Hard Brexit in Retreat?

Kirsty Hughes | 7 April 2017

© 2017 European Union

As Guy Verhofstadt put it so succinctly in the European Parliament debate on Brexit this week, Brexit is largely due to ‘a cat fight in the Conservative party that got out of hand’. But where may this cat fight go next – and with what implications across the UK? Is Theresa May really starting to shift away from a hard Brexit and, if so, how will the extreme Brexiteers in her party react?

The Article 50 opening pitches are clear

We now have the public opening positions of the key players – May’s Article 50 letter, the European Council’s draft guidelines and the European Parliament’s resolution setting out its red lines on Brexit, passed on Wednesday by 516 to 133 votes. Many of these positions are as expected – and have already been well trailed.

The EU27 want to talk about the UK’s budget liabilities and the rights of EU citizens before they talk about the outline of a future trade deal and a transition period to bridge the gap between Brexit in March 2019 and the unknown point at which a trade deal is agreed and ratified. The European Parliament too wants to protect the rights of EU citizens and, like the EU27, the four freedoms of the EU’s single market, including free movement.

The European Parliament also argues a transition period should not be longer than three years. This is not a reflection of MEPs’ optimism as to how fast a trade deal can be done but rather a concern that a transition period might favour the UK in some way and risk becoming, unintentionally, a permanent state of affairs. But three years to do a trade deal being even provisionally in force looks, for now, rather unlikely.

Meanwhile, Theresa May continues to insist that the UK wants talks in parallel on a trade deal rather than first making progress on EU citizens and budget. The UK though is on the back foot now that the two year Article 50 clock is ticking, so if they refuse to discuss citizens and budget and sustain a row over parallel talks, they will hurt themselves. The EU27 have pencilled in their December council this year to look at their positions on a trade deal but whether this could be moved forward a bit – to the October council – to assuage UK concerns is at best an open question.

Is May after a Brexit fudge?

Theresa May has shifted a bit in the last few days on a number of her red lines – what some have called a dawn of realism as the actual talks beckon. She is still not facing up to the fact that a ‘deep and special’ comprehensive trade, foreign and security policy deal could take 5-10 years after Brexit in 2019. But she has at least acknowledged that a legally-binding deal will have to wait until the UK is a ‘third country’ not an EU member state (i.e. after March 2019). At the same time, May continues to obscure this issue by arguing there will need to be an ‘implementation phase’ for the trade deal – which implies a deal would have already been done.

The EU27, in contrast, are clearly looking at best for a good outline of the aims and nature of a deal by October 2018. With that clear by around May 2018, the last few months of the Article 50 talks can then focus on transition arrangements needed while the complex, detailed trade negotiations take place, from 2019 on. It’s a very tight timetable for all stages – exit deal, outline trade deal aims, and transition arrangements all in 18 months.

In a softening of some of her language, May has admitted in her Article 50 letter that the UK will have to follow or meet EU standards when exporting to the EU27, without any longer having a say in those rules. And she has acknowledged that there will need to be some means of dealing with future regulatory divergence between the UK and EU27 and with any related disputes on regulation and trade. Brexit minister David Davis has indicated that migration into the UK could be high in some years, lower in others, while May has not ruled out the possibility that there may be some form of free movement during (part of) the transition period. But that is a long way from a future migration policy that looks something like today’s free movement.

Hard Brexit or on the road to a Norway-lite deal?

Does this somewhat more realistic approach – albeit with the denial still of how long a trade deal may take – mean that May and Davis are moving towards a softer Brexit? That remains to be seen – the shift in language is not dramatic. A sensible approach to a transition period and to initial exit talks is not the same as a sensible approach to a final UK-EU27 trade deal. And any deal that involves leaving the EU’s single market is going to create significant costs across the UK, and barriers to future trade with the EU.

May is clearly not aiming for the ‘WTO cliff’ where the UK crashes out of the EU into a certain legal limbo and facing tariffs on many of its good exports. So the Gove, Johnson, Fox more extreme Brexiteers, who appear to welcome such an approach, look sidelined on that for now. May has appeared to want a ‘Canada-plus’ style deal, where the UK gets at least as good a deal as Canada on goods trade but much better access for services. In Brussels, some have dismissed this – suggesting there is no better deal on services to be had than Canada’s. Certainly services liberalisation in trade deals around the world, including EU ones, has moved very slowly – and the UK faces a big impact on its services trade if it only has a ‘Canada-dry’ deal.

