Brexit: A Self-Harming Rush to the Gates

The risk of UK simply crashing out of the EU remains high. The gap between popular expectations and practical possibilities remains dangerously wide. The implications of UK withdrawal have not yet, even by now, been fully discovered by the negotiators on the either side.

As new complications and hypotheses are emerging every day, it is clear that the two-year time limit to conclude the negotiation of the terms for UK withdrawal from the EU is far too short.

Part of the real-life complication is that any kind of Brexit means digging down into 40 years worth of trade deals, memberships and understandings, which the UK can only be part of so long as it is in the EU.

The mellifluous talk oft-heard on the British side about a “bespoke” deal only disguises that reality very thinly.
As it stands, the UK hopes to leave the EU on March 29, 2019, but to continue to have access to the EU market for a two-year Transition Period, ending on March 29, 2021. This date was presumably chosen because it is before the scheduled date of the UK General Election.

Transition period approach is a mistake

I believe this Transition Period approach is a mistake. I believe it would be simpler and wiser for the UK and the EU to agree to extend the period for negotiation under Article 50 by two or more additional years. This can be done by unanimous agreement.

This option should also be pursued by Mrs. May’s government once it is fully understood what a “two-year transition period” really means. Having left the EU as a member, the UK would still enjoy the benefits of membership of the EU Single Market and the Customs Union.

However, for the duration of the transition, the UK would not have any say in the making and in the interpretation of the rules of the Single Market and Customs Union, but would have to comply with whatever changes are made at the EU level.

The UK would also still be subject to the jurisdiction of the European Court of Justice and would still be contributing to the EU budget, on the same basis as if it was a member.

Businesses in the UK and in the EU would presumably be expected to be implementing changes in their business practice to accommodate themselves to the sort of arrangements that would apply in March 2021 when the UK had actually left both the Single Market and Customs Union.

What to prepare for?

The difficulty will be that no one would know for sure what to prepare for. This is because the EU and the UK could only start substantive negotiations of the terms of a future UK/EU trade deal at the beginning of transition period. Before it can negotiate any trade deal with the EU, the UK must first become a non-member of the EU.

The UK would also have to negotiate replacements for the hundreds of trade and other agreements it currently has with third countries as an EU member. Those would cease having effect once the UK had left the EU on March 29, 2019. As a matter of fact, getting any – never mind hundreds – of such trade deals in place is a practical impossibility.

An added difficulty is that the Withdrawal Treaty itself, and presumably the “Framework for a Future Relationship” only carry so far. More specifically, it can be agreed by a qualified majority in the European Council.

A future comprehensive trade deal between the EU and the UK would face more difficulty. Not only will it almost certainly require the unanimous agreement. If it covered services, many of which are regulated at national as well as EU level and which the UK is adamant about including, the deal would have to get ratification from all the national parliaments.

Good intentions are not enough

Moreover, the Framework may be full of good intentions, but they are not full of the sort of bankable legal commitments that businesses will need to make investment decisions.

Trade negotiators say that a deal as complex as the one the UK is seeking would probably take six years to finalize, not just two.

But, politically, a two-year transition may be as long as the UK can live with, because its government is in such a political rush to leave. By the time of the next UK election, the Conservative Party will not be comfortable if the UK is still in “transition,” implementing EU laws, contributing to the EU budget and under the jurisdiction of the ECJ.

But that is a problem and a concern solely on the British side, not that of the EU 27. Some speculate that, given the circumstances, the May government may be willing to pay a high price to finalize a Framework deal, just so the transition period can end within the two years.

Under such negotiating circumstances, the likelihood is that the deal will be a “bad one” for the UK. But rejecting that “bad” deal will not really be attractive for the UK either. Without a deal, the UK will be out of the EU and will only be able to trade with the EU on “WTO terms.” That would be really bad for the UK.

Plus, under the current calendar pushed by the Tories, all of this will be happening on the eve of the UK’s 2022 General Election.

Passing on the blame

In these circumstance, the UK government might be tempted to look for an extension of the two-year transition and leave it to a post-General election government to take the blame for any unsatisfactory Trade Agreement.

The problem is that a long transition period will be exceptionally difficult to sell in the UK. It would be seen at home as offending the principle of democratic representation and would likely be presented by some as “taxation without representation.”

Even so, I believe that wiser heads may prevail, not least because UK business – always close to the Tories – will demand it. Nobody can deny that the two-year time limit for the transition has created a fevered atmosphere in the negotiations. It has politicized them in a way that makes rational calculation of mutual interest more difficult, to put it very gently.

An early agreement to a substantial extension under Article 50 (3) would remove this problem, and would give the negotiators more time and space.

I have the sense that some in the UK are open to this possibility, but there is little appetite for it in Brussels. The reason is that there is a feeling in some continental EU countries that the UK has already taken up too much of the EU’s time.

In particular, David Cameron’s decision to prevent the Compact for the Fiscal Governance of the Eurozone being incorporated in the EU Treaties, even though they had nothing to do with the UK, has left a very sour taste.
Fear of the UK blocking EU reforms

There also is a fear that any extension of UK membership under Article 50 (3) could be exploited by the UK to block other EU reforms and/or to improve the UK’s position in the competition between the EU and the UK post Brexit.

Granting the UK such an extension of the time limit would also be seen by many as encouraging other sceptical EU states to use the threat of withdrawal as a bargaining tactic or a means of getting votes in national elections.
In this context, taking a tough line with the UK is not seen as “punishment” of the UK, but a matter of legitimate “self-preservation” by the EU.

Offering an extension of the transition time period would also interfere with the plans of a number of European leaders, notably including President Macron, to allocate some of the seats to be vacated by UK MEPs to MEPs who would be elected from a constituency of the entire European Union.

In the European Parliament itself, work is already being done on the allocation of the vacated UK seats. Some existing member states look forward to getting more seats.

Conclusion

Ultimately, this all boils down to the classic patterns of contract negotiations. If an individual wants to withdraw from a contract, he can do so, but he would normally expect to have to compensate other parties to the contract for the damage his unilateral decision might cause.

The May government, it seems, still wants to run away from that fundamental reality of life. It is viewed as wanting to eat its cake and have it too.

For all these reasons, I believe the UK, and the EU 27, need to take time out to think about where we are going with Brexit. Two years is not enough.

The rush for an early Brexit that motivated Mrs. May to write her Article 50 letter before her government had done its homework is, quite literally, an irrational basis for deciding the future of Britain.