After slow progress throughout most of 2017, the Prime Minister finally caved into the European Union on all three key divorce issues in December: the Irish border question, the rights of EU nationals in the UK, and the financial settlement. The estimated £40bn pay-out is expected to open the door to “Phase II” of the negotiations, during which the EU will be willing to discuss a future trade relationship with the United Kingdom along with a transition arrangement requested by Theresa May.
The December surrender revealed May and her Brexit sidekick David’s Davis’s weakness as negotiators, winning no concessions from Brussels while agreeing to pony up billions for further talks – but no guarantee of a comprehensive trade deal, control of our borders, or the supremacy of British courts.
The agreement has, however, reduced the likelihood of the UK leaving the European Union without a deal in place as a result of a negotiating stalemate. Both parties are now engaged in rampant speculation about the eventual outcome, with the UK government claiming to aim for a “Canada plus plus plus” agreement. Such an arrangement would mean a bespoke deal for Britain modelled on the recently agreed Canadian deal, but facilitating the maintenance of significantly closer economic ties, particularly for the UK’s gigantic services sector. The EU has issued a goods only deal vs. continued Single Market membership ultimatum, but panic across the continent over European dependence on the City of London is pushing the agenda for a third way.
By arranging a trade deal rather than continued membership of the single market or customs union, Britain would be free to control her borders and have an independent trade policy – two of the key red lines demanded by principled Brexiteers.
This seemingly insignificant component of the EU treaties attracted little attention during the referendum campaign, but it will be central to the process of withdrawing from the European Union in the coming months and years. Article 50 defines the pathway for any Member State to exit from the European Union. Following the Prime Minister’s notification of withdrawal to the European Council on 29 March, the clock has started on the two-year negotiating period, which will define both the terms of Britain’s exit as well as its future relationship with the European Union. Leave.EU will be reporting on Article 50 developments on a constant basis. Make sure to tune in, we’ll be unravelling it all.
Click here to learn more about the Brexit process, how we leave and when.
A BREAKDOWN OF THE OPTIONS
Listed below are the different options available. In principle, the country is headed for option 1, a bespoke trade deal, but Theresa May and members of her Cabinet have spoken in the past about the possibility of an extended transition deal that retains partial or temporary membership of the customs union or the single market. Secretary of State for Exiting the European Union David Davis has himself made noises about paying extra money to maintain special access to the European single market.
If negotiations break down Britain could revert to World Trade Organisation rules – the terms on which most nations around the world trade into Europe – with WTO chief Roberto Azevêdo making it clear that reversion to global trade rules would not be an economic disaster.
Britain will cease to be an EU Member State at midnight Central European Time on 29 March 2019. However, the transition period, which will essentially keep the UK in the open borders European Economic Area until at least December 2020. What Britain’s relationship will look like at that point is anybody’s guess.
Political instability caused by Theresa May’s failed attempt to boost her majority at the June 2017 general election, and the continued Europhilia of particular factions in opposition parties (and indeed in the Conservative party itself), could see Britain leave the European Union in name but stay closer to its institutions than many Brexiteers would like – with possibilities including continued membership of the customs union (placing the UK in a situation akin to Turkey’s) or the single market (the so-called Norway Option) or both. Equally, after the defeat of the withdrawal talks, perhaps the government will salvage some dignity and secure a comprehensive trade agreement. The option of a conventional WTO relationship remains open too, albeit a dwindling one.
1. THE UK NEGOTIATES A FREE TRADE AGREEMENT (FTA) WITH THE EU
The most relaxed of the formal options available to the UK is a typical free trade deal. Britain would retain full or partial access to the Single Market, meaning tariffs on the vast majority of goods would continue to be exempted. But there would be no requirement for the UK to adopt regulations from Brussels, nor would Free Movement be a pre-requisite.
2. THE UK REMAINS PART OF THE CUSTOMS UNION
The Customs Union in many ways mirrors the the EEA. Just as all EU countries are in the EEA, they are also members of the CU. Non-EU countries in the Customs Union are usually hoping to one day become fully-fledged EU Member States, whereas the likes of EEA Norway have decided not to join the EU but have sought a higher level of EU market access. Non-EU countries in the customs union include Turkey, free movement is not a pre-requisite as it is with the EEA. The EU will want to retain access to the UK labour market so the EU may seek to take the CU option off the table.
Besides, the CU carries a major drawback. Members must adopt the EU’s common tariffs (aka import duties). In other words, members of the CU cannot unilaterally raise or lower tariffs on any imports other than agricultural goods, and as a result, they cannot enter into trade agreements without the EU doing so first. EEA countries can. If Iceland was a member of the CU instead of the EEA it would not have been able to sign a trade deal with China.
3. THE UK REMAINS A MEMBER OF THE EEA
Under this option, Britain would still remain within the European Economic Area (EEA), which comprises of all the EU Member States plus three other countries, Norway, Iceland, and Lichtenstein. The EEA is essentially, the EU’s Internal Market, minus agriculture and fisheries. A ‘Norway-Style’ relationship therefore means the European Court of Justice will no longer be Britain’s supreme court, EU VAT requirements will no longer apply, agriculture and fisheries policies will be back under the government’s control, as will its ability to independently negotiate trade deals. A condition of remaining in the single market however is to adopt Free Movement, pay budget contributions to the EU, albeit at a significantly reduced level, and adhere to the EU’s single market regulations.
4. THE UK NEGOTIATES ITS OWN EEA TYPE DEAL
Switzerland, chose to arrange its own EEA-type deal with the EU. It has tariff-free access to the single market, but whereas Norway and the other EEA countries have chosen to weld most of their industries to the EU’s single market, Switzerland has opted to be more selective. The alpine country has still had to adhere to free movement of labour, but it has on occasion decided to restrict access to its labour market for non-Swiss nationals.
5. THE UK TRADES WITH THE EU THROUGH WORLD TRADE ORGANISATION (WTO) RULES
Should negotiations break down with the European Union for whatever reason, the UK would fall back onto World Trade Organisation (WTO) rules in its commercial relationship with the EU. The core principle of WTO membership is to treat all other members equally and the EU will not be able to impose arbitrary and prohibitive duties on imports from the UK.
ARTICLE 50 NEWS & BLOG
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