Brexit: two steps forward, one step back

Brexit: two steps forward, one step back

On Friday 15 December 2017, following months of tense and wearying negotiations, Theresa May was able to breathe a short sigh of relief as the European Council formally accepted that sufficient progress had been achieved on the UK’s divorce terms – namely on citizens’ rights, the Irish border and a financial settlement – and approved the interim deal struck earlier in the week. Both sides will now reconvene in the New Year to begin negotiating the UK’s future trading relationship with the EU.

Writing in the Sunday Telegraph, Mrs May proudly proclaimed the agreement a “watershed moment”, declaring she had “proven the doubters wrong” and that the UK was now well on its way towards securing a “successful exit from the EU”.

Most pundits have been quick to stress that, if the UK seriously believes the negotiations have been difficult thus far, they are likely to be in for a rather rude shock. The worst may yet still be to come. Indeed, David Davis was felt in Europe to have set the tone for future discussions earlier in the week when he peremptorily derided the interim deal as nothing more than a “statement of intent”, forcing EU leaders to warn the British government not to back track on promises earlier made in Brussels. And, sure enough, in swift succession to Mrs May’s celebratory proclamation in the Telegraph, the EU’s chief Brexit negotiator, Michel Barnier, weighed in once again to explode the Prime Minister’s hopes by stating firmly, and not for the first time, that the UK would not be granted a bespoke trade deal.

On 18 December, in an interview with Prospect Magazine, Mr Barnier quipped there is “no way” the UK will be able to cherry-pick its future trading arrangements. Instead, he asserted that Britain will have to “face the consequences of their own decision” and that it “cannot be business as usual”. Settling into his stride, he went further in interviews with European newspapers later in the day specifically to address the highly contentious issue of the UK’s financial services sector (which, in 2016, accounted for 7.2% GVA in the UK), arguing that it was unavoidable that UK financial firms would lose their prized EU passporting rights after leaving the Single Market. Unsurprisingly, there was palpable dismay in London.

Mr Barnier’s tough words are far from new news.  They are, however, a sobering reminder – and intended to be so – that the negotiations are only just hotting up: as Mr Barnier himself said, “the most difficult part remains to be done”.

His comments seemed to be in direct response to the various musings of Mr Davis for a “Canada plus plus plus” deal, or a patriotic (but ill-defined) “red, white and blue” Brexit, which would include access to the Single Market for UK financial services firms. Michel Barnier has been worryingly clear that the EU does not intend to blend together different formats in order to create a specific arrangement designed precisely to accommodate the UK’s wishes (for example, by bringing together the advantages enjoyed by the Norway and Canada agreements, without the downsides).

The Norwegian model, through the European Economic Area (EEA), grants access to the EU’s internal market, but comes with its own particular burdens: Norway accepts almost all EU Single Market rules, without any say over the rules and regulations that come with them – which is an absolute red line for the Brexiteers. On the other side of the spectrum, Canada has its own unique rules for trade, and more freedom to adapt and amend rules as a result; but, ultimately, it has much more limited access to EU markets. The new guidelines adopted by EU leaders concerning the future relationship have always been clear on this point: the EU will “preserve the integrity and proper functioning of the Single Market.”

One modestly encouraging sign is that both parties agree that a two-year transition period will be needed and is in everyone’s interest. But this in no way reduces the pressure on Mrs May to deliver the framework of a trade deal with the EU during the next phase of negotiations. But no one should assume that the early months of 2018 are going to seem like plain sailing. Indeed, some EU leaders do not seem altogether keen to agree the terms of a trade deal, echoed by Mr Barnier in his implied warning that “the actual negotiations on the future relationship will only begin once the UK leaves the EU,” – in other words, once the UK officially has already become what the EU would regard as a third country.

So, while Theresa May has been right to celebrate the progress so far achieved, few are convinced the job is anywhere near done and some remain entirely sceptical about the ability of the parties to forge an agreement in the time that remains. That time is fast running out.

Thomas Tessier