on Oct. 31 leaves his country facing an even bigger crunch moment next year.

Even if he can eventually deliver Brexit, the U.K. prime minister will have less room for maneuver as he confronts a familiar dilemma: How to sever trade ties with the EU after four decades of membership without triggering massive disruption to British business and the economy.

Monday's decision to delay Britain's departure by as long as three months means the country will have very little time to negotiate a free-trade agreement with the EU before the end of 2020, when the planned transition period smoothing the U.K.'s withdrawal is due to end.

Under the terms of Johnson's deal, Britain will have to decide in June whether to request a maximum two-year extension to its grace period. If the U.K. refused to do so, it could still crash out without a trade agreement unless the two sides could wrap one up in just six months.

That negotiation promises to be one of the most complex either side has ever undertaken as they unpick 50 years of trade policy. Previous EU commercial accords have taken several years to reach. It took the bloc five years to strike market-opening accords with Japan and Canada and 20 to get a deal with the Mercosur group of Argentina, Brazil, Paraguay and Uruguay.

While the elimination of tariffs featured prominently in those accords, EU-U.K. talks would aim to maintain the continuation of duty-free trade across the Channel while focusing on a much trickier matter: the future alignment of British regulatory standards with those of the bloc.

This is a very politically sensitive issue in the EU, where concerns are widespread that the U.K. intends to become a deregulated “Singapore-on-Thames” capable of undercutting European environmental, social and other norms. Johnson did nothing to ease these concerns by moving his predecessor's commitments in this area out of the Withdrawal Agreement and into the non-binding Political Declaration on future EU-U.K. ties.

By their nature, the negotiations on a free-trade agreement between the EU and Britain will be more complicated than Brexit by involving not just the defensive interests of the bloc's 27 remaining member countries but also their offensive goals. These range from Spain's desire for access to U.K. fishing waters to France's eye on dairy-export markets.

As with the two years of negotiations over the Brexit deal, the EU27 will have plenty of leverage when it comes to the negotiations on a trade accord -- but the U.K. won't have the luxury of time.

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Jonathan Stearns, Edward Evans

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