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Joe Egerton is a former Economics Director of the British Chambers of Commerce, NATO Research Fellow at Oxford and parliamentary candidate.

There has been much generalised talk about transition arrangements to deal with problems as the UK leaves the EU – but too little detailed analysis. Peter Lilley has rightly condemned the advocates of transitional arrangements for not identifying the problems that they are seeking to solve, and demanded to know why the EU27 should agree to any transitional arrangement.

The Conservative Group for Europe (CGE) has recently published my answers as a policy options paper: Keeping the bridges open – alternatives for Transition.  I am depressed to find it is the only detailed paper on transitional arrangements from any Conservative inclined organisation. I will now try to summarise it.

A structured Transition Agreement

Lilley is right: anything has to be agreed by the EU27. This means that any transition agreement has to fit into the structure of the treaties. In theory, the UK and the EU27 could agree a bespoke association agreement under article 217 of the Treaty on European Union. In reality, the process would be too long and too complex.

There are just two alternatives.

First Alternative: use the UK’s existing status as a contracting party under the EEA Agreement. With goodwill on all sides, this can be made to work, but it is not a simple matter of “a Norwegian option.” There are ambiguities in the EEA Agreement, so everyone would have to agree how the agreement is to be interpreted. Furthermore, there are major issues not covered by the Agreement – including replacing EURATOM. The body of acquired law under the EEA is much smaller than that for the EU, so there will be crevasses that have to be bridged.

Second Alternative: extend the UK’s membership of the EU (and EURATOM) until a smooth transition can take place. This means not leaving the EU until possibly as late as 2024. Politically hugely difficult, but by far the easiest way legally.

Both alternatives keep in place the four freedoms – a key EU demand – and mean ongoing financial contributions to the EU.  So there is an answer to Peter Lilley’s question “why should the EU agree?”: there are economic gains for them, and no abandonment of any principle.

The big problem is that many people in the UK will not think this worthwhile – Lilley’s main point.

What a transitional agreement should achieve

So let me try to explain why I think we should all – Leavers and Remainers – work for a long transition period

Economic benefits

Service and manufacturing companies take investment decisions on the basis of a minimum four to five year period. Nobody knows what the future relationship with the EU will look like; nobody knows what trade deals will be done. Everyone knows that there could be serious disruption. Companies are now harvesting returns on existing investments, and not making new investments: the BMW decision to use Cowley to assemble electric Minis, but manufacture batteries and motors in Germany is a case in point. Service (especially financial and internet based businesses) are already moving some key staff. Give them assurance that they will get a return on investments made now, and they will invest in the UK. A transition period of less than four years will not achieve this. As the future framework will not be clear until 2019 to allow a company with a planning horizon of five years to invest, this should be until 2024. Investing to open a new market takes a similar time.

EURATOM

To import fuel and parts for existing nuclear reactors, the UK will need to have established a regulatory and inspection structure, obtain approval from the International Energy Atomic Agency (not a formality), and then negotiate and ratify nuclear cooperation agreements with a number of governments. The USA is crucial: and those who are not obsessed with Brexit may have noticed that a dysfunctional White House is having problems with a cantankerous Senate. Australia, another key state, has been making noises about visas in connection with trade agreements. We cannot be sure Nuclear Cooperation Agreements will be nodded through. It is not sensible to leave EURATOM until the NCAs are in place, and the Government is right to identify problems with staying in EURATOM but leaving the EU. Closely related to EURATOM are two other areas. Leaving the EU will require the UK to negotiate WTO quotas, and that may also take time. Open Skies agreements may need negotiating and ratifying.

Legal Certainty

There are some very complex legal issues that have to be resolved if existing contracts are to remain effective and enforceable. There are issues over interpretation of current EU law. The senior judiciary have warned against miring them in controversy if they have to interpret vague statutory provisions. The Prudential Regulation Authority has warned that if legal issues are not resolved there could be major problems for the banking system – banks’ ability to lend might be severely curtailed – and this warning has been reinforced by UK Finance. Dominic Grieve and others have pointed out that the EU Withdrawal Bill’s wording is vague. These problems are curable, and a transition agreement would give time to get things right that we simply cannot afford to get wrong.

Closely linked to this is the extent of the Henry VIII clauses in the EU Withdrawal Bill. (Theresa May is not a Stalin. Jeremy Corbyn and John McDonnell are surrounded by people who think that Stalin was a jolly good chap and that complaints about show trials and mass murder are misguided.) A transition agreement means that these powers can be limited, and arrangements can be made for effective scrutiny of these powers. As things stand, a Corbyn Government could prorogue Parliament and make huge changes using the EU Withdrawal Bill’s Henry VIII powers.

Conclusion

I am sure many will disagree with my detailed analysis and recommendations. But it will be a great gain if we as a party can work out what will deliver the best future for the country. Let us, though, take heed of my neighbour the Archbishop of Canterbury’s mantra: we do not need to agree, but we do need to disagree well.

146 comments for: Joe Egerton: Why we need a transition period of up to seven years

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