This Briefing was written on 3rd Dec 2017
As we write this Briefing, early on Sunday Dec 3, it would appear that the EU and the UK are moving towards a position where the EU Council (heads of government) at its next meeting on December 14/15 will be able to declare “sufficient progress” in the Article 50 discussions to date to allow them to move on to the next stage, which will focus on the “framework” of the UK’s future relationship with the EU.
However, as one diplomat put it, until we see what has been agreed “on paper” rather than “in the papers” it is wise to withhold judgement. But it does seem that the logjam on citizens’ rights has been broken by the UK conceding an ongoing role for the Court of Justice of the European Union (CJEU) in upholding the rights of EU citizens resident in the UK after Brexit.
The UK has also agreed to meet all its outstanding financial obligations to the EU, estimated at around €50 billion net, while accepting that this money does not buy a future trade deal of any type, even if, for the moment, UK cabinet ministers are not exactly making that clear to MPs in the House of Commons.
What happens when the penny drops with Conservative MPs about the nature of the financial settlement and the ongoing role of the CJEU is anyone’s guess. For an honest assessment of the situation by an arch-Brexiter see here (behind a paywall). It is one thing to make promises across the negotiating table in Brussels. Delivering them as a minority government in Westminster is another, as this BBC report on the latest list of “red lines” drafter by Brexit hardliners makes clear.
The possibility of the reestablishment of a border in Ireland continues to be the most intractable of the three A50 issues. Effectively, the EU27 has made it clear that Ireland has a veto on “sufficient progress”, if it is not satisfied by commitments from the UK that there will be no border after Brexit. The president of the EU Council of Ministers, Donald Tusk, made that clear during a visit to Dublin on Friday, December 1 when he said:
“Let me say very clearly. If the UK offer is unacceptable for Ireland, it will also be unacceptable for the EU.”
For the complexities of the “Irish Question” see this excellent analysis by RTE’s Tony Connolly: here
However, let us assume that an answer is found to the “Irish Question” and the EU Council agrees that sufficient progress has been made to allow the discussions to proceed, what happens next?
Before discussing this question it is critical to keep in mind that, as matters stand, having served the Article 50 notice, the UK will leave the EU at midnight, Brussels time, on the 29th March 2019. At one minute to midnight the UK will still be an EU member. At one second after midnight it will no longer be a member. In EU terminology, it will be a “third country”, albeit one with an exit/transition deal, which we come back to later in this Briefing. Once the UK is out of the EU after midnight on March 29th, 2019, there is no easy way back. The UK would have to apply to re-join. While accession could be fast-tracked it would be on different terms and conditions than the UK currently enjoys. No budget rebate, for example. Membership of the euro anyone?
As things stand, the only way the UK can avoid quitting the EU on March 29, 2019, would be for the House of Commons to vote to withdraw the A50 notice. Were that to happen, then legal and political signals from Brussels and European capitals suggest that the EU would agree to the withdrawal, through it is unlikely that the matter would be straightforward. The EU would surely not accept a situation where the UK was permanently sitting on an A50 notice which it could reactivate at any time. There would need to be certainty and finality that Brexit was over.
But let’s be clear. There is no evidence that any move to withdraw the A50 exit notice would win majority support in the House of Commons at this time. For business, the working assumption has got to be that the UK leaves the EU in March 2019. Everything else flows from that.
To move on. We noted above that there appears to be a mistaken belief on the part of many Conservative MPs that the offered €50 billion is conditional on a trade deal acceptable to the UK. A second mistaken belief on the part of MPs of all parties is that if the EU Council agrees to allow the discussions to move to phase 2 then talks will immediately open on the substance of a trade deal. That is not what will happen.
Article 50 of the EU Treaty states:
In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.
The Article 50 talks will only focus on the “framework” for the future relationship between the EU and the UK, not on the substance of that relationship. Detailed negotiations on the substance of the relationship (trade deal) will only begin when the UK has become a third country, after March 29, 2019.
All that will be on the table during the A50 discussion is an outline of the type of trade deal that the EU will offer the UK in the future, after Brexit happens. As of today, the best that the UK can hope for is a trade deal along the lines that the EU has signed with Canada, which focuses mainly on trade in goods, with relatively little to say about services, which constitute about 80% of UK economic activity.
But the UK hopes for more than “Canada” and every day UK newspapers are full of statements and reports from UK trade groups arguing for a “special” deal for their sector which would leave things more or less as they are today, as if that sector continued to be still in the single market and the customs union.
This is not going to happen.
How do we know? Because the EU has said so. Everything the EU has said during the Brexit process so far has happened, even when UK ministers waved away such statements as “negotiating posturing”. As the Financial Times noted (here) developments to date have been nothing more than a series of “UK concessions” marking a “slow surrender to Brexit reality.”
