Brexit: Where are we going? – Transition… or Extension?

IIEA23rd February 201810min
In this abridged version of his recent IIEA paper, which can be read in full here, Former Taoiseach John Bruton argues that the two-year period for negotiating Brexit can, and should, be extended. This article is Part Seven of the IIEA’s February 2018 Brexit Status Report series.

Author: John Bruton

Introduction

The two-year time limit to conclude the negotiation of the terms for UK withdrawal from the EU is, as we are slowly learning, far too short.

The risk of the UK simply crashing out of the EU, remains high. The gap between popular expectations, and practical possibilities, remains dangerously wide. The implications of UK withdrawal have not, even yet, been fully discovered by the negotiators on either side. New complications and hypotheses are emerging every day. These arise because we are only now digging down into 40 years’ worth of trade deals, memberships, and understandings, which the UK can only be part of, so long as it is in the EU.

The UK hopes to leave the EU on 29 March 2019, but to continue to have access to the EU market for a two-year Transition Period. This timeframe was presumably chosen because it is before the scheduled date of the UK General Election. The European Commission, for its part, has proposed a transition of just 21 months, ending in December 2020 – the end of the current EU budgetary period.

I believe this Transition Period approach is a mistake.  I believe it would be simpler and wiser for the UK and the EU to agree to extend the period for negotiation under Article 50 by two or more additional years. This can be done by unanimous agreement.

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The currently proposed transition period

At the moment, UK may be seeking at least a two-year transition period, after March 2019, during which it would still enjoy the benefits of membership of the EU Single Market, and Customs Union. Some in the European Parliament have said the longest Transition the UK might be granted is three years.

If this is conceded, the UK, for the duration of the Transition, would not then have any direct say in the making, and interpretation of the rules of the Single Market and Customs Union. It would still be subject to ECJ jurisdiction, and contributing to the EU budget on the same basis as if it was a member. The UK Prime Minister calls this transition period an “implementation” period.

Businesses in the UK and in the EU would hopefully be implementing changes in their business practice to accommodate themselves to the sort of arrangements that would apply, in March 2021, when the UK had actually left both the Single Market and Customs Union, as Mrs May desires. The difficulty will be that no one would know for sure what to prepare for. The Transition might be no more than a Postponement.

This is because the EU and the UK could only start substantive negotiations of the terms of a future UK-EU trade deal at the beginning of transition period, because the UK must first become a non-member, before it can negotiate a trade deal as a non-member.

Of course, the political outlines of a possible trade arrangement the UK might have with the EU itself would been agreed before March 2019, as part of the “Framework for a future relationship” that, under Article 50, should accompany the Treaty under which the UK withdraws from the EU. The Withdrawal Treaty itself, and presumably the Framework, can be agreed by a qualified majority in the European Council.

But a future trade deal with the UK, depending on its content, and whenever it is eventually finalised, will almost certainly require unanimous agreement and ratification by national parliaments. If it covered services, many of which are regulated at national as well as EU-level, and which the UK wants, it would have to get ratification from all the national parliaments.

So the proposed two years may be too short a transition period for business. It will also be too short for trade negotiators, who say that a deal as complex, as the one the UK is seeking, would probably take six years to finalise and ratify.

But, politically, a two-year Transition, may be as long as the UK can live with. By the time of the next election, the Conservative Party will be very uncomfortable if the UK is still in “transition”, implementing EU laws, contributing to the EU budget, and under the jurisdiction of the ECJ. It will feel it has not kept the promise it gave in the recent General Election.

If the prospective deal with the EU is one that fails to fulfil the expectations raised by the Tory advocates of Brexit, some Tories may be tempted to look for an extension of the two-year transition and leave it to a post-2022 General Election government to take the blame for an unsatisfactory Trade Agreement.

I believe one such time-limited prolongation of the Transition Period, if requested by the UK, would be granted by the EU 27. But that would be it. An indefinite prolongation, or a series of prolongations, would not be offered.

A long Transition under the terms currently proposed would be difficult to sell in the UK. It would offend against the principle of democratic representation. The UK would have to implement and abide by EU regulations, in the making of which it would have no part. During the Transition Period, the UK would have no representation in the European Parliament, Council or Commission. Any financial contribution it might make during the Transition would be represented by some as “taxation without representation”.

So, I conclude that, as the UK explores the difficulties of its proposed Transition or Implementation Period, it may find itself forced to look at other options.

The only other option on offer is an extension of time under Article 50 (3).

 

Extending the two years provided for in Article 50

Article 50 (3) of the Treaties, under which UK withdrawal is being negotiated, says that a country that has applied to withdraw from the EU and given notice of intention to do so under Article 50 (2) shall cease automatically to be a member:

“two years after the notification referred to in paragraph (2), unless the European Council, in agreement with the member states concerned, unanimously decides to extend that period”.

Extending the two-year period is a matter for the Member States. There is no provision requiring the consent of the European Parliament to such an extension of the two years.

At the moment, there is no official sign that either the UK, or the EU27, would contemplate using such an extension, or even talking about it publicly. It is too early. To do so would signal weakness and would be a poor negotiating tactic. But the provision for an extension was put there for a practical reason.

Even with the best will in the world, trade negotiations, including even frameworks for trade negotiations, can take longer than all sides want, and there can be unexpected political, technical and legal difficulties.

