19 March 2018

Today Michel Barnier and David Davis – exuding joint bonhomie – paid tribute to their teams and unveiled a colour-coded legal text for endorsement by the European Council later this week. But, Jill Rutter warns, it's not time to call off the contingency planning.

There are a lot of areas where legal text has now been nailed down

The big achievement is to convert a lot of the political language in the joint report into agreed legal text – coloured green. There are agreements on the financial settlement and on citizens’ rights – the latter achieved by a bit more movement by the UK on the rights of EU citizens who move to the UK during the transition.

We now know what transition could look like

The UK and EU have also agreed the text on a Brexit transition. But that is because the UK has caved in on most points. This is a standstill transition, which means the UK still has all the obligations of an EU member – but loses its right to influence. The timetable is the one that suits EU convenience – stopping at the end of the current multi-year financial framework in December 2020. The text makes no reference to the possibility of extension that UK implementation needs might require.

In return, the UK has extracted a commitment from the EU to act in good faith and co-operate – which is not exactly the close consultation it was seeking. The UK will also get advance consultation on fisheries negotiation, with fish quotas frozen until we become an independent coastal state.

The UK has won the right to opt out of EU foreign-policy decisions, and to sign and ratify third-country agreements during the transition (but not to bring them into force until the transition has ended). The EU has also committed to helping the UK when it comes to the 750 agreements the UK is party to through its EU membership, stating in a footnote that it will notify the other parties that the UK should continue to treated as a member state during the transition.

The EU has agreed to kick the Irish can down the road

The issue of how to avoid the hard border in Ireland was what almost derailed agreement in December. It managed to unite both Tories and Labour against the Commission negotiators in February – and it remains unresolved. But this time neither side opted for brinkmanship on Ireland. Instead the UK conceded there would have to be a “regulatory alignment” backstop – of the sort they signed up to in December but whose drafting caused such uproar in Westminster in February. In return, there was a commitment to continue work on the other possibilities foreshadowed in the December agreement (a solution through the UK-EU relationship or “specific solutions” the UK would propose), before falling back on that final option. 

Work will now proceed. As the Northern Ireland Affairs Select Committee noted last week, no one has yet managed to identify a workable way forward that reconciles the political desire to avoid a “visible border” with the practical requirements of managing the EU’s external border with a third country. This could yet prove a stumbling block. 

There are other detailed areas where more work is needed

Work on the withdrawal agreement is not complete. There are still a number of key areas – left in white with no colour coding – where discussions are ongoing and agreement is yet to be reached. These cover dispute settlement and the role of the European Court of Justice (ECJ) after Brexit: will its judgements be binding after transition and will the UK courts have ‘due regard’ to relevant ECJ caselaw handed down after the transition ends.

There’s also a question mark over ongoing police and judicial co-operation, with little agreed so far.

Phase two negotiations should start soon – with possible early progress on foreign and security cooperation

Michel Barnier, the EU's Chief Negotiator for Brexit, has long been much more sceptical than his British counterparts about the speed at which a new free trade agreement with the UK can be concluded. But he did hold out the prospect of speedier progress on foreign and security co-operation – the sorts of issues addressed by the Prime Minister in her Munich speech. Both sides may have had their minds concentrated by an increasingly aggressive Putin and an increasingly unreliable Trump.

Today shows necessary progress, but still not sufficient to call off contingency planning

Failure to make progress this week would have sent markets into tailspin and spooked a lot of UK-based business. So having a substantially agreed legal text is good news. But, as Michel Barnier reminded his listeners, this legal text will not have legal force until it is agreed and ratified by the European Council, the European Parliament – and the UK Parliament. With Theresa May’s government facing problems in getting its business through the Commons and Lords, and with internal party divisions a constant presence, nothing can be taken for granted.

The acid test is whether today’s agreement gives business – or government – sufficient confidence to abandon their contingency planning. The chances of 'no deal' have receded – but they have not disappeared. 

Comments

Surely the most likely outcome is now 'Norway-plus' - long-term membership of the Single Market and a customs treaty that binds the UK to the Customs Union after the transition completes.

Three main reasons:
a. The EU is going to be tactically inflexible about the end of transition (31 Dec 2020) and this will force hard choices on the UK to which there is only one resolution.
b. The UK will face a hard 'Trexit' (exit from transition) in Jan 2021 - and this will be intolerable to major businesses with EU supply chains and UK will not have the necessary border infrastructure and other institutional arrangements in place for this to be viable
c. The UK will be unable to solve the intractable Irish border problem by 2020 (or ever) and it will only have the backstop Option C (border in the Irish Sea) or the real Option A, which would be Norway-plus with no borders between the UK and EU.

This pathway to the final status arrangement - in effect, remaining in the EU in all but name, but with loss of voting and influence - has a certain inevitability about it, especially given the pace of UK capitulation and red-line blurring. The question is whether it is a journey UK would continue to pursue if the public and parliament could see the likely destination.

May has three choices - Elect for the whole UK to substantially stay in the Customs Union and Single Market, making the whole affair a waste of time and money, and hopefully leading to a split in the tory party, or:

Leave the EU but keep NI in it, which the DUP and "any British Government" would not allow, and which will lead to calls from Scotland, Wales and London for a similar deal, which may lead to the dissolution of the UK, or:

Crash out with no agreement, breaking her word just when she needs trust from other countries (and time) to make a few hundred new trade agreements which will inevitable be on far worse terms than before, and lead to a nose-dive in the economy, which in turn may lead to the dissolution of the UK.

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