Transition Time. A testing but essential few weeks for the Brexit process
Observers of the Brexit discussion have dubbed the past few weeks as ‘dry January’. Compared with the intense negotiations of December 2017, the talks have appeared muted, even invisible. In part, this was due to exhaustion after the drive to reach an accord on ‘sufficient progress’ by the EU Council meeting of mid-December, but it also reflects the fact that there is a natural break between reaching agreement on the core terms of the UK’s exit from the EU (which must now be translated into a legally robust text) and the start of the attempt to agree a basic framework for the ultimate relationship between the two sides. That void is being filled by a dialogue over the transition period between the moment of departure and the unsettled date when the UK is out of the EU entirely.
As the overarching principles for transition are essentially understood, namely that it will be, as Theresa May put it in her Florence speech last September, a ‘standstill’ undertaking in which the UK would continue to contribute to the EU budget and operate under the ‘existing structure of EU rules and regulations’, there has been no need, at this stage, for high-profile meetings between leading political actors to hammer out or endorse a final bargain. The talks have been technical in nature and have returned to the ownership of anonymous civil servants on both sides. This may be the case throughout if progress can be made and political minefields navigated. In theory, all of this will occur by the end of March (although the nature of this process so far suggests some slippage is probable). David Davis did, however, surface to address the matter publicly in a speech delivered last Friday.
So, if all proceeds relatively smoothly, not long before or not long after Easter, substantial steps will have been taken into securing the legal standing of the exit agreement and all the important parts of the transition period will be in the public domain as well. This will provide a degree of certainty to those who have to conduct business between the UK and the EU-27. Six months or so after that, in October or November (but do not discount December), there will be a package including the exit accord, the transition mechanics and the high-level principles for a future relationship. It is this set of documentation that will need to be endorsed by the UK Parliament, the European Parliament and a host of other actors before the UK officially detaches itself from the EU and enters a transition era.
This sounds comparatively straightforward and in strict procedural terms the transition should be the least difficult element in the entire enterprise. At its simplest, it means that the UK quits the EU but shadows it in almost every respect until it is ready to detach itself entirely in institutional terms.
In practice, as has already been indicated by rhetorical skirmishing as to whether or not the UK is about to render itself a ‘vassal state’, an entity almost subjugated to the EU according to critics, it is certain to be politically contentious within the Conservative Party. Keeping discontent to a minimum in this respect, and maintaining a united Cabinet front, is thus the primary challenge for Mrs May in the next eight to 10 weeks or so. If she is not careful, all of the arguments about the final ‘end state’ that she wants to defer until after the transition understanding is reached - and in an orderly fashion during the June-September period - will end up erupting early and in an explosive manner.
The difficulties that the transition debate creates includes the following extremely sensitive areas:
What, if any, will be the rights of the UK within the transition arrangement?
The potentially destructive charge of rendering itself a ‘vassal state’ applies because the UK may find itself in a position where it has to pay in to the EU and obey all its rules but have absolutely no influence on the policies adopted by the EU during this period. To a degree, this is an inevitable consequence of any transition but it would be in the interests of the UK Government to seek to soften this somehow. The UK has hence indicated that it would like to remain a participant in all EU agencies during the transition with the right to make representations to the other 27 members. For now, the stance of the EU, by contrast, is that while a degree of ‘operational participation’ would be acceptable, anything akin to a right to participate in decision-making would make a nonsense of the UK having politically separated itself from its former partners.
Mrs May would like a middle ground in which the UK has formal observer status in aspects of the EU apparatus and the right to have its voice heard, even if it has to leave the room when votes are recorded. This would not obliterate the claim that the UK had rendered itself a satellite of the EU (albeit temporarily) but it would probably confine resistance to a small number of hardline Brexit MPs rather than more mainstream figures.
To what extent would the UK be obliged to adopt any new EU rules during the transition period?
An even more awkward area is what happens when the EU moves on from standard deliberations to adopting new directives and regulations. Are these mandatory on the UK as if it were an EU member or does the clock stop in this regard on 29 March 2019? The current negotiating guidelines for the EU strongly imply that the UK would have no choice but to accept into domestic law anything that became EU law between March 2019 and the end of the transition.
The EU (Withdrawal) Bill, on the other hand, suggests but does not state categorically, that only those EU laws on the statute bill in Brussels at the moment of exit will be incorporated in to UK law automatically. When pressed on this apparent contradiction, David Davis, the Brexit Secretary, has sought to sweep concerns aside by observing that most EU laws take more than two years from adoption to actual implementation. This is largely true but is far from a cast-iron guarantee that no new EU laws will emerge in the transition.
This ambiguity will need to be addressed shortly. One option that the UK will probably argue that it should benefit from is the fail-safe of the (admittedly rarely deployed) ‘right of reservation’ which EEA member states such as Norway have in which they can decline to implement or defer adoption of a new EU initiative which they consider fundamentally hostile to their interests. Again, while not exactly kryptonite, a deal of this form would allow Mrs May to limit the attack on the transition pact.
At what point will the transition agreement end?
The choice of date could have an impact on the dialogue over what the final end state will be. The opening thesis of the EU is that the transition should end on 31 December 2020 so that it would coincide with the final day of the present EU budget period. This is very much at the shortest end of the spectrum. It is a more restrictive timetable than the ‘about two years’ formula that the Prime Minister set out in Florence, a schedule that in itself was quite a lot shorter than the three years or even five years that the ‘Soft Brexit’ camp and especially the Chancellor would have preferred.
It means a very tight deadline for making the practical changes needed for ports and customs, for dealing with the estimated 750 international agreements which the UK made as a member of the EU which it now needs to re-enter independently and for reaching a settlement on its final relationship with the European Union.
Views of what such a sprint would mean for that ultimate settlement vary. Most in the Hard Brexit fraternity believe it will only leave time for a Canada-style free trade deal and so are perfectly content with a 21 month transition. The Soft Brexit lobby largely fears the same but a minority within it have concluded the opposite, namely that the pressure of time will compel the UK to stick very closely to the transitional arrangements for the ‘end state’ for its administrative ease. Others assume that the EU is bluffing and would willingly accept a six month, 12 month or longer continuation of the transition in return for an extended UK contribution to the EU budget after 2020. That suggestion is, however, like so much else in this process, potentially incendiary in Parliament.
Tim Hames
Director General, BVCA