An extension under Article 50(3), would allow the UK to continue, for the duration of the extension, to be a full voting member of the EU, except on issues to do with Brexit. It would still be a member of the ECJ and a British Judge would continue to sit there. The UK member of the Commission would continue his important work in that capacity. The UK MEPs would continue to sit in the European Parliament. The UK would continue to be bound by EU law, but that is also likely to be the case for the duration of any Transition.

But in the Article 50(3) scenario, the UK would enjoy democratic representation. There would be no legislation or taxation without representation. In these senses, an extension under Article 50(3) would be a better deal for the UK, except that the Referendum decision to leave the EU would not yet have been implemented. It would still be under negotiation.

Looking forward, at this stage, an extension of time under Article 50(3) offers a slightly greater degree of certainty to business, in that the UK would definitely retain all the obligations and advantages of membership for the duration of an extension under that Article.

 

Advantages and disadvantages of a longer transition, as compared with a time extension under Article 50(3)

Under the Article 50 (3) approach, the UK would still be a member of the EU. Thus, while it could agree a framework for its future relationship with the EU and this could cover trade matters, the UK could not negotiate or finalise a trade deal with the EU or anybody else. That would be a big negative from the point of view of those in Britain who believe there are attractive trade deals waiting to be concluded.

But, on the other hand, the UK would continue to benefit from existing EU trade agreements, and the extra time would allow it to put much greater flesh and detail into the Framework for Future Relations with the EU, than will be possible in the time between now and March 2019.

The existing time limits have created a fevered atmosphere in the negotiations, and this has politicised them in a way that makes rational calculation of mutual interest more difficult. An early agreement to a substantial extension under Article 50 (3) would remove this problem, and would give the negotiators more time and space.

Some in the UK may be open to this possibility, though there may be little appetite for it in Brussels.

There is a feeling in some continental EU countries that the UK has already taken up too much of the EU’s time. For example, David Cameron’s decision to prevent the Compact for the Fiscal governance of the Eurozone being incorporated in the EU Treaties, even though they had nothing to do with the UK, has left a very sour taste.

There is also a fear that any extension of UK membership under Article 50 (3) could be exploited by the UK to block other EU reforms, and/or to improve the UK’s position in the competition between the EU and the UK that would occur after Brexit had finally happened. The UK might interfere in sensitive negotiations about compliance with EU principles by Poland and Hungary.

Granting the UK, which had decided to leave and chose the timing of its Article 50 letter freely, an extension of the time limit, might be interpreted as encouraging other sceptical EU states to use the threat of withdrawal as a bargaining tactic, or a means of getting votes in Elections. In this context, taking a tough line with the UK is not seen as “punishment” of the UK, as much as being “self-preservation” by the EU.

An extension of time under Article 50 (3) would mean that UK MEPs would still be eligible to sit in the next European Parliament, at least until the extension period had expired and the UK was out. A European Parliament Election Campaign in 2019 in the UK would allow the British people to debate the issue of UK withdrawal from the EU in a much more informed manner than was possible in the Referendum of 2016. The campaign, and the result, of the European Parliament in the UK in 2019 would give valuable guidance to negotiators.

It might confirm the decision to leave, or it might signal a willingness among the UK electorate to change course, before the UK is outside the EU. Under any other proposal, reapplying to join under Article 49 would be the only option if such change of heart took place, after the UK had already left the EU. This would mean a whole new accession negotiation and different and less favourable terms of membership for the UK.

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Conclusion

The deliberative process whereby the UK decided to leave the EU left much to be desired.

The British people were asked to vote on the issue without having before them a recommended or clear alternative to continuing EU membership. The Referendum was not preceded by a series of Green and White papers. It became a battle of economic statistics and false promises, rather than a discussion of Britain’s place in an increasingly interdependent, and mutually vulnerable, world.

The decision to leave the EU entailed the UK withdrawing from Treaties it had entered into with 27 other countries. Treaties between states are like contracts between individuals. If an individual wants to withdraw from a contract, he can do so, but he would normally expect to have to compensate other parties to the contract for the damage his decision might cause. No consideration at all was given, during the referendum in 2016, to the impact UK withdrawal would have on other contracting parties, notably on Ireland.

For all these reasons, I believe the UK, and the EU 27, need to take time out to think about where we are going with Brexit.

The confrontational atmosphere, engendered by the time limits in Article 50, prevents a quiet discernment of mutual interests. On balance, I believe the best way to reach a good outcome in the negotiation, that will not do lasting damage to the political and economic relations between the UK and the rest of Europe, would be to forget about the Transition option, and agree a time extension under Article 50 (3).

That may not seem politically feasible at this stage, but I believe it will be seen in a different light by next October.

The rush for an early Brexit that motivated Mrs May to write her Article 50 letter before her government had done its homework, was driven by a deep fear among the architects of Brexit that, if they did not leave quickly, they, or their voters, might change their mind about leaving at all.

This is, quite literally, an irrational basis for deciding the future of Britain. It is a deeply dangerous basis on which Britain would impose the costs of its mistakes on Ireland.

I believe that an extension of time under Article 50 (3) of the Treaty is the best way to minimise, and possibly to eliminate, the damage.