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The case for delaying the start of the Brexit process

Posted by hkarner - 20. August 2016

Date: 18-08-2016
Source: The Economist
Subject: The Brexit trigger: To pull or not to pull

May mountain climbingMay with a mountain to climb

THERESA MAY knew from the moment she became prime minister last month that Brexit would be her biggest test. Nobody has ever before tried to disentangle a large and sophisticated economy like Britain’s from as intricate and regulated a body as the European Union, after it has been a member for 43 years. Before the June referendum, David Cameron’s government noted that Brexit would be the start, not the end, of a process and warned that it could last up to a decade.

The administrative challenge alone is vast. Mrs May has passed much of it to pro-Brexit ministers known, inevitably, as the three Brexiteers: David Davis, Liam Fox and Boris Johnson. Just setting up a new Department for Exiting the EU under Mr Davis is taking time. The department is now 150-strong, but it will have to expand to more like 400 (including officials in Brussels). Mr Fox’s Department for International Trade needs 1,000 staff, including hundreds of trade negotiators. Relations between the two, and with Mr Johnson’s Foreign Office, can be strained. Already Mr Fox and Mr Johnson have clashed over who runs economic diplomacy. Mr Fox and Mr Davis are hardly best friends.

Given all this, it is not surprising that there should be speculation about when to trigger the Brexit process under Article 50 of the Lisbon Treaty. Brexiteers have always disliked Article 50: it sets a two-year deadline that can be extended only unanimously, and its voting rules exclude the exiting country. Moreover, it is meant to cover mainly administrative issues such as sorting out pensions, relocating EU agencies based in Britain and safeguarding multi-year projects (the Treasury has promised recipients of EU money that it will guarantee their funds, including paying farm subsidies until 2020).

But Article 50 also promises to take account of future relations with the EU. That means, above all, trade arrangements. Yet experienced negotiators say trade deals take far more than two years to negotiate: the Canada-EU agreement has taken seven and has still not been ratified. Brexit will require many such deals, including one with the EU and others with some 58 third countries such as South Korea that have free-trade deals with the EU. Mr Fox has talked grandly of “scoping out” free-trade agreements that Britain might make with America and Australia. But these cannot be pursued seriously until there is more clarity over Britain’s trade relations with the EU.

Some Brexiteers say the simplest course would be to revert to the rules of the World Trade Organisation (WTO), of which Britain is a member. But this would imply tariffs on some goods, and would not cover most services, including financial services. Nor is falling back on the WTO as easy as it sounds. Britain’s membership is linked to the EU: to rejoin independently, it must agree on a new tariff schedule, which would be hard in areas with shared import quotas, like agriculture. The WTO’s director-general, Roberto Azevedo, likens this to accession—and it needs unanimous approval, including from countries that are not always friends of Britain.

Could the Brexit process be delayed to allow several years of trade talks? Mrs May has said only that she will not trigger Article 50 this year. But letting the start date drift far into next year or even into 2018 could be testing. Tory Brexiteers (and voters) know that Mrs May was a Remainer, so they will pounce on any hints of backsliding. It may be tempting to wait for elections in other EU countries, notably the French presidential election next spring. But putting off Article 50 further might mean its two-year expiry clashes with the European elections and a new EU budget round, both due in 2019. And delays could irritate Britain’s EU partners, who might refuse to negotiate seriously until the government shows that it really means to leave.

One alternative proposed by some in London is to seek prior political agreement to extend the Article 50 process beyond two years. But since the treaty requires unanimous approval at the end of the two years, it may not be possible to secure a guarantee that binds future EU leaders.

Another possibility is an interim arrangement to take effect during the hiatus after Article 50 expires, but before the final shape of future trade deals is clear. This would probably be an off-the-shelf model, such as temporary membership of the European Economic Area that includes Norway. This would preserve full access to the EU’s single market. But it would have two drawbacks. One is that, in trade, the temporary often becomes near-permanent. The other is that, against Brexiteers’ fervent wishes, it would imply continuing to accept free migration from the EU, make payments into the EU budget and abide by all single-market rules.

Life is clearly possible outside the EU. But the process of getting there is full of pitfalls and problems. It is no wonder that Mrs May, contemplating the future from her walking holiday in Switzerland, has said little more than that “Brexit means Brexit”. And it is no wonder that she has dumped the responsibility for delivering it into the laps of the three Brexiteers.

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