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#Trade – Hogan faces strong headwinds in new role

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Irish Commissioner Phil Hogan (pictured, right), a stalwart supporter of Irish Prime Minister (Taoiseach) Leo Varadkar, is promoted to the role of European trade commissioner in the new mandate. One of the most high-profile positions in the EU, Hogan steps up to the plate at a time when the United States is pursuing an unpredictable, protectionist agenda, when controversy surrounds the EU-Mercosur deal, and when the EU will enter into one of its most profoundly complex and comprehensive trade negotiations ever with erstwhile EU member the United Kingdom, writes Catherine Feore 

In many ways Hogan is not a controversial choice. He has already served as the European agriculture commissioner and worked closely with Cecilia Malmström on the different trade deals agreed during the current mandate. Juncker’s commission was particularly active in sealing deals with Canada, Japan, South Korea, Singapore, Mexico and – the as yet to be ratified – Mercosur trade agreement. Agriculture is often the most difficult question in these agreements, in terms of the EU’s requirements and geographical indications, so Hogan is no stranger to the role.  

What makes Hogan controversial is his nationality. The UK is expected to leave the EU on 31 October, maybe later; in any event, the UK will be expected to leave in the next mandate. Assuming there is an agreement, there will then be a short transition period when the UK and EU hope to agree on a new – state-of-the-art – free trade agreement.  

When the Taoiseach met with British Prime Minister Boris Johnson yesterday (9 September) he described the efforts needed to read an agreement in such a short period as ‘Herculean’; he added that Ireland would be an ally to the UK, its 'Athena’, who according to legend, assisted Hercules in his tasks, intervening when he had started to go mad. That an Irish man will be the midwife to any deal is a stark illustration of the difference between being an EU member and being a third country. Hogan will represent 440 million consumers, in the UK’s largest market; Liz Truss will be sitting opposite him representing 60 million people and businesses desperate for free and unfettered access to the EU market. It’s as if the World Boxing Association decided to allow a fight between a welterweight and a heavyweight; Hogan may not even have to land a punch before the UK throws in the towel. 

As Varadkar pointed out yesterday, in the event of ‘no deal’ the most immediate barriers to any agreement will be those areas currently addressed in the draft Withdrawal Agreement: citizens’ rights, the financial settlement and – crucially – arrangements for the Irish border.  

The Gordian knot that is the Irish border will need to be resolved; to reach a free trade agreement with the EU, it is also worth noting that the United States Congress has made it clear that they will not support a UK-US agreement that runs contrary to the provisions of the Good Friday Agreement that has brought 20 years of relative peace to Northern Ireland. 

However, this will not be the only controversy facing Hogan. The ratification of the EU-Mercosur agreement which he negotiated in part – the most difficult part – has been thrown into question with many countries, including Ireland. The EU’s farmers are concerned about access to cheaper beef on the European market and forest fires in Brazil, which illustrate how weak the agreements can be in encouraging environmentally responsible trade. 

In her political guidelines, the President-elect Ursula von der Leyen has proposed the introduction of a ‘Carbon Border Tax’ that aims to be compliant with World Trade Organization rules and provide a level-playing field to EU companies that may have higher environmental standards. The EU could be accused of green protectionism, so it will need to tread carefully, as it moves towards a greener trade agenda. The EU will also upgrade its trade Enforcement Regulation. Given the situation in the Amazon, MEPs will be asking the European Commission to demonstrate how they can guarantee that trade partners stick to their commitments under the Paris Agreement. 

The new Commission will be adopting a more assertive approach to government procurement, in particular, the EU wants to secure greater access to the public markets in third countries and address the EU’s lack of leverage, in part due to its already open approach. Some ideas include limiting access of third countries to bid for projects where there is EU grant funding of EU financing, including tenders in third countries funded with EU financial resources.  

Hogan faces some strong headwinds from the US and growing tensions with China, a multi-lateral system under attack and probably the most challenging trade agreement ever with British friends. A tough few years lie ahead.  

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Irish foreign minster says EU-UK trade deal breakthrough possible

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There is a window of several weeks for Britain and the European Union to reach a breakthrough in trade talks before Britain’s upper house of parliament considers the contentious Internal Market Bill, Ireland’s foreign minister said, writes Conor Humphries.

“I believe there is a window for negotiations that I hope the two negotiating teams, in particular the UK, will take in terms of giving the signals that are necessary to move this process into a more intensive phase,” Simon Coveney (pictured) told parliament. “It is possible to get a deal here.”

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As Brexit talks intensify, banks see sharply higher risk of no-deal exit

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The chances of Britain leaving the European Union without a trade deal have risen dramatically in the last three months, according to major investment banks, most of which now see the probability of such an outcome at 50% or higher, writes Elizabeth Howcroft.

Britain left the EU in January but is currently in a status-quo transition period, which ends on 31 December irrespective of whether or not a deal is agreed. On Monday (28 September), the two sides started a decisive week of talks, with one diplomat noting an improvement in “mood music”. But all six banks which participated in a Reuters poll in June are more pessimistic, with most citing UK legislation that would breach parts of the withdrawal agreement signed with the EU in January. The move has drawn threats of legal action from the EU.

The most dramatic re-assessment was by Societe Generale, which said the bill “gravely damaged” trust. The probability of no-deal now stands at 80%, according to the bank, which had assigned a 17% chance in June.

Germany’s Commerzbank, meanwhile, puts the probability of no-deal at slightly below 50%, versus 10% in June, a scenario which strategist Thu Lan Nguyen warns could hit the pound hard, possibly resulting in depreciation of “something around 10%”. The currency has fallen around 5% this month but with three months still to go before the transition period expires, options markets are pricing in more volatility ahead.

ING now believes the risk of no deal is 50%, up from 40% three months ago. Only a small proportion of this risk premium is priced by sterling, according to economist James Smith, who sees the currency possibly heading towards parity versus the euro.

In a more detailed forecast, Standard Chartered stuck with a one-in-two chance of an agreement by the end of the year but also saw a 20% chance of the transition period being extended and a 30% chance of exiting without a deal. JPMorgan, not included in the Reuters poll, expects the worst-case outcome to wipe at least three percentage points off UK gross domestic product in 2021. It puts the risk of no-deal at one-in-three but told clients that “with brinkmanship part of the process it may appear higher than that before agreement is reached”.

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EU negotiators willing to work on legal agreement with UK - The Times

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European Union negotiators have signalled that they are willing to begin work on a joint legal text of a trade agreement with the UK, ahead of trade talks that resume on Tuesday, The Times reported on Tuesday (29 September), writes Rebekah Mathew in Bengaluru.

EU chief negotiator Michel Barnier is ready to begin work on a joint draft version of a free trade agreement, known as a "consolidated legal text", this week, the newspaper reported.

Barnier expects Britain’s chief negotiator David Frost to provide more details of fishing quotas and the government’s future subsidy policy, the Times report said, adding that EU has also backed away from a threat to suspend trade and security talks.

Britain left the EU last January and is locked in negotiations on a new trade deal from 2021, as well as on implementing the divorce, as set out in the Withdrawal Agreement, especially on the sensitive Irish border.

Trade talks resumed in Brussels on Tuesday. Lasting until Friday (2 October) morning and also due to cover energy links and transport, they are the final round of negotiations scheduled so far.

Brussels have dropped its demands for the two sides to reach a broad agreement on all the outstanding areas of dispute before drafting a final agreement and expects UK to engage in detailed discussions on post-Brexit fishing quotas and the government’s future subsidy policy, the newspaper said.

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