Brexit Briefing No.19 - A Christmas truce?

Brussels has all but broken up for Christmas, however, given the conclusion of the first phase of negotiations and the agreement to start discussing the second phase, there is plenty to ponder as we enter the Christmas break, even as the attacks from Brussels on Poland threaten to poison the festive atmosphere.

As expected, on Friday the European Council agreed that sufficient progress had been made on the Northern Irish border, the budget and citizens rights and therefore agreed to open talks on the transition and future trade relationship between the EU and UK.

So attention now moves to the transition deal. This will govern the time after the UK formally leaves the EU in March 2019 until the future free trade agreement comes into force, most likely at the start of 2021.

The common perception, at least in the UK, is that these discussions will be relatively smooth and that a transition can be easily and quickly agreed before we move onto the much more complex future trade relations.

However this is likely to be optimistic, because both sides view the transition period in a different way. For the UK it is a period of gradual change towards the final destination outside of the EU, it’s single market and customs union. For the EU, it is about a non-member state being granted a preferential status as a member of those two policies, and therefore the main focus will be on ensuring that the UK is bound by all the rules of those policies, so as to avoid the perception that a non EU member state can get all the benefits of EU membership without the obligations.

The EU negotiating position to this effect was rubber stamped by the European Council last week, which agreed a position by which the UK adheres to all EU rules during the transition period, including free movement, the full single market & customs union, ECJ jurisdiction and budgetary contributions, but loses its voting rights. This is effectively EU membership without voting rights.

The UK is keen to avoid a situation where the rules change twice, once in March 2019 and again at the end of the transition period, so on the surface at least, the UK has generally accepted the principle that little will practically change during this period which has been described by the Prime Minister as the implementation period

However the transition period has to be transitioning the UK towards some sort of new relationship. If nothing changes then questions will be asked as to why the UK is accepting new laws which it has no say in crafting. In addition, the approaching cliff edge at the end of that period will be just as steep if the rules haven’t gradually moved apart in the intervening period.

Despite the insistence from the EU that nothing will change (apart from UK representation) that position will be very difficult to sustain. For example if the UK is to remain in the customs union for two years after leaving the EU then that would normally mean that UK businesses would lose the preferential access that the EU has negotiated with third countries such as Canada, South Korea & Mexico. (See more here: https://www.danieldaltonmep.co.uk/news/why-staying-customs-union-bad-idea)

In addition, the UK would not normally even be able to start trade negotiations with other countries whilst in the customs union. This is likely to be a red line issue for the UK, as without the ability to negotiate new trade deals, a smooth transition at the end of the process would be nigh on impossible.

The other area where there are likely to be significant problems is over free movement. The UK would like to register all EU migrants during the transition period but the EU currently insists that this is against the principle of free movement. However, given that many other EU member states, including Belgium, do register EU migrants, there is scope for agreement to be found on this.

fishing nets

One of the most difficult issues is going to be agriculture and fisheries. There is no precedent for a non EU member state to be in the Common Agricultural Policy (CAP) or the Common Fisheries Policy (CFP). Norway, Switzerland, Iceland and Turkey, all of whom have close relations with the EU, are all not part of the CAP or the CFP. For the UK to leave the EU but stay in these two policies, even for a short period, would be a significant change from EU norms and require some bureaucratic gymnastics from the EU institutions to make it work. Yet this appears to be the EU position, though not one shared by the UK and DEFRA Secretary of State Michael Gove.

Both the UK & EU positions here bring difficulties, even for the envisaged 18 month period. The EU would have to make significant payments to a non-member state and police and audit multi-annual programs outside the EU, something which it has never done before. Yet if the UK was not in these two policies it would complicate our access to the single market unless the UK followed EU rules fully, which would defeat the point of leaving them.

So there are significant challenges with the transition or implementation period, beyond what to call it. None are insurmountable but it will not be as straightforward as some have suggested.

To achieve a deal will require compromise and careful diplomacy between and within the EU27 and the UK. Which is why the crisis erupting over Polish judicial reforms is particularly bothersome for the British government. The Prime Minister is due at a bilateral summit with the new Polish Prime Minister on Thursday, a day after the European Commission is expected to recommend to member states a formal warning be issued to Poland that its judicial reforms risk undermining the rule of law.

Warsaw is furious at the interference from Brussels but should 22 of the 28 national governments agree with the Commission, it will issue a warning to Poland.

It is unlikely that the Polish government will respond positively to such interference.

This could mean that there is then a vote to trigger Article 7 of the EU treaty and suspend Poland's voting rights, an action never before taken in the EU. Such a suspension would require unanimity amongst the remaining (for now) 27 EU member states, including the UK.

The Polish government expects the UK to issue a statement that it would veto any such move. But to do so would anger many core EU member states, including Germany. Failing to risks alienating a close ally in Warsaw. Generally the UK has avoided antagonising other member states on internal EU issues since triggering Article 50, but this ticking time-bomb may be unavoidable.

Such challenges show the range of difficulties the UK faces even in negotiating a transition period during a particularly turbulent time in the EU’s history.

And waiting in the wings is the biggest challenge of them all, the negotiations on the future trade relations, which will dominate the second part of next year.

Yet they can’t even begin until the transition arrangements have been finalised, which will dominate the next six months.

2018 promises to be a very interesting year, and the Brexit Briefing will return in the New Year.