24 Oct 2018

Buying Time: Why the option of extending the transition period might assist the Brexit process

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After months and months of shadow boxing, there are signs that the finest minds in Europe are now focused on resolving the Irish border impasse in a manner that satisfies all of the following: the EU, the Irish Government, the UK Government, the ultra-Brexit contingent of Conservative MPs, and the Democratic Unionist Party. At first sight, this might seem an impossible set of characters to find a satisfactory solution for. Indeed, the dilemma (and the solution) was described to me earlier this week by someone very close to the talks as akin to “how does a man with only one arm and hence one hand and, furthermore, only three functioning fingers on that hand complete a Rubik’s Cube?”. The answer? “He hands the cube to a friend with two hands”. As far as the UK is concerned, that potential friend is the Dublin administration. The Republic has everything to lose from anything akin to a hard Brexit. It would find itself being compelled to erect a physical border that it hated. Not only would this be undesirable but expensive. There are considerably more crossing points on the 399km North-South boundary (it is typical of this infuriating process that the frontier could not be a round 400 km) than the whole of the European Union’s eastern frontier. Dublin badly needs an EU-UK deal.

This may well explain why the first person last week to suggest an extension of the agreed transition period (which presently is due to expire on 31 December 31 2020) was the Irish Foreign Minister, and why it has been the Irish television channel RTE which has been reporting, albeit very tentatively, that the EU might be willing to contemplate an all-UK solution to the “backstop” question and quite possibly as something which is legally separated from the formal Withdrawal Agreement and the Future Framework, but is still, nevertheless, a legal agreement between the EU-27 and the UK. If so, then the remaining complicated element of this technically (never mind politically) is how to bridge the gap between the EU’s insistence that such an accord is not “time-limited” and the equally firm stance of the UK that any such settlement must not risk locking it in to a backstop it cannot escape. The paradox of all this is that both sides expect that they will end up reaching a free trade pact of some kind that covers the Irish border conundrum by a mixture of technology and inspections.

Which is why the whole notion of the option of extending the transition period has emerged as an alternative backstop to the backstop to the EU’s latest backstop to the backstop, which involves retaining the notion of Northern Ireland alone remaining in the single market and customs union, as the ultimate default position if a UK-wide temporary customs arrangement was deemed imperfect. As ministers have rushed to insist that an extension to the transition arrangement would be (a) just an option and (b) would last but a matter of months, a reasonable person (although such people do appear to be in short supply in this whole Brexit saga) might entirely properly ask, in the epic words of The Smith’s single title, “What difference does it make?”. More than “none” is a fair assessment.

The concept of extending the transition period may serve to mask fudging the border issue

If, in theory, the alternative backstop to the backstop were that the whole of the UK were to stay either in the customs union while outside the transition period or, instead, in an extended version of the transition period (and hence in both the single market and, de facto, the customs union) until the final free trade agreement were signed, sealed and delivered, but with, conceptually, the right to offer notice via a notification arrangement that it was abandoning this understanding, the Rubik’s Cube mentioned above would be dealt with. Intellectually, one concedes, this would be verging on the utterly risible as a solution but these are desperate times so it would do nicely, thank you. It would allow the Withdrawal Agreement to be terse about how the Irish border matter would be dealt with, simply announcing that all sides agreed, legally, that it would be handled in a fashion that recognised the integrity of the single market, the letter and the spirit of the Belfast/Good Friday Agreement of 1998 and the St Andrew’s Agreement of 2006 and the economy unity of the UK, while deferring the more challenging stuff ideally until much later (better still, never) and sticking some very nice words in the Future Framework about how none of this backstop stuff will ever be needed. A ludicrous non-compromise compromise you might claim. See if Ladbrokes will offer you odds on it.

The current transition period is tight to reach a final EU-UK free trade agreement anyway

The second argument for having the elasticity within the withdrawal terms is that the time that has been allotted for securing the eventual deal between the UK and EU is tight as it stands. When the Prime Minister first proposed a transition period (her Florence address of September 2017) it was for “about two years.” Back then privately ministers thought “about two years” really meant about 27 months as 30 June 2021 was their ideal target. The EU did not like that because it wanted any transition to end at the same time as its seven-year budget cycle, namely 31 December 2020, and so that was the agreement reached. Somewhat strangely, at the EU Council last week, all of the 27 had forgotten their previous insistence on that date and were relaxed about extending it. Never mind.

That the present timetable is tight is as much due to politics as process. The EU Parliament will shut up shop on 18 April in advance of its own elections in late May. This will trigger a potentially complex procedure by which the new President of the European Commission will emerge. Once that event has happened, a whole lot of overwhelmingly new commissioners will have to be selected and their portfolios allocated in a manner which will make market stall haggling look like the Bolshoi ballet. It is also highly likely that Michel Barnier will stand down as chief EU negotiator for “Phase Two” of the deliberations and be replaced by some other poor soul (who the UK hopes will be a proper northern European). All of which means that while lots of comparatively technical subjects around the EU-UK final deal can be dealt with in the first nine months or so of next year, the more sensitive political question of whether the model is Switzerland, Ukraine or Canada will not be addressed until Q4 of 2019 at the earliest. It will then have to be settled at something close to warp speed as the deal really has to be done by the summer of 2020 on the present schedule as it has to be ratified by every single member of the EU, as well as the UK, according to whatever their national rules for this are. Having the chance to buy more time for all this has an obvious appeal to all of those involved in it.

The real border issue is not on the island of Ireland but in Kent

The US military has a saying which equates roughly to “amateurs worry about strategy, professionals worry about logistics.” The Brexit version of this is “politicians worry about the Irish border, officials hyperventilate about Dover.” The brutal truth is that for all its fiendish difficulties politically (and it is devilish), not that much trade moves over the Irish border and that which does is disproportionately animal livestock or sole traders who happen to live one side of the boundary and do work the other.

The port of Dover, by contrast, is a Premier League matter in relation to scale and to practicality. If serious work has to be done to alter facilities there to cope with a post-Brexit trading world (and it is inevitable that some change will occur) then that will be exceptionally awkward and surely costly. The idea that the place could be reformatted in a matter of months in 2020 is fanciful. That is why Theresa May put forward the politically incredibly painful (for her) proposal of the UK staying in the single market for goods so as to protect “just in time” manufacturing in the UK. The reality is that by some means a second transition period beyond 2020 will be needed. This could be found via making the original transition period longer or (you read it here first) the Prime Minister dropping the idea set out in the Chequer’s Plan (which the EU does not like) in favour of a softer scheme such as a two-year period in which the UK unilaterally states that it will not change any regulations on goods trade. By some means or another, sectors of the UK economy will be in the EU orbit beyond the year 2020.

Tim Hames
Director General, BVCA


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