Brexit entering third phase in 2018

By Andrew Hammond

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

The first phase of Brexit came after the June 2016 referendum when there were sometimes heated intra-U.K. debates about leaving the EU that were also replayed in the June 2017 general election.

The end of this first chapter came with the triggering of Article 50 by the U.K. in March 2017, which started U.K.-EU talks about divorce issues such as the U.K.’s exit bill for leaving the Brussels-based club, post-Brexit rights for citizens, and the future of the Irish border.

On Dec. 8, a preliminary EU-U.S. deal was agreed on divorce issues, enabling the third phase of Brexit. It is already clear that talks about this third phase will be the toughest yet in what may also prove to be the most complex peacetime negotiations London has undertaken.

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

This is a massive agenda, and the most definitive statement yet from Brussels came from the EU Commission’s chief negotiator Michel Barnier when he said a framework deal should be reached by October 2018. This implies an extremely tight window, and Barnier has also proposed four to five months for ratification.

This timetable, which could potentially be extended beyond two years if all 27 remaining EU member states agree, is especially short 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 U.K. Prime Minister Theresa May has suggested an “implementation phase” or transition to help smooth Brexit. Such a period would 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 among some stakeholders that a transition deal is now inevitable, it is not. Barnier has said a transition would be “useful” but has to be limited to from when the U.K. leaves the EU in 2019 until Dec. 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 U.K.’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 Britain leaves the EU.

Remarkably, the U.K. Cabinet only had its first talks in December about what it wants the nature of the final deal with Brussels to be. No details of these talks 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 did 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 as frictionless as possible,” while leaving the Common Commercial Policy and no longer be 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 Britain.

Even with goodwill from both sides, it is very unclear whether these collective negotiating demands can be realized 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 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 terms attractive enough 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 U.K. 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 Dec. 8, the talks could still break down in 2018. Indeed, Lord Kerr of Kinlochard, 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 percent 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 U.K. but also for 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.

Andrew Hammond is an associate at LSE IDEAS at the London School of Economics. Contact him at andrew.hammond.james@gmail.com.