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26 October 2017

Government heading for a fall over unrealistic Brexit timetable

Written by: Pawel Swidlicki, Consultant Analyst at Edelman

Brexit

However Brexit may turn out in the medium to long term, the actual process of leaving the EU is proving bruising, draining, and uninspiring, and so it is understandable that the government wants to wrap it up as quickly as possible. That said, its current approach of treating the withdrawal agreement, transition period and future relationship as a de facto single package, to be agreed and ratified by 29th March 2019, is almost certainly doomed to fail.

Although this strategy dates back to the Lancaster House speech, it was one thing to say it before formally triggering Article 50, quite another to say it over a quarter of the way into a process in which precious little has been achieved so far amid frequent impasses. Yet in recent weeks, the government has, rather than playing down the prospect of a comprehensive accord being reached by March 2019, strongly reiterated its commitment to this objective.

Addressing MPs on Monday, Theresa May linked all three issues, arguing that the divorce bill would not be settled without an agreement on future trade terms, and strongly implying that, were it to prove impossible to agree the latter, it could mean no transition period at all as “in order to have that you need to know what that future partnership is going to be.” Indeed, this is why May herself uses the word ‘implementation’ rather than ‘transition’, as the former implies a strict technical enactment of something that has already been agreed, not extra time for further negotiations.

Philip Hammond and David Davis have subsequently clarified that the UK wants to secure an in-principle agreement on transition early next year, but the government’s current strategy envisages that this would only be formally signed off alongside the final agreement and this is highly unlikely to be done within the Article 50 timeframe, not least since there is yet no intra-Cabinet consensus on what exact form this should take. Remember, the UK is asking for a bespoke model with a unique balance of benefits and obligations; greater market access than Canada but more control than Norway. Even if successful, this would take considerable time and political capital to negotiate.

This means that far from having the certainty and stability that the transition was supposed to give to business, the entirely plausible prospect of it falling through altogether further down the track might prompt some to activate their worst-case, ‘cliff-edge’ contingency plans anyway.

On some levels, the government’s position is understandable – money is the strongest card it has to play, and although this is an unpalatable thing to say, citizens’ rights and the Irish border question also provide it with some leverage. As such, it wants to retain these advantages in talks over the future trading relationship, not concede them in the initial phase without knowing what kind of trading relationship it will later have with its by far largest single trading partner, possibly becoming stuck in an unfavourable ‘transitionary phase’ on a semi-permanent basis.

The EU side argues that the divorce bill relates to commitments the UK freely entered into and as such has an obligation to discharge them, regardless of any future arrangement which would be negotiated and ratified separately. That is what Michael Barnier means when he talks about the withdrawal negotiations being concluded by autumn of next year to allow for ratification – he does not envisage this including the ultimate UK-EU trade agreement which in his view will not be much better than the EU-Canada deal and yet still take “several years” to negotiate under Article 218 of the Treaties (as opposed to the Article 50 exit mechanism). This would then have to be ratified separately by 38 national and regional parliaments.

Furthermore, it is important to realise that the transition period will not necessary be easy or quick to agree, even though the UK has already conceded that this will take place largely on status quo terms. There are several tricky issues to tackle such as the question of funding, where the EU wants the UK to make separate payments beyond its Brexit bill commitments, the question of how the UK’s intended registration scheme for EU nationals will work – MEPs have already warned it looks discriminatory – and whether the transition will also apply to the Common Fisheries Policy which Michael Gove wants to repatriate on Brexit day itself. There is also the question of the legal basis for transition – but ultimately, with political will, the EU legal regime can prove remarkably flexible.

Ultimately this comes to cold, hard politics. Even if the EU has a point about the UK having outstanding obligations, it is simply impossible for the government to sign off on sending billions of pounds to the EU with little to show for it, never mind committed Brexiteers, even Remain-supporting MPs would struggle to justify that to their constituents and the EU has to be aware of that. The key, as the UK’s former Permanent Representative to the EU Ivan Rogers has said, is to find a way for both sides to ‘jump together’, for the UK to go further on the financial settlement and the EU on future trade.

The government may therefore want to consider changing tack and back away from its insistence that everything can be sorted out within the next 17 months, and instead aim to resolve the withdrawal issues by roughly this time next year, reach an agreement in principle on a transition/implementation period – this would be beneficial even under a ‘no deal’ scenario to allow businesses to plan and adjust – and agree upon the broad outline of the future relationship, with the details to be filled in during the transition.

This would still be ambitious but do-able, and would avoid the crunch point that we are heading towards on the current trajectory, when at some stage next year it will become more widely apparent that the government position is unsustainable. At that point, May will either have to concede that the new UK-EU trade deal won’t be ready and extend negotiations into transition period, or proceed on basis that there will be no such deal and instead focus on negotiating separate arrangements on issues such as aviation, data flows and technical compatibility of customs arrangements (a so-called ‘soft’ no-deal).

Either way, it would arguably be better to adjust course now rather than being forced into this position further down the line, at which point there will be less room for manoeuvre.

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