Brexit: why we are not out of the woods

Brexit: why we are not out of the woods

Yesterday’s agreement in Brussels will have been met with a significant amount of relief from the UK Government. A deal, in principle, on the issue of transition should allow the UK-EU negotiation process to move onto ‘Phase III’ – discussions around trade – should it be ratified at the EU Council later this week.

The importance of this milestone is not to be underestimated. Theresa May will hope that any promise of success in the coming talks, on the future relationship the UK will enjoy with Europe, will help the Government more clearly articulate the benefits of Brexit to the country that voted for it – something that has been lost thus far with procedural debate and significant scepticism stymying the Government’s attempts to set out an ambitious post-Brexit vision for the UK. Any cause for optimism in this phase will also be an important acid test for Theresa May herself, and her long-term future as Prime Minister and leader of her party, which continues to be fractured by the issue of Europe.

However, it remains the case that potential pitfalls lie ahead, with Ireland a major sticking point. It is telling that the significant, but as yet unresolved, points of the text relating to Ireland are currently comprised of the EU’s own ‘placeholder’ language, which calls for Northern Ireland to remain within the Single Market and the Customs Union. We already know this to be something which is intolerable to Theresa May, her party and to the DUP – with the latter of these being reassured by London that this draft agreement is a temporary fix to progress negotiations into Phase III. However, the EU’s inclusion of such a drastic ‘fall back’ option at this stage underlines the gulf that remains between the UK and the EU on the issue. While the UK continues to talk about the possibility of technological infrastructure as a potential border solution, the absence of a clear and workable outcome clearly concerns the EU greatly. It is undoubtedly alarming to Belfast, Dublin and Brussels also, that the UK Government has developed little more on the issue of the Irish border since the publication of the position papers in August 2017.

Even the key concessions the UK have won from Brussels bear qualification. While Theresa May will herald Friday’s agreement as a vital certainty for businesses and investors in the UK, the ‘transition’ deal is more a ‘standstill’ agreement with some incentives for either side on the areas on which political priorities have rested. For the UK, this means the ability to sign trade deals between March 2019 and December 2020, but only to be implemented following this. It remains to be seen whether third countries view the UK as a viable free trade negotiation partner while its status with the EU is still in flux. Indeed, the UK would find it difficult to determine its own priorities in a trade agreement with anyone until it has settled on its own priorities on an end-state relationship with the EU – who will regardless, continue to be the UK’s main trading partner.

For the EU, consistency in rights for EU citizens residing in the UK is a significant box ticked, as is successfully persuading London of the merits of shortening the ‘transition’ period by three months.

The outcome of talks, in Phase I and Phase II, is undoubtedly the result of the timing of Theresa May’s Article 50 declaration. While the ongoing impasse is a tendency London will hope to reverse in the coming trade talks, Brussels has been the clear leader of the process so far – often to the cost of ‘red lines’ in London – as we are seeing this week.

Back to thoughts