Brexit Briefing No.20

Brexit transition and trade relationship negotiations, continued uncertainty in Germany, French domestic strife and a Catalan crisis that only seems to deepen. 2018 promises to be an interesting year in the EU and a critical one for Brexit.

By the year’s end all sides aim to have an agreement in place that can be ratified, by the EU27 parliaments, the European Parliament and our own Houses of Parliament. Officially October is the deadline for this agreement, as outlined by the EU’s Chief Brexit negotiator, Michel Barnier, but as with all European negotiations that timetable may well slip somewhat.

In spite of the exciting times ahead Brussels remained very quiet this week as people gradually began returning to the European institutions after the Christmas holidays. As a result there were no Brexit negotiations this week.

However Brexit negotiations will have to hot up very quickly, there is much to discuss over the next ten months before the October deadline. December’s agreement on the first round of issues has opened the door to the start of negotiations on the transition deal and the future trade relationship.

So the first half of this year will be dominated by the transition negotiations.

The transition (or implementation) period agreement will govern the time after the UK formally leaves the EU in March 2019 until a future free trade agreement comes into force, most likely at the start of 2021.

On the surface these negotiations should be relatively straightforward as both sides agree that there should be a transition period and that this should run until the end of 2020. However, as is often the case in EU negotiations, the devil is very much in the detail. There are significant problems to overcome, some of which were highlighted in the last Brexit Briefing of 2017 (https://www.danieldaltonmep.co.uk/news/brexit-briefing-no19-christmas-truce).

transition calendar

There will be pressures on both sides. The UK would like to move to the discussions on the future post transition trade deal as soon as possible, and it is in a stronger position if the majority of these discussions can take place whilst the UK is still an EU member, rather than a third country.

The EU, mindful of this, has tried to postpone the future trade discussions until after the UK leaves the EU in March of next year, yet even Michel Barnier, the chief EU negotiator has had to relent on this and discussions on the trade deal should start in the second half of this year.

The EU has other challenges, most notably with regards to the budget. The current multi-annual budget ends on the 31st December 2020. For this reason the EU wants the UK transition to end on the same date so that it can plan for a future budget without the UK. If there is uncertainty about UK participation beyond that date it would cause considerable complications as the EU has already started budget negotiations between member states based on the assumption that the UK will not be contributing to the budget. This itself will be an area of significant difficulty for the EU this year as discussions advance on which countries are going to have to pay more as a result of the UK leaving or which EU programmes will have to be cut.

However, it is likely that the transition period negotiations will be completed by the end of the summer, meaning that there will be some certainty as to what the UK’s relationship will be with the EU after March next year. The next negotiating challenge will then be the future trade deal which will dominate the second half of this year.

It will be a long time before we know what the end point of those negotiations will be, as the EU will attempt to use the ‘legislative alignment’ wording agreed in the first phase of negotiations with reference to Northern Ireland, to keep the UK as close to the single market and customs union as possible.

However this is unlikely to be the end point because, unless a new system of deciding legislation was introduced, the UK would be unable to do trade deals or have any say over the rules governing the UK economy.

This all points to a Canada style agreement, which is what the UK government have been proposing for a long time. Even Michel Barnier has suggested that this is the only viable outcome, with a chart he has been showing to EU leaders leaking online (see below).

barnier chart

However there is much more at stake than just trade and so the most likely end point of will be a bespoke Association Agreement, most probably unlike any the EU has done with another country. This will include a trade deal similar but more advanced than the framework the EU agreed with Canada, a so-called Canada plus plus agreement that will need to take into account the special challenges the Northern Irish border poses, such as mutual recognition of standards. It will also probably include other agreements on aviation, security cooperation, criminal record sharing, customs facilitation, a probable extradition treaty and likely UK inclusion in the research and university exchange programmes.

This is an ambitious programme. Just how far the two sides can get through them before the end of the year remains to be seen, particularly given the fact that Brexit is just one of a number of storms that the EU is currently trying to navigate through.

Germany still has no functioning government after the elections in September and there is a chance that there will need to be another election. President Macron’s attempts at reforms in France are hitting domestic opposition. The EU and Poland are still at loggerheads over judicial reforms in Poland. An attempt to impose a mandatory refugee policy on member states is splitting the EU between East and West. The situation in Catalonia is no closer to being resolved and a new budget without the UK has to be agreed.

So 2018 promises to be a year of challenges and change for both the UK and the EU. Only one thing is certain and that is that no one can predict with confidence what the landscape will look like in twelve months time.