Brexit: Leaving the EU – what lies ahead?

The current Brexit debate is mainly about the transition period which will probably follow the UK’s exit from the EU in March 2019. I say probably because, while both sides agree on the principle of transition, the matter has not yet been negotiated between the UK team and the Commission: the EU Council is supposed to decide at its March summit meeting.

Senior Ministers in the UK (“the Brexit war cabinet”) have been discussing the sort of future relationship they want to have with the EU, but they may be distracted from that by hearing what the terms of a transition are likely to be. In any event, another exercise á la Lancaster House, or á la Florence speech, sketching the future in aspirational terms without spelling out what concessions might have to be offered – will not tell us much. Equally the fabled “seamless and frictionless partnership” that they want as a trade deal, will not happen without changes to the ‘red lines’.

So what is at issue? In general the idea of a transition is neither new – it was being discussed as long ago as the summer of 2016 – nor a major problem; but the terms on which it will be offered will create difficulties. The British think it is aimed at implementing a deal already done, and allowing time to business to adjust to new conditions, which means full agreement on Article 50 withdrawal must be done by March next year. Many observers think this is not possible, if only because there is no obvious solution to the Northern Ireland question in sight, and problems there lead to similar problems in the overall exit scenario.

What seems more likely therefore is that the transition period will be used to continue negotiation on the end result, and that is why the Commission has been suggesting a status quo agreement that makes no big change immediately. Legally, the UK will be out of the EU, with some political agreement about the future framework, but in practice the UK will have to respect all EU rules and regulations – this includes ECJ jurisdiction and budget payments.

One area where problems will arise is the trade agreements with third countries. The EU formula for this is that the UK must comply fully with EU trade policy during transition, which means no trade policy independence or negotiating with third countries until later.

If this is agreed – pace Liam Fox – the UK might be obliged to continue FTA treatment to eg Korean goods while Korea considers the UK outside the EU and not eligible for reciprocal treatment. Questions might also arise at WTO which has a commitment to MFN treatment and rules that define when you can derogate from that.

I do not know what lawyers will make of this but it would seem possible to make a bilateral deal between Korea and the UK on reciprocal customs treatment to avoid this unbalanced situation. At WTO one might hope that other members would not challenge the legal status of the parties, and keep the issue under cover.

Future long term relationship with the EU

Assuming that transition is agreed, what more needs to be done? Issues such as citizen’s rights, which are linked to immigration control and free movement rights, and the border in Ireland are not yet fully resolved. The financial settlement, agreed in outline in December, is still subject to detailed calculations and liable to cause political problems. A series of sectoral agreements, on issues such as aviation and fisheries, and reciprocal health benefits, are also still to be confirmed. “Nothing is agreed until everything is agreed”.

Into this mix a new idea has just emerged. Media reports suggest that the British will propose an approach which aims at varying alignment/divergence in regulations between UK and EU. Dubbed as the ‘three baskets’ approach this would imply total alignment with identical regulations at one end and virtually total rejection at the other, with divergence from the EU the rule. In between the proposal would be to seek agreement for regulations to be aligned where there is a shared objective but where that can be achieved by different means.

The EU has immediately commented that this would be unacceptable, and would amount to ‘cherry picking’ and therefore undermining the Single Market; but the more important question is what this approach would achieve? If the underlying objective is to secure some form of privileged access to the EU market, for services for example, it seems clear that this is not likely to be the result. Moving out of the Single Market and the Customs Union will have serious consequences, and the fact that there is no commitment to the legal framework which underpins these two institutional pillars is a major block to the concept of a seamless partnership.

Theresa May is to make a major speech later in the week.