Christopher Howarth is a senior researcher working in the House of Commons. Prior to this he worked for Open Europe, as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister.
In answer to a question at the CBI conference, the Prime Minister acknowledged that some in the audience feared a “cliff edge” on Brexit. The Governor of the Bank of England Mark Carney has now talked of a transitional agreement as a “Brexit buffer”. Is this an idea worth exploring?
The idea of a “transitional agreement” to tide things over on Brexit would be to give business certainty and avoid a gap between the expiration of our current EU membership and the beginning of a new UK/EU free trade agreement. This immediately begs a number of questions; would a transitional agreement be any quicker to negotiate than a final agreement? What would it cover? What would it transition to? How long would it take to negotiate? How long would it last? And in the absence of these how would it really create certainty? The precedents are not good.
The EU has negotiated a number of interim arrangements. There is the 1994 EEA agreement with Norway, Lichtenstein and Iceland which for Norway at least was seen a transitional agreement pending full EU membership. There is the EU’s 1995 customs union with Turkey which was again seen as temporary pending Turkish accession. These ‘temporary’ arrangements all show the signs of permanence. The UK should be wary of following this precedent. The unpleasantness of being trapped in a temporary/permanent agreement of indeterminate length was not lost on the medieval Church. It remains a real one.
The second drawback, from the UK’s point of view, in negotiating a complex EEA-type agreement (if indeed the EU wishes to expand the EEA) would be it would take time. Under the Article 50 process we have a maximum of two years to negotiate a deal with the EU. We could do it in less, and we could also – if everyone agrees – extend it. The idea of a transitional agreement to give City firms certainty would be negated if the ‘transitional’ deal was announced so far into the two year period that firms would have already made their plans. In any case a temporary deal would be unlikely to create certainty.
There is no good reason to believe that negotiating a complex interim agreement would be easier than negotiating a final agreement. The UK and EU at present have exactly matching regulations and zero tariffs, there should, if they are able to at all, be little to negotiate an agreement in two years. If it is thought a little more time is needed, the more obvious solution would not be to launch into a new separate agreement but to extend the UK’s exit by a few months and therefore save the time wasted negotiating another agreement?
It is also unclear how a transitional agreement would fit into and aid the existing negotiations. The UK will need to negotiate on several issues concurrently as it is:
- The Article 50 withdrawal agreement itself, including contentious issues such as apportioning the budget;
- A potential free trade agreement;
- Other separate important areas, such a data sharing agreements and aviation which might be concluded on their own or in any of the other two agreements.
While the UK would wish the free trade agreement should come into force immediately on exit, there may be those in the European Commission who would risk their own citizens’ livelihoods by insisting that the free trade agreement cannot come into force until the issue of the UK’s final budget contribution is agreed. There may even be some who wish to refuse any discussion of trade until the actual withdrawal is agreed. This would guarantee the talks go for the full two year period. Under this scenario the EU might force the UK to consider a last minute transitional agreement, or the UK may decide that the certainty of WTO trading terms were preferable to launching another set of talks.
Having discarded a complex EEA-style agreement – difficult to agree and requiring EU unanimity – we are left with a more modest stop-gap proposal. If we are nearing the end of the two year period with no agreement in sight, the EU could act quickly to grant a deal that involved the continuation of zero tariffs between the EU and UK. This would not require unanimity as it is an exclusive EU competence. This could be supplemented by agreement on a wide range of current financial and other regulations if the Commission agreed to mutual recognition and deemed equivalence (see the Legatum Institute’s recent Brexit brief on financial services here).
While there may be utility in agreeing some form of transitional agreement of this type, the key here is to only agree something that we would not object to allowing into a permanent EU/UK agreement as these agreements have a danger of becoming permanent. A form of UK/EU-minus that can be built on, rather than an EU-minus we than have to expend energy escaping from, might work.
Theresa May is correct to say that the Government cannot give a running commentary on interim deals of which we know no details. It is also true that in a negotiation we cannot account for the attitude of the other party. The UK’s main effort should be on negotiating the real and permanent agreement with the EU that in the Prime Minister’s words lets us “become, once more, a fully sovereign and independent country” free from the European Court and free to control our borders.
With good will on both sides, we should be able to achieve that in two years and have no need for any transitional agreement.