Place your bets and prepare for a year of Brexit breakthroughs
The Brexit rollercoaster ride began in March 2017 when Theresa May triggered Article 50, starting the formal process for the UK to leave the EU.
There have been thrills and spills, highs and lows, but the year ended well, with an agreement that talks could move to the next stage.
On 14 December, the European Council judged that “sufficient progress” had been made across the areas under discussion in the first phase of the Brexit talks for the negotiations to move on to transition arrangements and trade.
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There is still ambiguity on several of the first-stage issues, but the deal was an important accomplishment for May. Securing a deal has guaranteed the Prime Minister’s political survival, at least in the short term.
The phoney war is over. The EU and the UK can now spend 2018 negotiating the substantive business of the future trading relationship, on which the livelihoods of millions depend.
The December agreement was no mean feat, and the UK government has made fewer concessions than many had predicted.
On the Irish border issue, the government has committed to finding a solution that avoids the creation of a hard border within the island of Ireland as a result of the UK’s withdrawal from the Customs Union and the Single Market.
However, the phrasing of paragraph 49 of the 8 December joint report from the UK and EU negotiators is open-ended, and does not commit the UK to anything concrete.
The role of the European Court of Justice (ECJ) will be limited after the UK leaves. An independent UK authority will oversee the implementation of citizens’ rights, and will refer cases to the ECJ for up to eight years.
Some Brexiteers may baulk at the extended period during which the ECJ will have some oversight of the UK in this area. However, the referral process is a voluntary one, and only a few cases each year are likely to be referred.
Finally, the two sides have agreed on a formula for estimating the financial settlement, which adds up to a net payment of £35-39bn – a far lower sum than the £100bn touted by the EU.
Even this sum is too much for many Brexiteers, but it will be divided into small annual payments spread over many years. If the quid pro quo is a reasonably open trade deal that allows the UK to negotiate new trade agreements with others, many will accept that it is a price worth paying.
Furthermore, everything agreed so far appears to be contingent on the final agreement on the future relationship, encapsulated in the formulation that “nothing is agreed until everything is agreed”.
This may explain why leading Brexiteers have been supportive of the deal. They have judged any concessions to be acceptable, and also believe that the UK can row back on these at a later stage if the final deal is not satisfactory.
And so, despite the ups and downs of 2017, the UK remains on course to leave the EU in March 2019. The only question will be on which terms it will do so.
Talks on a transition period, likely to last no more than two years, will begin soon, and trade talks will get under way in March.
The EU has rejected UK chief negotiator David Davies’ ambition of a “Canada plus, plus, plus” trade deal, and is apparently preparing to offer a more basic Canada-style deal. This would fall short of what the UK would like, giving limited access for services.
The UK will however be hoping that, in the end, the EU will have to give it a bespoke deal commensurate with its importance for EU trade. The UK, after all, is a far more important player for the EU economy than Canada, Norway, or Switzerland.
Much depends on how adept the UK negotiators are in pursuing Britain’s interests. May will have to keep a grip on her cabinet, and it is important that the government presents a united front in the second stage of the talks.
On matters of trade, there is also some potential to pursue divide and rule tactics vis-a-vis the EU27, many of which are highly dependent on trade with the UK, with some more sympathetic to the UK’s more liberal approach to trade.
The risk of a breakdown in talks is high. Many in the EU will still want the UK to be punished in some way, lest it sets an example for other possible departures.
Nevertheless, despite numerous obstacles to the successful conclusion of the negotiations, compromises should make a deal possible, given the strong economic incentive to maintain existing trade ties.
In terms of Brexit, there is all to play for in 2018.
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