In Depth

Brexit transition deal: Avoiding 'cliff-edge' or Remain by another name?

'Consensus' is emerging that an interim arrangement will be needed to soften blow for business

Article 50 sets a two-year timetable to complete Brexit, which implies the UK will be outside the European Union by the end of March 2019.

But an emerging "consensus" suggests that some of the key tenets of EU membership could remain in effect beyond that deadline for perhaps as long as four more years, says The Guardian.  

Theresa May told the first meeting of her new "business council" of leading industry figures that she will not let companies fall over a Brexit "cliff edge", reports the Financial Times

"May told the first meeting of a new Downing Street business council that she aimed to negotiate a transition deal – or what she calls an 'implementation phase' – to smooth the exit process."

Even previously staunch critics such as International Trade Secretary Liam Fox have now "accepted" the need for a "transition phase", adds Sky News

Speaking in Geneva today he said "an implementation period" might be "common sense" as there is now "some uncertainty" as to whether the UK and EU will be able to conclude a free trade deal by March 2019.

Time limits

Quite simply, a transitional deal is one in which significant elements of EU membership are guaranteed to continue for a period after Brexit happens.

The idea is to secure these guarantees as soon as possible to give businesses certainty that they will not face immediate and radical changes in early 2019 – which would mean enacting contingency plans very soon.

For example, City regulators have said that banks need up to 18 months to prepare and so will begin to move jobs out of London if a transitional arrangement is not agreed by the end of this year.

How long it would apply for is still up for grabs. The Confederation of British Industry has previously said an open-ended deal would be preferable, applying until a new trade deal is in place, whenever that may be.  

Several ministers seem to be suggesting a two-year period will suffice – but The Guardian says concessions could apply for four years.

Brexit Secretary David Davis seemed to set a hard time-limit last month when he told a conference in London the "most important thing" is that a full exit would need to be achieved before the next general election in 2022. “That’s a maximum of three years."

Hard or soft?

Thornier still is the debate over what a transitional deal should look like and which bits of EU membership should continue.

Businesses have quite simple demands in this respect: they want the UK to remain in the single market and customs union.

This would be the easiest way to ensure continuity as all existing trading and immigration arrangements would remain in place. Financial services would keep "passporting" rights and hiring across the economy would not be disrupted.

The downside is that this would mean a "Norway-style" arrangement, whereby the UK pays into the EU budget, accepts EU laws and the jurisdiction of the European Court of Justice, and cannot sign free-trade deals with other countries.

This would be anathema to arch-Brexiters in Tory ranks like Jacob Rees-Mogg, who told Newsnight: "If it looks like a duck, walks like a duck and quacks like a duck, it is a duck."

Such a deal is to him and others of a like mind not leaving the EU at all.

That's why Philip Hammond, the soft Brexit-supporting Chancellor, has said the UK will leave the single market and customs union in March 2019 and is seeking instead a bespoke arrangement that replicates as much of the benefits of both as possible. 

Compromises

The problem with this is it is not a simple solution – and it requires the consent of the EU "just like any other trade deal", says Business Insider.

An "off-the-shelf" option that involved continued contributions to the EU budget and accepting the "four freedoms" would probably be easy enough to agree.

Securing something more favourable to the pro-Brexit lobby – for example, a deal that included continued free trade without ECJ oversight, or free movement of people – will be trickier.

A deal would have to be agreed by at least 20 of the 27 countries and approved by the European parliament. Its representative in negotiations, Guy Verhofstadt, said that ECJ jurisdiction during any interim phase would in particular be a deal-breaker.

What all of this means is that even a transitional agreement is likely to need further compromises from the UK government. 

That is looking more likely than it did before the election, which eroded the Tories' majority and weakened May's hand in parliament. Soft Brexiters in the cabinet have been emboldened to make their case, too.

Hammond said last weekend that "pretty much everyone around the cabinet table" supported some kind of transitional deal, says the FT. Now they just have to make sure it's one they can sell to the EU in time to make it worthwhile.

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