Two principal scenarios summarize how the Brexit process is likely to develop in the years ahead. The first provides for a relatively “smooth and sensible” Brexit, in the words used by British Prime Minister Theresa May, with collateral damage kept to a minimum. The other can be called a “cliff edge” scenario.
This upbeat script requires six conditions to be met if it is to be realized in practice.
First, the British government needs to provide clarity on its goals, beyond the broad objectives mentioned by Ms. May in Florence last September or existing British policy papers.
Second, a relationship of trust and confidence must be established between the two sides.
Third, cabinet discipline is essential to enable Britain’s chief negotiator to speak with authority in the name of the government.
Fourth, a coordinated approach must be established between officials working for the prime minister, the chief negotiator and other government departments.
Fifth, enhanced administrative capacity should be built up permitting the British authorities to handle the negotiations and to implement the results effectively.
Finally, the European Union must show flexibility in its approach so that separation, future partnership and transition issues can be examined in parallel when this helps to find solutions.
Scenario 1: a ‘smooth and sensible’ Brexit
The scenario goes like this. The two sides reach a broad agreement by December 2017 on the main elements of the separation (“divorce”) settlement: citizens’ rights, the method for calculating Britain’s financial liabilities to the EU, and avoiding a hard border in Ireland.
This permits the European Council on December 14-15 to conclude that sufficient progress has been made on these issues to begin talks on the future partnership between the United Kingdom and the EU and transitional arrangements. In spring 2018, the European Council gives Michel Barnier, the EU’s chief negotiator, additional directives covering these issues.
By October 2018, the negotiators reach agreement on separation issues, the outline of the future partnership, and transitional arrangements. Prime Minister May’s notion that an actual economic agreement in all its detail could be concluded by then is unrealistic. A more feasible script is that the UK and the EU merely agree that, in the future, there should be an economic agreement, covering trade, investment, and certain regulatory issues, as well as a new political partnership, covering security, defense, counterterrorism, police and judicial cooperation.
A transitional standstill for two or, more likely, three years is agreed, beginning when Britain leaves the EU in March 2019. This will allow negotiations to progress on the future partnership and permit companies and public bodies to adjust. All EU laws, rules and procedures, except decision-making, apply to Britain during the transition period, including free circulation of goods, services, labor and capital; budget payments and the jurisdiction of the European Court of Justice (ECJ), over both existing and new legislation.
This will be an across-the-board standstill, not an ad hoc, “bespoke” arrangement, as the British government would prefer. Strong leadership will be required to persuade the House of Commons to accept such an arrangement, which crosses many Brexiters’ red lines. However, it is the only kind of transition or “implementation” period that can be negotiated in the time available. Several EU governments would reject a selective approach as “cherry-picking.” The risk of an early election bringing the Labour Party to power should quell the doubts in some Conservative Brexiters’ minds. The British Parliament, European Parliament and European Council should approve the separation agreement and standstill arrangements in time for them to take effect on March 30, 2019.
Britain leaves the EU at midnight March 30. The EU Council deliberates and then issues further instructions to the Commission. Negotiations for two long-term agreements begin in May or June 2019: a free trade agreement (FTA) – resembling the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which entered into force provisionally on September 17, 2017 – and a separate political agreement covering security, defense, judicial and police cooperation.
According to this scenario, the FTA would come into force provisionally for trade on goods in 2022 and the political agreement would come into force around three years later, following ratification by 36 parliamentary chambers in Britain and the EU.
This “smooth and sensible” scenario runs on a tight schedule. It may be delayed or diverted because of leadership changes, elections, shifts in the economy and public opinion, or exogenous shocks such as a military crisis in Asia. But, despite rhetoric and confusion, it is still today the central working hypothesis, provided the necessary conditions are met.
However, they may not be met. The British cabinet may not agree on goals or proposed compromises. Some Tories and Labour parliamentarians may rebel, arguing that red lines are being crossed. The EU side may prove inflexible. The British prime minister, unable to reach an agreement, notably on the highly visible issue of finance, may walk away from the table, reverting to the view that no agreement is better than a bad agreement.
