This week marked a key moment in the Brexit negotiations as the principles of the transition deal were agreed.
This will govern the time immediately after the UK leaves the EU in March 2019 and until the end of 2020 when a future trade relationship is due to come into force. It is the agreement on how the UK will leave the EU and once it is ratified by all sides it means that Brexit will certainly happen.
The discussions that follow on the future trade deal will therefore take place in a different environment, they will no longer be about Brexit, but about the trading relations between the EU and (from their perspective) a third country.
So this week marked a big step towards Brexit, and a milestone many thought the government would not achieve, but despite the political declarations celebrating the transition deal big issues remain to be dealt with. Ireland, Gibraltar and the ECJ's role have not been resolved at this stage, with ambiguous wording that enables all sides to agree. The risk is that by the time they are finally discussed and a framework agreed, which will ultimately define the post-Brexit relationship, the UK will already be out of the EU, which means that neither side can be sure what the final Brexit arrangements will be.
The agreed period for transition of March 2019 to December 2020 is three months less than the UK wanted but is designed to tie in with the EU’s new long term budget, which ends at the end of 2020. It could however still be extended if there is not a final deal on the future trade relationship ready to come into force at the start of 2021.
All existing and new EU law will apply to the UK during that period. The UK will remain in the customs union and pay into the EU budget. The single market and free movement will continue under current rules. Effectively, for most businesses and individuals it will mean little change to the existing rules.
However there are some changes. Firstly and crucially the UK will be able to negotiate new trade deals during this time, even though they won’t be able to come into force until after the transition period ends. In addition the UK will have no representation in the European institutions and therefore will have no say or vote in the new rules which come into effect during the transition phase. However, the UK will be part of a special regulatory committee which will allow British input into the early formulation of the rules and will monitor their implementation in both the UK and the EU.
There are still outstanding issues regarding the customs union and British access to trade deals that the EU has negotiated as once the UK leaves the EU its exports to countries like Canada and South Korea are no longer covered by the EU deals. The Commission has allowed the UK to talk to these countries to persuade them to continue offering access to British goods, but they do not have to agree, and there will potentially be an issue with the WTO as well in this regard.
In addition, how the Common Agricultural Policy (CAP) will work has not been outlined, as in theory that would mean the EU paying subsidies to non EU farmers unless the UK government takes over responsibility for the payments.
Fisheries has caused the most political difficulty in the UK with many unhappy that the UK will remain part of the EU fisheries management system during the transition. This means quotas for British fishing fleets will be decided in Brussels in December 2018 (when the UK will have a vote) and December 2019, (when it won’t.) However this situation will only last until the end of 2020 when, in theory at least, the UK will regain full control of its fishing waters.
However, despite the political declarations of success at the start of the week, problems soon emerged, with the Spanish government threatening to block the deal applying to Gibraltar. In theory this would cut Gibraltar off from the UK market during transition and this would be totally unacceptable to the UK, who only two weeks ago signed an accord with the Gibraltar government to ensure that the Rock’s access to the UK market continued during this period.
There was also text left in the draft agreement, which committed Northern Ireland to staying in the customs union post-Brexit if the EU was not content with the proposals put forward by the UK to avoid a hard border. This text was not agreed by the UK and so remains open, but it was left in the draft at the time of the announcement of the deal, suggesting the EU is likely to continue to push the UK very hard on this issue before the transition is fully agreed.
In addition the role of the European Court of Justice was not cleared up in the draft text, with the UK still having concerns about the unilateral nature of the court and its ability to potentially levy fines on the UK during the transition period.
So although the headlines this week were about a transition agreement, in reality we are still some way from this being fully ratified by both sides. In addition, bearing in mind the internal differences on Brexit across the 27 countries, the old mantra that nothing is agreed until everything remains the defining principle. As a result there is a possibility that everything in this week’s agreement could fall before the ratification which is expected at some point in the autumn, particularly given the outstanding problems with regards to Ireland and Gibraltar.
However, what the agreement did show, as with December’s push on the phase one deal, is that both sides want a deal. As a result issues which previously seemed intractable have been brushed aside with relative ease. That suggests that there is momentum and all the signs now point to a final deal being delivered before the end of the year.