As Charles Grant of the Centre for European Reform notes, UK negotiators:
…hope that the member-states most dependent on UK trade will push the Commission to offer the British a better deal than the Canadians, that is to say one with more on services. So far the EU shows few signs of softening. But if it did ever grant the UK anything close to single market membership in specific areas, it would demand cash payments, compliance with EU rules and ECJ rulings, and perhaps a liberal UK regime on migration. If all went smoothly, a generous offer from the UK on security and defence co-operation could encourage the EU to accept Canada Plus. (here).
Further, when it comes to going beyond “Canada” the EU will be mindful that any concessions it makes to the UK could be claimed by other countries, if such concessions were seen to breach WTO rules. Though, to be honest, the intricacies of international trade policies are beyond our competency and are fully understood only by the trade Illuminati.
So, the ”framework” that the EU will put on the table in 2018, during phase 2 of the A50 talks, will be a framework for a trade deal that comes nowhere near the trading arrangements on manufactured goods, agricultural products, fisheries and, most importantly, services that the UK has as a member of the EU.
The EU is also likely to offer the UK a strictly, time-limited transition deal, of probably about two years, during which the UK will be a de facto if not de jure member of the EU, with the UK accepting during the transition the EU’s four freedom of movement principles, of people, goods, services and capital, as well as being subject to the jurisdiction of the CJEU.
During the transition, additional payments, over and above the €50 billion, will fall due. During the transition nothing will change and trade in goods and services, including financial services, between the EU and the UK will continue as of today. However, the UK will no longer be able to nominate an EU Commissioner, elect members of the European Parliament, or have a judge on the European Court.
During the transition discussions will open on the substance of the future trade agreement between the EU and the UK. We use the word “discussions” rather than negotiations because, the brutal truth be told, these talks will not be negotiations as most of the readers of this briefing, seasoned labour relations practitioners, understand the meaning of that word. It will be damage limitation on the part of the UK because the UK has initiated a process which it knows will leave it worse off than it is today. No one “negotiates” to make themselves poorer. There may be times when you are forced into such a situation, but Brexit is the first known example of the losing party initiating the process.
Just how much can be achieved in two years is also open to question, conjuring up the possibility of a mutual decision by the parties to extend the transition period. “Strictly time-limited” may turn out to be a somewhat elastic concept, capable of being stretched and stretched.
It is also worth keeping in mind that a transition period does not make Brexit “harder” or “softer”. It just postpones it for a few years, however long those years turn out to be.
Whatever deals emerges from these subsequent trade talks which, to repeat, will only take place after the UK ceases to be a member of the EU in March 2019, will, more than likely, have to be ratified by national parliaments. That could well be a tough ask, especially if there is any suggestion that the UK would be free in the future to undercut EU social, environmental and other standards.
A country like Ireland may even consider that the deal would have to be ratified by referendum, to establish the “will of the people”. Funny thing this ¬“will of the people” stuff. Apparently it is not just limited to the UK and other people in other countries might have other “wills”.
The EU’s chief negotiator, Michael Barnier, has said that the A50 negotiations must conclude by around October 2018, to allow time for national governments to consider the proposed agreement and for ratification by the EU Parliament. So, as of October 2018, the UK House of Commons will know what is on offer:
1. The UK must meet all its existing financial obligations to the EU, approximately €50 billion net.
2. The UK will be offered a transition deal or around 2 years during which nothing much changes.
3. The UK will be required to make additional payments to the EU over and above the €50 billion during the transition.
4. All that will be on offer after the transition will be a Canada style deal on terms and conditions considerably inferior to those offered by EU membership, or even by membership of the single market and the customs union.
5. Whatever trade deal is eventually negotiated could be subject to ratification by national parliaments in all EU27 member states. In effect handing 27 vetoes to 27 national parliaments.
Confronted with this reality, in all its nakedness and stripped of political spin, will the House of Commons vote for it? The UK’s Secretary of State for Brexit has told the Commons that if MPs vote down any deal then the UK will simply leave the EU without a deal. But then Davis also told the Commons that any deal would only be done at a minute to midnight on March 29, 2019, leaving no time for a meaningful vote or any time to reconsider the Article 50 exit notice.
If the House of Commons knows what is on offer six months before March 2019 then there is a time for a rethink. Could there be a rethink? From now to October 2018 is a very long time in politics.
A lot could happen.
For example, the idea that there are trade deals aplenty to be done with other countries to compensate for the loss of EU trade, could take a knock, especially if political uncertainty in the US puts a UK/US deal on hold. A collapse of the existing NAFTA deal would underscore how difficult trade talks with the Trump administration can be.
There is a long and winding road ahead, making it difficult to see the final destination. Developments over the next two weeks will be critical.