Brexit Briefing No.24 - Transitioning

This was the week when both sides firmed up their positions ahead of the negotiations on the second phase of the Brexit talks - the transition period which will govern the UK-EU relationship from March 2019 for a minimum of 2 years and possibly for a little longer.

The transition, or implementation phase as the UK government prefers to call it, is actually far more important than it appears at first glance.

At the completion of these negotiations, possibly in March but more likely towards the end of the summer, the mechanism for the UK to leave the EU will be complete. There may not yet be a future trade deal, but there will be agreement on how and when the UK leaves the EU.

As a result the next few months are likely to be rocky in British domestic politics, as the political forces both for and opposed to Brexit brace for one final push. Either to get Brexit over the line and shape what type of Brexit emerges or in a final attempt to block or delay it.

Palce of Westminster

Skirmishes can be seen everywhere, with increased calls for a second referendum on the final deal, media reports of MPs moving against the Prime Minister, the leaking of government reports on the economic impact of Brexit, calls for Article 50 and the transition period to be extended and a controversial US president offering a free trade deal for the UK once it leaves the EU. All this is playing out against a backdrop of time running out before the UK leaves the EU at the end of the March next year.

So despite the manoeuvrings and shenanigans the main focus will still need to be on what will happen after that date.

This week therefore provided some welcome clarification on what the transition period will mean.

From the EU side the position is clear. They propose that the UK should be a full member of all aspects of the EU and all EU policies except one - actually being a member of the EU.

That means that the UK will apply all the rules and get all the costs and benefits of the EU but will not have any representation in the bodies that decide EU rules and manage those policies. No MEPs, no Commissioner and no representative in the Council, and no votes in any of those institutions. This means that the UK will, during the transition period, take all new EU rules even though it will have had no role in shaping those rules.

European Parliament

The British government appears to be prepared to accept most of those principles, for a limited period, if it can ensure a smooth transition.

It gives certainty and avoids a cliff edge in many areas. It also meets the most basic requirement of the referendum result, i.e. the UK will have formally left the EU.

However, the forces that led to the referendum result were because of the impact of those EU rules, something which, under this scenario, will not change for at least two additional years.

This is already fuelling dissent and dissatisfaction within the British Parliament. However, given the very short time frame it appears to be the only realistic option which would ensure that talks progress to the future trade negotiations whilst the UK is still applying EU law fully.

This is crucial in order to ensure that the UK can get the best and closest future trade deal with the EU. If rules diverge before the trade deal is finalised, it will make it much harder to get a deal that ensures mutual recognition of standards.

In addition, the UK position does not completely align with the EU one in two major areas. The first is free movement. The EU wants free movement to continue until the end of the transition agreement with all EU nationals (and UK nationals moving to Europe) that arrive during that period to benefit from the right to stay provisions guaranteed by the withdrawal deal. This will be exceptionally difficult for the British government to agree to.

Passport

In addition, the UK wants to be able to renegotiate and update the 750 international agreements that the EU signed on the UK’s behalf. Some of them include trade deals, which the UK needs to update in order to continue benefitting from them during the transition, as otherwise the UK will lose market access to a number of economies around the world (even though those countries can keep their access to the UK market by virtue of the EU deal). Crucially, the UK also wants to be able to start negotiations on post-Brexit trade deals with third countries which can be ready to come into force on the day the transition ends. A potential deal with the US, proposed this week by Donald Trump, is the biggest prize but there are many other countries which the UK would also like to start talks with, and with whom it believes it can have deals ready to go at the end of the transition.

Whilst the EU probably sees free movement as non-negotiable, it is likely to accept the UK trade demands, partly because if it doesn’t, many products which are assembled in the EU but which contain parts made in the UK, will not qualify as EU products under the rules of origin principles of international trade. They will therefore not benefit from the trade deals when exported.

Industry

Despite this, the current EU position is that the UK can only start these talks after the EU has given approval. It remains to be seen in practice how the EU could practically enforce that though.

Whatever rules are agreed, they will only last for 2 years. However this issue sets the scene for the future debate about what is the future relationship the UK wants with the EU and is another reason why the transition negotiations are a much bigger battleground domestically than is apparent at first glance.

If the UK is successful and able to negotiate trade deals that will close the door on the future option of staying in the customs union. I have written at length (https://www.danieldaltonmep.co.uk/news/why-staying-customs-union-bad-idea) about why the UK shouldn’t remain part of it post-Brexit, however this is the preferred option of many in the UK, including, it appears, the three main opposition parties.

So the next few months will be crucial. It is now or never for the negotiations and for the shape of the future relationship. As a result, there are likely to be some fireworks along the way. However, the most likely outcome is that a transition deal along the lines outlined above does eventually get agreed.

Then the battle will start on the future trade relationship.