Brexit Roundup: Over the Transition Hurdle

Fabian Zuleeg | 16 April 2018

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Finally, there has been progress on transition. The general agreement on the nature of the transition between the UK and the EU27, led by the negotiation team under Michel Barnier, has finally put a withdrawal agreement in sight. The transition period until the end of 2020 is expected to be a standstill period, meaning that the UK will have all the obligations of membership but without the political rights of an EU member state. In return, the UK will, for the time being, continue to be inside the EU single market and customs union after Brexit in March 2019, providing business with the greater certainty that business organisations have been calling for ever more stridently.

Some of the implications of such a transition have been hard to swallow for the UK political system, especially the Brexiters in the Conservative Party: no control over fisheries, continuing jurisdiction of the European Court of Justice, the UK as a rule-taker, no independent commercial policy and so on. But, for now, the Brexiters have accepted this (temporary) ‘vassal state’ status for the sake of a definitive exit in March 2019. And the chance of an exit from Brexit is highly unlikely unless there is a political earthquake in the UK – and change would have to happen very quickly.

But British media, business and politicians might be a little overconfident. Nothing is signed and sealed yet, and some major hurdles remain. Westminster will have to vote on the withdrawal agreement at some point, with little indication of a majority for any specific version of Brexit – and with the leadership of both major parties seeing Brexit as inevitable, given the result of the referendum. But as well as the UK, the EU27 and the European Parliament will need to ratify the withdrawal agreement. While the EU negotiation team is keeping a close eye on the views of the member states, any specific issue could potentially derail the process.

This is already the case when it comes to the Irish question. The UK’s commitment to keep the border with the republic frictionless and without any physical infrastructure led to the December agreement, in which the UK accepted a ‘backstop’: if all other options fail (for the UK as a whole to have frictionless borders with the EU or an open border guaranteed through technological means), the UK accepts that Northern Ireland remains aligned with EU rules, which was read as meaning the NI stays inside the customs union and single market, implying a customs border in the Irish Sea. This will now have to be written into legal text. Given that Ireland has the backing of the other member states and the institutions, without it there will not be a withdrawal agreement. Theresa May thus needs to face down the DUP or transition will not happen.

There are still some further outstanding issues, both technical and substantive. The nature of the political declaration on the future of the UK-EU relationship is still unclear: how much detail will be required, and how specific will it be on the future model, including exit from the customs union and single market? There is also the question of whether there will be the possibility of extending the transition period. Unless the withdrawal agreement specifies a process and potentially the length of any extension, there will not be an option to continue the standstill period beyond 2020.

Thus, much uncertainty still remains at this stage of the negotiations. At worst, there might be no consensus on the terms of the withdrawal agreement, specifically on the Irish question, which could lead to a cliff edge by the end of the year at the latest. But even reaching a deal and the full ratification of the withdrawal agreement just signal the start of even more difficult trade negotiations.

When trade negotiations start, the process is likely to change. On the EU27 side, there will be a trade team in charge that derives its mandate from the individual mandates of 27 member states. Divisions on the EU27 side will make things more difficult at that stage. There will be no holds barred – all economic, sectoral and political interests will be on the table – and the EU is rather good at negotiating trade deals. But even assuming the best will in the world, this might be a difficult one to negotiate: essentially, this will be about distributing costs of disintegration. There are no gains from trade in a market that is already fully integrated and will become less so.

So, once again, the cliff edge looms. Whether it is now or by the end of 2020, the basic dilemma is unresolved: choosing between economic harm and crossing the Brexiters’ red lines. Only if there is significant political change in the UK, resulting in a solution like staying in the customs union and the European Economic Area, can the long-term cliff edge be avoided. But this is not acceptable to the Brexiters, as it clearly raises a number of uncomfortable questions, first-and-foremost: what was the point of Brexit if the best the UK can achieve is to minimise economic harm, but lose political power in the process?

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European Policy Centre

Dr Fabian Zuleeg is Chief Executive and Chief Economist of the European Policy Centre. He is also Honorary Fellow of the Edinburgh Europa Institute and Advisory Board member of the Scottish Centre on European Relations.