Legal Intricacies Complicate May's Two-Year Brexit Transition Period
11 Oktober 2017 - 7:21PM
Dow Jones News
By Simon Nixon
It cannot be emphasized enough that the European Union is not
really a political project so much as a legal one.
Of course, the EU tries to find political solutions to its
members states' common political problems. But those solutions have
to comply with the EU's legal order, which is based on the EU
treaties. Sometimes, the only solution is to change the treaties
themselves -- but that process is complicated, and even then any
changes need to be consistent with the rest of the legal order.
That can sometimes make it impossible to find a political solution
even when the solution may seem obvious or the consequences of
failing to do so stark. Just ask David Cameron, whose failure to
secure significant curbs on the free movement of EU citizens is
blamed by some for Brexit.
Now Mr. Cameron's successor is making her own demands for a
political solution to the problems caused by Brexit. Prime Minister
Theresa May wants a transition deal -- what she calls an
"implementation period" -- to enable the U.K. to continue to trade
with the EU "on current terms" for around two years after the U.K.
quits the EU in March 2019 while the UK's new trading relationship
with the EU is agreed to and arrangements put in place. The EU also
needs time to prepare for the change. Yet devising a legally
watertight way for the U.K. to continue to trade with the EU "on
current terms" while no longer an EU member is likely to prove
fiendishly difficult -- some would argue impossible. Both British
and EU officials acknowledge that they are at an early stage of
grappling with the complexities.
The first challenge is that to preserve frictionless trade, the
transition deal will need to find a way to replicate the UK's
existing commercial relationship with the EU in its entirety. That
means that the U.K. will not only need to negotiate a temporary
customs union with the EU that matches the existing customs union,
but also a new regulatory relationship that allows full mutual
recognition of testing and enforcement processes across all
sectors, says Peter Holmes, reader in economics at the University
of Sussex. The moment exceptions are introduced, there will need to
be border checks, whether for customs or regulatory purposes. That
could be tricky because there are some sectors where the U.K. may
want to exempt itself from EU rules immediately. For example,
environment minister Michael Gove says he wants to take back
control of U.K. fisheries to avoid remaining subject to annual EU
quotas set by Brussels. Yet if fisheries are excluded, "then every
lorry will face random risk-based checks to see if there is a fish
in it," says Mr. Holmes.
A second issue concerns the 40 free trade agreements the EU has
with third countries. These also need to be replicated in their
entirety to avoid new barriers to trade. (Again any divergence from
the EU's commercial policy will lead to new trade barriers.) Yet
rolling over these agreements, as the U.K. says it wants to do,
isn't straightforward. The problem is that once the U.K. itself
becomes a third country, British goods containing substantial EU
components may no longer count as British under the complicated
rules of origin that govern world trade -- and vice versa.
To change these rules to enable pan-European supply chains to
remain in tact will require a three-way negotiation involving the
U.K., EU and each of the countries with which the EU now has an
free-trade agreement. As the U.K. is already discovering after
running into opposition from the U.S., New Zealand and others over
a deal reached with the EU at the World Trade Organization to
divide up current EU agricultural quotas, other countries will
robustly defend their interests.
A third issue is that whatever the EU offers to the U.K. by way
of a temporary treaty also risks creating a precedent. In the
British public debate, there is an assumption that the EU wants to
punish the U.K. to deter others from leaving. But the EU is equally
concerned that whatever it offers the U.K. doesn't lead to demands
from other non-EU countries for similar terms. The EU-Korea trade
agreement contains a most-favored-nation clause that obliges each
side to offer each other the same terms on access to their services
markets that they offer in future trade deals to other third
countries. A transition deal that allowed the U.K. full access to
its financial-services market could become the basis for a demand
for similar treatment from Korea.
The reality is that the only legally watertight transition deal
that is guaranteed to enable trade to continue on "current terms"
is an agreement to extend the Article 50 deadline. This can be done
by unanimous decision of the member states. Of course, extending
the UK's EU membership beyond 2019 would be politically fatal for
the current government, though it's possible a majority would
support it in parliament. It would also be politically toxic in the
EU: There is a growing consensus that this is a bad marriage that
just needs to end, says one senior EU diplomat. And extending
Article 50 raises serious practical issues, including whether the
U.K. would participate in EU parliamentary elections in 2019 and
the next EU budget.
But those obstacles may yet prove easier to overcome than
devising a way to replicate in full the EU customs union, the
single market and 40 free-trade agreements from scratch in one
year.
(END) Dow Jones Newswires
October 11, 2017 13:06 ET (17:06 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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