Föhrenbergkreis Finanzwirtschaft

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Britain’s Unreal Brexit Transition Debate

Posted by hkarner - 4. August 2017

Date: 03-08-2017
Source: The Wall Street Journal By Simon Nixon

Theresa May and her party will have a hard time negotiating with the EU when they can’t figure out precisely what they want

British Prime Minister Theresa May has talked about a wide range of possibilities for the U.K.’s future relationship with the European Union.

There is an air of unreality about the debate that has been raging this summer over a Brexit transition deal. The mere fact that this debate is taking place at all is unreal. It was never remotely plausible that the U.K. and European Union could negotiate and ratify both a divorce agreement and a new free-trade deal in the two years allowed under the Article 50 timetable, let alone the 21 months remaining after Prime Minister Theresa May squandered the first three months on a snap general election.

So the fact that it has taken until now for the cabinet to accept that a transitional deal will be essential—even if official government policy is still that a new Brexit trade deal can be agreed by March 2019—is alarming.But there is an air of unreality about the debate over the form of transition too.

Only now is it finally dawning on the British political class that a transitional deal can’t possibly take the form of interim membership in the European Economic Area alongside Norway, Iceland and Liechtenstein. Not only is the EEA outside the EU’s customs union—and so does nothing to shield the U.K. from one of the most damaging Brexit cliff edges—but temporary membership would require a complex, time-sapping negotiation in its own right.

The only transitional deal that has ever made sense is a standstill arrangement under which the EU and U.K. agree to maintain all existing rights and obligations for a limited period. This has been obvious to the EU Commission since at least November and is clearly set out in the EU’s negotiating directives. Yet even now, some in the U.K. still fantasize about a bespoke interim deal that would allow the U.K. to restrict EU immigration or sign new trade deals during the transition.

Meanwhile, some Brexiters worry that such an arrangement could end up becoming permanent or, worse, a ruse to reverse Brexit.

These fears too are unreal. A standstill agreement must inevitably be time-limited not just because the EU has itself ruled out any open-ended deal but also because an open-ended deal is impossible under World Trade Organization rules: The EU can’t offer the U.K. indefinite preferential market access without a comprehensive trade deal.

And once Britain leaves the EU on March 29, 2019, there is no path back on its current terms. If it wanted to rejoin, it would have to submit a new membership application, which under the EU treaties would require the U.K. to commit to joining the euro and the Schengen passport-free travel zone. By the same token, the window of opportunity for those who want to reverse Brexit will slam shut in March 2019.

But what is most unreal about the current debate is the way it has diverted attention from the real issue at the heart of Brexit: What the U.K. is proposing to transition to. The cabinet—and the leadership of the Labour Party—may have agreed that the UK’s future lies outside the EU’s customs union and single market.

Yet even outside of these, a wide spectrum of future relationships is possible, ranging all the way from Mrs. May’s goal of a “deep and special partnership with the EU” based on frictionless trade to her insistence that Brexit means “taking back control of our borders, our money and our laws.”

In essence, the choice boils down to what extent the UK is willing to accept being a rule-taker, maintaining preferential access to EU markets in return for continuing to closely follow EU rules and perhaps even continuing to accept indirect European Court of Justice jurisdiction via the European Free Trade Association court, or whether it prioritises being a rule-maker, thereby maximising its scope to pursue its own trade deals but at the price of new barriers to trade with the EU.

What is impossible—as much of the government now appears to accept—is Boris Johnson’s self-declared fantasy of a have-your-cake-and-eat-it Brexit; or as one senior EU official puts it, “the U.K. cannot have a deal that gives it Norway’s degree of market access in return for Canada’s obligations.”

Yet Downing Street is still far from resolving this dilemma, acknowledge officials. That’s hardly surprising since there are no good options, as was clearly illustrated in a row last week over whether the U.K. should allow the import of American chlorinated chicken, currently banned in the EU, under a future U.S. free-trade deal, even if this would likely cost British farmers access to EU markets.

Downing Street’s problem is that while it is willing to contemplate the U.K. being a rule-taker in some sectors, there are others such as financial services where this would be unthinkable. Yet the EU is adamant it won’t accept cherry-picking sectoral deals.

Mrs. May doesn’t have long to make up her mind and unite her government, party, parliament and the country behind her choice. After all, the U.K. and EU are due to start discussing their future relationship in October, assuming sufficient progress has been made on resolving outstanding questions over citizens’ rights, the U.K.’s outstanding financial obligations and the Irish border. Without agreement with the EU on the framework for that relationship, there can be no Article 50 divorce deal. And without an Article 50 deal, all this debate about transition will have been a complete waste of time.

 

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