The EU27 agreed at their 15 December summit to let Brexit talks move onto phase two. Talks on transition and on an outline framework for a future trade deal will be the new focus. The EU’s guidelines – to be reinforced with more detailed negotiating positions on transition in January and on trade in March – are tough if unsurprising.
The EU27 have done their best to ‘David Davis-proof’ the talks – insisting that talks will continue only if last week’s phase one agreement, on EU citizens’ rights, the divorce bill and Northern Ireland, is respected ‘faithfully’ and turned rapidly into legal terms.
Transition – Short and without a voice
The EU27 have made clear they are willing to negotiate a transition period as part of the Brexit talks under Article 50. They note the UK’s desire for that to last about two years and underline that a transition must be ‘precisely’ time-limited. Those who hoped for a longer or indefinite transition that might even morph into a permanent ‘soft’ Brexit should now shed their illusions on that.
The UK, assuming the EU27’s position holds sway, will be out of the EU in March 2019. It will then, in transition, be under all EU laws and structures, including free movement of people, the European Court of Justice and EU trade policy (including the customs union) until some time early in 2021. But during transition the UK will have neither voice nor vote.
And then later in 2021 it will be completely separated from the EU – either with a new trade and wider relationship with the EU27 or under WTO rules. A ‘cliff edge’ Brexit, if such a transition deal is agreed, has not been ruled out entirely, rather it has been shifted to 2021.
Overall, there are few surprises in the EU’s position on transition. But the UK government is likely to resist having to give full rights to EU27 citizens who come to the UK during the transition. So that will be one big row. And the hard Brexiteers may try to resist staying under the ECJ and any new EU laws through to 2021. The UK will also want to be able to negotiate new trade deals with other countries despite being temporarily in the EU customs union. What sort of flexibility the EU will show on this, or not will be clearer in January’s more detailed negotiating positions.
‘Canada-Dry’ trade deal still?
The EU27 acknowledge that the UK aims to leave the EU’s single market and customs union. Their guidelines state that they will take that UK aim into account in their trade negotiating position, and that they will continue to protect the EU single market, avoid ‘upsetting’ relations with other third countries and ensure a level-playing field.
That means no special sector deals, no cherry-picking, no full single market access while not respecting all EU rules or free movement or the European Court of Justice. It also means the EU27 are not, as of now, working on the basis that the UK may have a ‘soft’ Norway-style Brexit.
So however the EU27 think the circle can be squared of last week’s crucial joint agreement to keep the Ireland/Northern Ireland border open – including the UK commitment to ‘full alignment’ with EU rules as a backstop – the starting point of trade and transition talks is not a soft Brexit approach. A major UK-EU27 stand-off is, then, likely in spring or summer 2018 on how to keep to the commitments on Northern Ireland.
More broadly, on trade, these guidelines look like what the EU’s chief negotiator, Michel Barnier, has said for some time. The UK is probably heading for a Canada-style trade deal. That will be hugely damaging to UK trade with the EU in goods, and especially in services. It means businesses in the UK who rely on just-in-time production supply chains across the EU will need to look at relocating, as will many services providers. A transition deal will not ease or even much delay such choices.
The EU27 are also clear in their guidelines that they are working towards a political declaration by autumn 2018 on an outline trade framework. The goal is to identify “an overall understanding of the framework for the future relationship” to be referenced in the withdrawal agreement. This is also as expected – and fits with Article 50 which refers to such a framework.
There will be no complete trade deal by March 2019. And indeed, to negotiate a UK-EU, Canada-style trade deal – plus pillars on security and defence and judicial cooperation – by early 2021 will be hugely challenging. If it can be done, it will be a basic deal at best.
The UK will, for sure, argue for a better trade deal than a Canada-style one – May already said this in her Florence speech. But equally with cabinet splits on the desired future UK-EU relationship yet to be resolved, the UK’s opening negotiating stance remains unclear.
And indeed the EU27 position may, in fact, be more welcome to the hard-line Brexiteers than those, like May and Hammond, who appear to be hoping for an in-between deal that delivers very good access to the EU single market.
If the tough phase two talks do lead to a deal by next autumn, it will be in two parts: a withdrawal agreement including a transition arrangement, and a political declaration on the goals of a future trade and wider UK-EU relationship. Now Westminster has secured a vote on the withdrawal agreement, MPs could choose to reject the withdrawal treaty on the grounds they do not support the outline future trade framework. But that will leave little time to negotiate anything different – if the EU27 were open to do that anyway.
But the debates on this will surely anyway intensify from March 2018 on, if not earlier, by when the UK will have had to set out some clearer goals on the sort of UK-EU relationship, May’s government wants. And the EU27 will by then set out in some detail the sort of trade deal that is on offer – given the UK does not want a Norway-style deal. May will not be able to keep fudging on wanting a ‘deep and bespoke’ deal. And Jeremy Corbyn will too come under greater pressure to clarify how a ‘jobs first’ Brexit differs, if at all from May’s position.
Both in the Brexit talks and in UK politics, some big rows and debates lie ahead. But for now, the pointers are still towards a hard Brexit.