The UK government’s Brexit strategy at the moment could be summed up as trying to do the minimum possible to get Brexit done. Avoid confronting the inevitable trade offs, wish away the negative economic consequences, and try to push all the difficult decisions forward into what the EU calls the transition period (May calls it implementation period) that is penciled to last between March 2019 and December 2020.
If you see Brexit in those terms, a lot of the statements from UK Government Ministers make sense. Want to avoid damage to financial services? Well we want to have a deal on financial services. How? Well, we need the implementation period as that is too complex to answer just now, because we do not know the framework of UK-EU relations in the future.
We will do what we can to avoid a hard border in Ireland. How? We are looking at a Customs Partnership with the EU that relies on an innovative approach to technology to avoid a hard border. But the EU has ruled that out? We are still confident that this approach can be successful.
Repeat. Ad infinitum.
Avoid making any solid commitment to anything for as long as possible. Because anything other than a commitment to leave the Single Market and Customs Union will cause mutiny among Brexiteers, while anything that honestly puts a price on that Hard Brexit causes angst among the pragmatists. So avoid agreeing anything at all.
But there is a problem.
The rest of the world. Non-EU countries.
Essentially the EU and the UK agree that trying to get everything done and dusted to get the UK out of the EU by March 2019 is impossible, and hence the transition period is unavoidable. And both the UK and the EU can live with this transition with the UK legally out of the EU – it suits May and the Brexiteers in that it shows she legally delivered Brexit, and it suits the EU in that they do not have to organise a European Parliament election in the UK or appoint a Commissioner from Britain. OK, the UK is a veritable vassal state between March 2019 and December 2020, but that seems to be a price the UK is ready to pay in order to avoid having to take any tricky decisions in the next 12 months. You can fudge pretty much all the major UK-EU issues this way – you can find a deal on Freedom of Movement, and you can even avoid a hard border in Northern Ireland during the transition period. Decisions deferred.
The main thing you cannot defer and put into the transition period is the UK’s relations with the rest of the world, once the UK is no longer an EU Member State. On 30th March 2019 as far as the rest of the world is concerned, the UK is no longer a Member State of the European Union. Agreements between that country in the rest of the world and the EU no longer apply to the UK.
Remember – as the FT has so comprehensively researched – the EU has 759 international agreements with more than 160 countries. The UK needs to work out what to do about these in time for March 2019, i.e. before transition starts, because in the eyes of the rest of the world, the UK is no longer in the EU from that date on.
Initially the UK thought it might be able to copy and paste the 759 agreements, and solve the issue that way. Yet with half of the two year Article 50 period now up, and not a single deal even agreed in principle, that looks impossible. So in this paper (PDF) in February, DExEU tried a different approach. Rest of the world, might you simply like to consider us, the UK, as being, well, an EU Member State a little bit longer? Pleeeeeease?
Politico spoke to some Chilean and South Korean officials in early February about the UK proposal. South Korea wants talks with the UK about how the proposal will work, while Chile says it will agree to the idea providing it can get concessions on agriculture medium term.
Meanwhile the FT reports that a first round of talks have taken place about rolling over the EU-US aviation open skies agreement to apply to the UK post-Brexit, and the US was unwilling to budge on ownership rules, potentially leaving IAG (the group that owns British Airways) and Virgin Atlantic unable to fly to the US.
On agricultural products, the UK and the EU – themselves in agreement on the issue! – have put a proposal to the WTO about how to allocate quotas for cheese, butter, beef, poultry, sheep and goat meat, other meat, live animals, sugar, citrus and other fruit, fruit juice, eggs and cereals between the UK and the rest of the EU, post-Brexit, and have been met with opposition to the plan from – among others – the Canada and New Zealand (FT report here, more detail from Agribusiness Intelligence here – thanks Peter Ungphakorn).
In other words, all efforts to deal with these issues have hit problems so far.
Of course none of these issues ought to be considered completely intractable. IAG could reorganise its business operations in order to comply with the US demands. The UK could agree to reduce its tariff-free quotas of imports of agricultural goods so as to appease Canada and New Zealand at the WTO. South Korea might ultimately conclude that the rules of origin system would adequately weaken UK exports to Korea anyway, without any need for a tough response.
But the point is this: in each and every one of these cases, the UK has to pay a price for a deal. And it has to work out what the price is now, before March 2019, because above all it needs deals to make sure the planes still fly and the goods still get exported just over 12 months from now. With the real economic headache – the prospect of a Hard Brexit and its impact on UK-EU trade – still to come post-2020, the UK cannot afford to not give in to the demands that each and every one of these countries in the rest of the world places on Britain.
The likes of Liam Fox talk up the benefits to the UK of being able to trade freely with the rest of the world, without the shackles of the European Union. Even if, medium term, the UK could strike trade deals with the rest of the world, the picture short term looks bleak. South Korea or Chile are more of a match for the UK on its own than they are for the UK as part of the EU, not least because the clock ticking down to March 2019 is not in the UK’s favour when talking to these countries. That is before we even come to the USA, hardly a bastion of liberal free trade under Trump.
If the UK continues to pursue its Hard Brexit course, these headaches in economic relations cannot be dodged or even deferred. They have to be answered – and the cost of answering them has to be revealed – by March 2019. Everything else can be fudged and rolled forward into a transition period. Economic relations with the rest of the world cannot. This is where the Brexit battle needs to be fought, right now, before it is too late. Or an alternative option – like extending the Article 50 period instead – needs to be urgently debated.