But is May after a ‘Norway-style’ deal in disguise? The EU has made clear it is not going to offer the UK a Norway deal minus free movement of labour (i.e. in the European Economic Area (EEA)) – and so in the EU’s single market – but without free movement. And anyway such a deal means the UK would be implementing EU rules across its economy but with no say in those rules, unlike today.

The EU27 have also been reluctant to consider a complex Swiss-style deal – and the Swiss too have signed up to free movement of labour. But perhaps there is a form of ‘Norway-lite’ that can appeal to both sides.

Just as the EEA has its own EFTA court rather than coming directly under the European Court of Justice (ECJ), the UK and EU27 could set up a joint legal oversight/disputes body – which from the EU side would doubtless involve taking account of ECJ rulings and law, but perhaps can be fudged from the UK side. If the UK were also willing to fudge its taking back control of migration policy, so that its new system is quite close to free movement of labour, would the EU27 offer more on services than their current positions suggest? And could ways be found to limit the impact of customs checks for rules of origin and other non-tariff barriers?

All this could perhaps be done, if there were the political will. It would be not as good as Norway/EEA, but might be better than a Canada-style deal in terms of economic outcomes. But it would require a shift on migration towards a soft new policy akin to free movement that currently looks highly unlikely given the politics of the Tory party (and such a shift would re-open the question of quite why the UK is leaving the EU). Even so, May might be going for a relatively open migration policy. But a ‘Norway-lite’ deal would also still require a laborious new set of structures and procedures all to give the UK government cover for moving away from a harder Brexit and towards something closer to what the UK has now as an EU member state (but no longer with a voice on the rules) while pretending it has met the demands of the ‘leave’ voters.

Where next?

Can May get this past her Tory backbenches and some of her front bench Brexiteers and will she try? Quite possibly not. And how would the opposition react? A Labour opposition that had not given up on the EU should surely, in the face of such a ‘Norway-lite’ deal, make the case that remaining in the EU after all is less disruptive, less costly and more democratic (in terms of a say over the rules). But with Labour’s current stance on Brexit, such a deal would, more likely, leave it rather sidelined. The Lib Dems and the Scottish National Party and Greens could argue that staying in the EU or EEA would be preferable. But May is going to be mostly focused on her own internal party dynamics for the foreseeable future.

Where does this leave Scotland and Northern Ireland? The softer the Brexit, the easier it should be to deal with the challenge of reintroducing a border between Ireland and Northern Ireland. But a complex, Heath-Robinson style ‘Norway-lite’ deal might even so create considerable additional bureaucracy and certainly involve customs checks and bureaucracy with the UK remaining outside the EU’s customs union.

For Scotland, and its possible second independence referendum, the softer the Brexit, the easier it will be to argue that there will not be too many additional costs and barriers to Scotland/rest of UK trade. And a fudged, rule-taking deal by May could still leave plenty of arguments for the pro-independence camp to suggest an independent Scotland in the EU is preferable – even while the unionists could argue back that Brexit was not as damaging as feared.

In the end, the UK is about to embark on a process of re-establishing barriers to trade between its economy and that of the EU27. Whether it does that in a fairly hard way with a Canada-style trade deal or a somewhat softer, fudged ‘Norway-lite’ deal, it is going to take tough negotiations over several years, involve substantial uncertainty and considerable economic and political costs.

Some retreat from a hard Brexit might be under way, but this may not be more than a shift to a more realistic approach to the first phase of exit talks. And whether hard, medium or soft in the end, Brexit will have significant costs. That is unavoidable.

Kirsty HughesKirsty Hughes | Twitter

Scottish Centre on European Relations

Dr Kirsty Hughes is Director of the Scottish Centre on European Relations. She is a researcher, writer and commentator on European politics and policy, and she previously worked for a number of leading European think tanks.