A Dog's Brexit

THE TIME IS now desperately short. In less than six months, the UK will leave the EU, either with a ratified Withdrawal Agreement and Political Decree or without one.

Should the UK leave with a Withdrawal Agreement in place, it will be in a negotiation holding period with the EU. It is also possible that negotiations progress sufficiently but fail to make the deadline and the EU agrees to an extension, but this is not an option on the table at this stage. This means that British prime minister Theresa May has until the end of the year – and perhaps a little longer – to craft the required documentation that satisfies a range of different groups whose interests are not aligned. Formally, what she has now is the ‘Chequers plan’ – and no one likes it.

The agreement needs to be worded in a way that clearly resolves three crucial conditions for the UK’s withdrawal, but at the same time leaves sufficient flexibility for these politically fragile issues to be open to some interpretative differences.

The first two conditions, which have already been agreed in principle, are the UK’s commitment to pay the EU an exit settlement of about £39 billion, and protection of the rights of EU citizens living in the UK or moving to the UK during the transition period. 

The critical sticking point is the Northern Irish border ‘backstop’, where negotiators on all fronts have failed to find phrasing that sufficiently conveys a suitable resolution to both the EU and the UK, and Ireland’s fragile political legacy.

WHAT IS THE ‘IRISH ISSUE’ AND WHY HAS IT BEEN SO HARD TO RESOLVE?

At this time, Ireland is an independent country and a member of the EU. Northern Ireland, however, is part of the UK and is, for now, part of the EU. Depending on what negotiators agree is going to be the future relationship between the UK and the EU, the UK will either exit the Single Market or the Customs Union, or both. Thereafter, the EU requires that some kind of border be erected to ensure both quality checks and tax collection between the two entities remain intact. The issue is, however, Ireland and Northern Ireland. Most parties accept that for reasons of acute historical sensitivity, any physical border infrastructure between them is politically unacceptable.

The need for a backstop agreement related to Northern Ireland is a form of guarantee should no final agreement be reached during the transition negotiations. As such, the EU requires that the backstop agreement be reasonably explicit. Prime minister May is looking for flexibility in the wording of the agreement because she is hoping the issue will resolve itself as the future relationship and trade negotiations evolve, and because she needs to balance the interests of both her own divided party and the Democratic Unionist Party (DUP) – its Northern Irish coalition partner. The DUP is adamantly against integrating with Ireland and is seemingly open to a hard border with its neighbour. The EU has consistently argued that even if a border is avoided, Northern Ireland must stay in full, permanent regulatory alignment with the EU and be bound by the oversight of the European Court of Justice. This would misalign part of the UK to the rest of it, challenging the UK’s constitutional integrity, and is wholly unacceptable to the DUP. The situation seems at this stage to be intractable.

While the Withdrawal Agreement between the EU and UK still seems in its infancy, the economic reality of not reaching any agreement may still outweigh the political cost of agreeing something to avert a disorderly unravelling of the process as the deadline arrives. Even if there was an accelerated compromise with the EU, in which most of the detailed negotiation is deferred to a transition period after the March 2019 deadline and possibly extended beyond the current transition period of January 2021, such an agreement will probably require some capitulation by Theresa May on key issues of independence. This will only postpone the tough talk.

TROUBLE AT HOME

In the UK underlying tension would remain unresolved in the case of an accelerated compromise with the EU. A considerable challenge in negotiations is the distance between the ‘Brexiteers’, ‘Remainers’ and the DUP.  Theresa May still needs to maintain close relationships with these domestic political groupings, which advocate a wide spectrum of views.

Theresa May received a mandate to manage the UK’s exit from the EU after the 2016 UK referendum, but there have been many vocal supporters of various outcomes. These range from a ‘hard’ Brexit to those who did not want to leave the EU at all and would be willing to concede some pooling of sovereignty to maintain a close relationship. What has complicated negotiations is the capacity for the associated political parties of this range of ideologies (the most obvious of which is the Labour Party) to use the current impasse to their own political advantage.

WHAT ARE THE ALTERNATIVES?

For all scenarios, there are any number of possible permutations, given the unknown path of travel in the coming days and weeks, and how little we currently have to go on. Also, even if Theresa May manages to get all parties to agree to the Withdrawal Agreement in time, or to an extension, there is no guarantee that the transition negotiations will deliver an agreed outcome. A ‘hard’ Brexit may still happen in the end.

• A ‘no Brexit’
  The UK government abandons its Brexit plans. This would require another referendum (with a ‘remain’ majority outcome) and, given the current political configuration with a coalition government, another election. This seems highly unlikely given the time at hand, but possible if Theresa May fails to deliver an acceptable proposal and Westminster calls for another vote. The EU would still have to agree to an extension of the deadline.
  
  
• A ‘soft Brexit’
  The UK manages to negotiate concessions to trade and non-trade barriers, in line with other countries who have free trade agreements with the EU. It is also possible that some transition is agreed for the financial services sector. This is unlikely to be enough to avoid losses, but they would be less and spread over a longer period.
  
  
• A ‘hard Brexit’
  The UK fails to reach any agreement before the March 2019 deadline and reverts to World Trade Organisation Most Favoured Nation status with the EU from April 2019. This will bring into play a host of trade and non-trade barriers, even if some suspension is negotiated for a short period to insure the economies do not seize. This does imply significant losses to both goods and services trade and – especially for the latter – possibly a large associated decline in the UK’s financial services sector. A ‘hard Brexit’ outcome is still possible, even if the Withdrawal Agreement deadline is met in some way or another, but the negotiation process fails and the transition period ends with no agreement on the way forward.
  
  
• A ‘muddle through’
  It is possible that the EU and UK agree to a holding pattern, with the UK complying to rules existing for other countries with whom the EU has preferential arrangements. However, countries such as Norway within the European Economic Area, or Switzerland, have concessions to single market conditions in their agreements, which would require a considerable compromise to the UK’s current position.

THE OUTCOME WILL BE A BALANCE OF NEGOTIATING POWER

The closer we move to the March 2019 deadline, the harder it is to measure with any real certainty where the balance of power in the negotiations lies. On the one hand, the distance between the warring factions within the UK’s political spectrum leaves both opportunity and incentive to disrupt an already seemingly impossible task, although there seem to be emerging signs of greater support for the prime minister within the Conservative Party. 

On the other hand, Theresa May needs the EU to agree to her proposal even before she gets UK parliamentary approval. The EU can dictate the required level of detail and has the capacity to agree to or deny an extension. It is both a larger and more closed economy than the UK, and will arguably be less affected by a trade disruption than the UK. The EU at this stage seems reasonably united, which would facilitate the ratification process, where the range of opinion across the UK cabinet, parliament and society is well heard.

Success requires a meeting of minds, even if it is a hostile one, and time may still be the biggest driver of closure. But even in a best-case scenario, this presents a challenging basis on which to negotiate going forward. There is not a single bit of the process which is likely to be easy. In fact, there are so many known and visible obstacles to success that it is hard to imagine how an agreement, no matter how vague, will be reached. For now, it still seems possible that a no-deal price outweighs the cost of a compromised agreement, but patience and time are running out.