Michel Barnier recently suggested that Britain’s withdrawal agreement from the EU will be complete before any trade agreement (as our readers know, the two are different). Let us assume for a moment that he is right. It follows that at some point before March 2019 – if the Government’s timetable is met – we meet the notorious “cliff-edge”. And we descend from it into legal controversies and economic disadvantages. An example of the former is the question of what happens to our non-secured aviation rights if the current aircraft regulations suddenly cease to apply. An example of the latter is the effect on financial services of having no passporting agreement. Even as convinced a Brexiteer as Peter Lilley has written on this site that the arrangement is “worth keeping”.
This explains why Philip Hammond indicated to the Treasury Select Committee yesterday that an interim agreement on trade and services is desirable – or, rather, as he put it: “there is an emerging view among business, among regulators and among thoughtful politicians that having a longer period to manage the adjustment would be helpful, would tend towards a smoother transition and would run less risk of disruption”. He may have been pushing a view of his own; he may have been floating a consensus among his colleagues. David Davis has been reported as opposing a transitional deal, but he has also been working closely with Hammond. Theresa May hinted that she favours such an agreement before promptly withdrawing the suggestion. Mark Carney supports one.
An interim deal sounds sensible. But the more one thinks about it, the less straightforward it becomes. On this site, Christopher Howarth has pointed out a problem that rears its head right at the start – namely, that a transitional deal is no less complicated to negotiate than a permanent one. Barnier implied that any such arrangement would be discussed late in the Article 50 process. That would make the difficulties of reaching one even more formidable. However, even were one agreed under these circumstances, this would not even begin to be the end of the matter. The interim deal would need in due course to have a permanent replacement. But if agreement on the latter proved hard to reach, Britain would once again approach the cliff-edge (as would its interlocutors).
At this point, the easiest course to take would simply be to extend the transitional deal still further. We are thus presented with a negotiating paradox: namely, that an interim deal could turn out to be permanent. Howarth cited some precedents: the customs union agreement with Turkey and, above all, the EEA agreement with Norway. The EEA was designed as a waiting-room for entry. The most straightforward interim deal would be continuing EEA membership for the UK or, if it proved impossible to agree this, some form of EEA-type arrangement. Such an arrangement could well turn out to be a waiting-room for exit. We would thus become a kind of Norway-in-reverse. That cliff-edge would be exchanged for a swamp.
This leads to the next problem. The British people did not plump for limbo last June. They voted to leave. Controlling migration from the EU was not the main reason – they wanted control more broadly, as Lord Ashcroft’s research has confirmed – but it was a very important one, second in our proprietor’s findings. Any transitional deal would be likely to trade off continued Single Market membership for continued uncontrolled EU migration. Nigel Farage, UKIP and a new fifth Arron Banks-style electoral force would not hesitate for a moment before telling anyone who would listen that the establishment had sold them out. The referendum looks to have sunk UKIP as an electoral challenge to the Conservatives; an interim deal could haul it out of the water.
This would unnerve Tory MPs. At present, Labour is vulnerable in its northern and midlands heartlands to a Trump-shaped challenge. They would not want to see the Party also exposed to a leakage of votes. The Parliamentary Party has also been coming round to Brexit. More Conservative MPs opposed it than supported it last June, but the balance of opinion has now tilted towards Leave – or so the results of elections to the Brexit Select Committee suggests. The Prime Minister could find herself in difficulty with her party, at Westminster and outside it, were she to throw her weight behind seeking a transitional deal. Interim elements to a permanent deal is one thing; an iterim deal with permanent elements would be quite another.
The Chancellor seems alert to the problems. He indicated to the committee that the Government wishes to discuss the possibility of a transitional deal early in the Article 50 talks, presumably to ensure that any discussions on one start as quickly as possible. Ministers will not want to start such negotiations late in the Article 50 process when the clock is running down. Readers will have picked up that reference to “thoughtful” politicians in what he said to the committee. We can only guess at which ones he believes to be thoughtless. He is right to suggest that thinking about an interim deal is well worthwhile. But in our humble view, the main problem is nothing to do with not thinking about it. It is that the more one thinks about it, the more problematic it looks.