The transition deal: Is it even feasible?
Business in Britain has rarely lived through a period of greater uncertainty, short of war. In front of their eyes they see the need for clear investment planning fobbed off by government talk of no deals at worst and smooth transitions at best. The received wisdom is that, once the three phase one dealbreakers on money, citizens and Ireland are overcome, then all parties will settle on a workable, temporary post-Brexit arrangement. That no final trade agreement will be reached by March 2019 is a given. But the idea that the UK would remain in the single market and customs union on transitional life support will fall into place on April Fool’s Day, 15 months from now, is a comfort blanket everyone is clinging to.
But is it even feasible? Firstly, the proposed transition period amounts to taxation without representation. The UK will lose all the influence it currently has in the Commission, the Council and the European Parliament whilst continuing to pay the same annual membership fees for the transitional period. Secondly, the European Union’s chief Brexit negotiator, Michel Barnier, has told the UK it must follow all old and new EU rules during a transition period after it exits the bloc, and the duration of such an arrangement must be short. Thirdly, even if these concessions were barely acceptable as the price of Brexit, the transitional deal itself will hardly be smooth. In a recent speech by the former Irish Prime Minister, John Bruton, he referred to an article from the UK Trade Policy Observatory in which the authors suggested that Theresa May’s idea of a “transition” or “implementation” period of two years, after the UK had left the EU, might be very difficult to implement.
The problems are threefold. First, when the UK leaves the EU in March 2019, it will also automatically drop out of the EU Customs Union too. Unlike membership of the single market which has been extended to non-EU members, through the European Economic Area (EEA), the UK and the EU would have to negotiate a new transitional Customs Union. Apart from the difficulty of getting to that stage, both parties would have to notify the WTO of this new temporary Customs Union, which could potentially lead to protracted delays and negotiations with WTO partners. We have already witnessed these difficulties with the stand-off over dividing the EU agricultural quota. Continuing customs union membership is also the only key that opens the door to a solution of the Irish border issue.
Second, if the UK continue to reject the EEA option as a simple way of both leaving the EU but retaining single market access, the UK and EU would also have to reach agreement on how all EU single market regulations and directives would apply in the UK during the transition period. Let alone the domestic threat to the Withdrawal Bill’s survival, this agreement might conceivably cover issues on which EU member states retain competence. This might mean that the transition agreement would require ratification not only by the European Parliament but by all EU member parliaments. We have already seen how the Walloon Parliament delayed ratification of the EU-Canada deal. Who is to say a micro-assembly in some far off country won’t scupper the deal.
Thirdly, the so-called transition is just a bridge to the final “comprehensive free trade deal”, an as yet skeletal construct free from content because the government cannot agree on what it will be. A bespoke transition which is the preferred government policy – which is neither an EEA solution or a Barnier-style status quo – would in fact be the worst of all worlds. The former kicks the can down the road. The latter would require business to change its models three times within 10 years. From EU membership, to a transition, to a final deal. The government can offer no clarity at all on the last two stages making a stop-gap transition nothing but a Heath-Robinson contraption with more legal holes than a Swiss cheese.
Which is why, in a rational and sensible world, the government would by now be contemplating asking for an extension of the article 50 period. Article 50(3) states:
The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement … unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
Given any bespoke transition introduces pointless delays – the months spent arranging it will be time not devoted to agreeing the final deal – there are only two reasons why the parties would shun the chance of removing the arbitrary cliff edge inherent in the two year process.
First, given Article 50(3)’s requirement for unanimity it would only take one member state to reject an extension. But, in truth, the EU detests a cliff-edge and still, as Merkel and Macron have stated, wish for Britain to stay. Brexit in 2019 serves neither party’s interest. Extending article 50 removes at a stroke the seemingly insoluble issues of a hard border in Ireland. And, of course, money talks, with the UK remaining as a net contributor.
Second, would the UK turn down this olive branch if offered? As of today, the government rigidly adheres to the March 29th 2019 departure date. Loud voices want no resiling from this, cliff edge or not. They would doubtless reject this get-out-of-jail-free card. But Parliament would not. If put to the vote, an article 50 extension confronts the Conservative Party with an existential choice matched only by the repeal of the Corn Laws in 1846. As one minister ruefully said: “If we stop Brexit, we destroy the party; if we go ahead, we destroy the country.” Which might be a hidden reason the EU would offer May her cup of hemlock.