Brexit entering third phase as 2018 dawns

By Andrew Hammond

The United Kingdom will begin later this month formal negotiations on a Brexit transition period for when it is scheduled to leave the EU in 2019, before turning this Spring to trying to secure a final exit deal framework for the 2020s and beyond.  These milestones herald the start of the third, historic chapter in the long-running UK exit saga.

The first phase of Brexit came after the June 2016 referendum when there were sometimes heated intra-UK debates about leaving the EU which were re-played in the June 2017 general election too.  The end of this first chapter came with the triggering of Article 50 by the United Kingdom in March 2017 which started UK-EU discussions around divorce issues like the UK’s exit bill for leaving the Brussels-based club, post-Brexit rights for citizens, and the future of the Irish border.

On December 8, a preliminary EU-US deal was agreed on divorce issues, enabling the third phase of Brexit.  As 2018 dawns, it is already clear that this third phase will be the toughest, most complex set of negotiations yet in the process. 

The forthcoming discussions encompass not just the nature and length of Brexit transitional arrangements; and the parameters of the newly defined UK-EU relationship, including a new trade deal.  But they will also involve issues not fully resolved in earlier UK-EU divorce discussions, including the Irish border.

This is a massive agenda, and EU Chief Negotiator Michel Barnier has said that a framework deal should be reached by October 2018.  This implies an extremely tight window, especially given that any final, fundamental decisions from the EU side may not be possible until after a new German government is formed following last September’s elections.

The limited timeframe offered by Article 50 is exactly why UK Prime Minister Theresa May has suggested an “implementation phase” or transition to help smooth Brexit.  Such a period will help give time to adjust to new political and regulatory frameworks, although some leading Brexiteers, including former United Kingdom Independence Party leader Nigel Farage have slammed this option as “backsliding”.

While there is a growing sense amongst some stakeholders that a transition deal is now inevitable, it is not.  Barnier has said a transition would be "useful" but has to be time limited to from when the UK leaves the EU in 2019 until December 31 2020, the end date of the EU's current budget.

However, Barnier has also said it is important first to know more in 2018 about the UK's negotiating positioning. Specifically, “what the intentions of a request from the United Kingdom are, what they would like and what they are prepared to accept with the new [long-term] partnership” once the United Kingdom leaves the EU.

Remarkably, the UK Cabinet only had its first discussion in December about what it wishes the nature of the final deal with Brussels to be.  No details of this discussion have yet emerged so the most authoritative roadmap remains the two key speeches May gave in January and September 2017 in London and Florence respectively.  

In January 2017, May asserted that she does not want to keep “bits of the EU”, but would like a “bold, ambitious free trade agreement” with “the freest possible trade on goods and services”; a new customs agreement that would allow for “tariff-free trade with Europe and cross border trade that is frictionless as possible”, while leaving the Common Commercial Policy and no longer been tied to the Common Commercial Tariff.  At the same time, she aims to take back full control of immigration policy, and move toward ending the European Court of Justice’s jurisdiction in the United Kingdom.

Even with goodwill from both sides, it is very unclear whether these collective negotiating demands can be realised from the EU in the timeframe of Article 50 given its own robust negotiating positions.  This is especially so given May’s weakened political standing after June’s UK general election where she lost her parliamentary majority.

Indeed, it remains possible that her government could fall in 2018.  So with a significant amount now beyond her power, even more rests on whether the remaining 27 EU states will offer outlines of such a deal on attractive enough terms to her to accept.

European Commission President Donald Tusk has said that May is becoming “more realistic” about the trade-offs that will be necessary in the final negotiations.  Much will now depend on the flexibility of both sides, and here it is interesting to note, for instance, that the UK’s Secretary of State for Brexit David Davis has said that the government would consider making a continuing EU financial contribution to “get the best possible access for goods and services to the European market”.

Yet, even with the first phase deal reached on December 8, the talks could still breakdown in 2018.  Indeed, Lord Kerr of Kinlochard, the author of the Article 50 clause, has previously asserted that there is at least a one in three chance that no final overall agreement will emerge; and ultimately also that there is only a 50% likelihood of an orderly Brexit.

The stakes in play in securing a final deal, and transition, are therefore huge and historic not just for the United Kingdom but also the EU.  Delivering a smooth departure will need clear, coherent strategy and thinking so all parties can move toward a new constructive partnership that can hopefully bring benefits for both at a time of significant global geopolitical turbulence.

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