The U.K. is gearing up for crucial trade talks with the EU after it leaves the bloc on January 31 and time is short to strike a deal before a post-Brexit "transition period" finishes at the end of 2020.
Robin Niblett, director of London-based think tank Chatham House, told CNBC Tuesday that there are certain "dos and don'ts" the U.K. should bear in mind when negotiating a future trading relationship with Brussels.
"It's going to be a very short and very intense negotiation if we're going to meet the deadline of having a first outline deal done by the end of 2020," he told CNBC's "Street Signs" at the World Economic Forum in Davos, Switzerland.
U.K. Prime Minister Boris Johnson set a hard deadline for trade talks to conclude by the end of this year. EU officials have warned that striking a deal in an 11-month timeframe is ambitious, if not outright impossible, given the most conventional free trade agreement negotiations tend to take a couple of years.
The ease or difficulty of reaching a trade deal is likely to depend on how close the U.K. stays aligned to the EU (its largest trading partner taken as a bloc) on a regulatory level.
"The government needs to put down a firm line that it is not going to suddenly bring all sorts of EU rules in by the back door and undermine its credibility as a tough negotiator," Niblett said.
He noted that the prime minister had shown a pragmatic streak in negotiating the Withdrawal Agreement (or Brexit divorce deal) with the EU, a deal that took multiple attempts to be approved by the U.K. Parliament — it was only passed earlier this month once Johnson won a commanding 80-seat majority in a snap December election.
"The one thing we've learnt from Boris Johnson is that he can talk tough but when he needs to compromise, he compromises," Niblett said.
"In the withdrawal deal, he accepted a border down the Irish Sea which (former Prime Minister) Theresa May had never considered accepting, he ended up paying the £30-plus billion (divorce bill) in the deal that he said should never be paid, he has accepted a vassal status for a year while we're going to have to follow EU rules without being a member of the EU. So, I think tough talk at the beginning and he can do compromises towards the end."
Niblett said that the U.K. had to accept that any of its exports to the EU would have to comply with EU laws. "If you want to go in and sell something in to the EU market, the U.K. will have to sell into that market under EU rules."
"But what they don't want to do is to find those EU rules penetrating back into the U.K. on environmental legislation, on taxation, on workers' rights and especially on state aid and competition rules where the EU is worried that a U.K.-based company, even if it follows EU rules as it exports in (to the bloc) is starting from a stronger position. And that's where the tough line is — because if you can't decide your own state aid, if you can't decide your own competition rules, what's the point of being sovereign?," he said.
Shockwaves
How much alignment is up in the air and the U.K. has certainly been sending smoke signals that it intends to break away from the bloc, although this could be part of its negotiating stance.
At the weekend, the U.K.'s Finance Minister Sajid Javid sent a shiver through the U.K. business community when he said there would be no alignment with the EU post-Brexit and that some businesses would benefit, and others would not.
Speaking to the Financial Times, Javid said "there will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union — and we will do this by the end of the year."
"There will be an impact on businesses one way or the other, some will benefit, some won't," he said in an interview published late Friday. The comments provoked a backlash and warnings from the British business community that wants to minimize the disruption caused by Brexit; the Food and Drink Federation said it sounded like the "death knell" for frictionless trade with the EU.
Johnson has experienced his first parliamentary defeat on Brexit since the December election. Members of the House of Lords voted against the government, in favor of a bill put forth by the Liberal Democrats to give eligible EU citizens the right to stay after Brexit.
The upper chamber of parliament also voted against allowing British courts to depart from rulings by the European Court of Justice after Brexit. These decisions must pass the House of Commons for approval.
