Brexit Transition: Where Are We At?

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BREXIT TRANSITION: WHERE ARE WE AT?

Edelman 31 July 2017

Pawel Swidlicki Brexit Analyst Pawel.Swidlicki@Edelman.com Since the election, Chancellor Philip Hammond has focused his energies on securing a transition period so that when the UK formally leaves the EU on 29th March 2019, it will not immediately face a ‘cliff-edge’ scenario; a key objective for UK business. In recent weeks the idea has gained real momentum, nonetheless, the exact scope, design and duration and scope of this arrangement remain unclear at this stage and subject to both to disagreements around the Cabinet table, and negotiations with the EU.

WHAT DO WE KNOW SO FAR? How long would the transition last? Although most of the details have yet to be officially confirmed as government policy, the outline of the transitional arrangement is becoming discernible. According to the FT, Hammond envisages a two-stage process – firstly a “transition phase” during which the UK will retain full access to the single market and customs union, followed by a further “implementation phase”, during which the new UK-EU trade deal can gradually take effect. It is envisaged that in total, the entire process will last for up to three years, meaning that at the latest, it will expire just before the 2022 general election campaign. This would allow the government to go into that election on the basis of having ‘delivered Brexit’; Brexiteers fear that allowing the transition to run any longer would risk it becoming a de facto more permanent arrangement, especially under a potential Labour government.

Will the UK stay inside the single market and customs union? From the perspective of business, what matters most is certainty over practical arrangements such as the regulatory system, the immigration regime and customs checks. The government has said that formerly, once the UK leaves the EU, it will also leave the single market and the customs union. Technically this will be true, but as Hammond told the BBC Radio 4’s Today programme on Friday, “many things will look similar”. From a presentational perspective, the challenge will be to convince voters that things are changing as a result of Brexit, while in reality, introducing such changes gradually. As far as the single market component of the transition is concerned, the government has a couple of options. The first would be to reach for the ‘off the shelf’ option of staying within the European Economic Area via joining the European Free Trade Association (EFTA). However, this comes with its own complications and it might resemble full EU membership too closely to be palatable to most Brexiteers. An alternative could be a looser arrangement under which the UK essentially mirrors the EEA but without formal membership, with new bilateral institutions set up to oversee and enforce the agreement instead. The UK would have to continue to observe the four freedoms during the period but crucially, even if EU law will continue to apply for all intents and purposes, it will no longer have direct effect; a key principle for Brexiteers. When it comes to the customs union transition, Hammond’s preference is to strike a new customs agreement with the EU post-Brexit to maintain the status quo at UK ports and on the Irish border while more permanent arrangements are worked out. This would hamper the UK’s ability to enter into new FTAs immediately post-Brexit, but the UK could negotiate such deals during this transitional period and have them come into effect at a later date. This is still very much a live debate however.


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