The prime minister may be overthrown and her successor may face an early general election. Public opinion may turn against Brexit when the costs begin to kick in. The Labour Party, with a different agenda, possibly involving continued membership of the single market and/or customs union, may come to power.
Scenario 2: the cliff edge
These uncertainties mean that a second, less accommodating scenario, cannot be ruled out. The cliff edge might look like this.
Insufficient progress is made by December 2017 for the European Council to give the green light for negotiations to begin on the future partnership or transitional arrangements. The British government is unwilling to agree to a financial settlement which meets EU expectations. Exploratory talks concerning a possible transitional arrangement fail because the British government does not accept free movement of labor or the supremacy of the ECJ during the proposed standstill period.
The British government demands that the future partnership is approved before Brexit occurs, whereas the EU points out that similar agreements generally take up to seven years to conclude. The British press for a Canada-plus type agreement. But the EU refuses to include financial services, one of Britain’s main requirements, because Britain rejects continued free movement of labor.
According to this scenario, negotiations on the divorce, transition and long-term relationship continue beyond October 2018 without reaching a conclusion by March 2019. Unanimity is required to prolong the negotiations further and this cannot be obtained. Britain leaves the EU at midnight March 29-30, 2019 without an agreement.
On March 30, 2019, makeshift border and customs controls go into effect between the UK and EU member states. Aviation is halted between the UK and the EU, in the absence of an air services agreement. Trucks back up for several miles at UK and EU ports, as customs and immigration officers struggle to cope with the sudden, drastic increase in workload. Sterling experiences its sharpest decline since the 2016 referendum.
An insufficient number of officials on both sides of the Channel, with uncoordinated IT systems, struggle to conduct customs, health and safety checks. Delays disrupt logistics and supply chains. Companies accelerate plans to close plants in Britain and move to EU member states. Conservatives call for Britain to take back control of goods and persons moving between Northern Ireland and the Republic, leading to demonstrations and calls from nationalists for Irish unity. Price divergences and inadequate control of the porous border across Ireland lead to smuggling and organized crime.
British trade with the EU and third countries reverts to WTO Most Favored Nation (MFN) terms, including high tariff peaks for some manufactured goods and agriculture. Claiming injury, several WTO members open dispute settlement procedures against the UK. The United States and other third countries refuse to enter trade negotiations with Britain until its future economic relations with the EU are clarified.
This is a brief outline of the two main scenarios for Brexit. The actual outcome may mirror these or involve other elements determined by events. An agreed withdrawal from the EU still seems probable because of the high cost to both sides of the cliff edge. Late in the day, the prospect of the cliff edge might lead to repositioning. The British government might even, at the last minute, retract its withdrawal notification, improbable though this seems today. There is little support for a second referendum among the major British political parties.
Eighteen months after the 2016 referendum, confusion persists as to British negotiating goals. The British authorities continue to mistake the desirable for the attainable and to delude the press and public opinion. It is, for example, impossible to conclude a far-reaching economic agreement in a matter of months. The business community on both sides of the Channel should remind the negotiators that a predictable business climate is essential if the present tentative return to economic growth in Europe is to be sustained.
Sir Michael Leigh, PhD, KCMG is a senior adviser on public policy and government affairs at Covington, Brussels and has been senior fellow at the German Marshall Fund (GMF) of the United States since 2011 working on the EU and transatlantic relations. Sir Michael became director-general for enlargement at the European Commission in 2006 after serving for three years as external relations deputy director-general with responsibility for European Neighbourhood Policy, relations with Eastern Europe, Southern Caucasus, Central Asia, Middle East and the Mediterranean countries. Earlier he was chief negotiator with the Czech Republic and other candidate countries. He took on his current roles after more than thirty years in EU institutions, including as a cabinet member for British and Dutch Commissioners and as director in the Task Force for the EU Accession Negotiations. He worked on the development of the single market and the common fisheries policy. This article has been published by Geopolitical Intelligence Services.