U.K. Prime Minister Theresa May enters 2017 with just three months to meet her self-imposed deadline to trigger divorce talks with the European Union. Her reliance on wordplay — “Brexit means Brexit” — underscores how many details still need to be worked out. U.K. Brexit Secretary David Davis says what’s coming might be “the most complicated negotiation of all time.”
1. What’s taking so long?
While Britain voted in June to leave the EU, May has
stalled on starting two years of formal talks to give her time to prepare a negotiating stance. The EU has
stuck to its line that it won’t hold even informal discussions until the U.K. triggers Article 50 of the Lisbon Treaty, which governs withdrawal from the bloc. And there is disagreement on who, exactly, has the power to invoke it.
2. So who has the power to invoke it?
May says she does, but the U.K.’s High Court
ruled in November that Parliament does. The Supreme Court will weigh in this month. Another defeat would mean May having to introduce a bill in Parliament, which would then be
subjected to debate, amendments and a vote. The prime minister has already conceded to publishing a plan in the new year although it may be thin on details to preserve her negotiating powers.
3. What would Parliament likely do?
While the opposition Labour Party and critics within May’s own Conservative Party say they won’t challenge the will of the people by trying to derail Brexit, they would likely take the opportunity to secure more details of the government’s plan and try to shape it. That could delay the start of talks with the EU. May
insists her deadline to start negotiations, March 31, would still hold.
4. How long will the talks take?
Article 50 allows two years, though that could technically be extended if all 28 members of the EU including the U.K. agree. Once May proposes the terms of an exit, the rest of the EU could take a while to form a response, since this is an
election year in France and Germany. Both sides seem to agree that they really have just 18 months to reach an accord because then it would need to obtain the consent of the European Parliament.
5. How will the talks be structured?
The U.K. has to negotiate both its break from the EU and the
terms of a new trading relationship. European Commission negotiator Michel Barnier wants to focus first on the separation, which involves Britain settling budget commitments that Barnier is said to estimate at 60 billion euros ($63 billion). Borders, pensions for British EU staff and the rights of U.K. and EU citizens in each other’s economy need to be resolved. The British would prefer to discuss the split and the new deal in concert, to provide businesses with more certainty and to win trade-offs in the talks.
6. What happens at the two-year mark?
At the end of two years Britain leaves the EU regardless of whether it has secured a new trading relationship with the bloc. If it hasn’t or if a transitional phase hasn’t been put in place then exporters in both economies will both be exposed to World Trade Organization tariffs after years of duty-free trade.
7. What rules will take effect upon Brexit?
There is increasingly common ground that a
transitional arrangement will be needed between the U.K.’s exit and the formalizing of its new relationship with Europe. Companies don’t want the uncertainty, much less the tariffs. Banks especially would welcome an interim arrangement and without it would likely shift even more jobs and operations from London.
One suggestion is that rather than a transition, the U.K. and EU agree not to impose duties on each other’s goods until the new deal is signed off.
8. What are the obstacles to a new trade deal?
The U.K. would like maximum access to the single market for goods and services, but May has
signaled her priority is regaining control of immigration. The EU doesn’t want Britain to “cherry pick” the benefits of membership, as that could encourage secession talk elsewhere, and says access to the single market is predicated on accepting free movement of people. Reaching a trade agreement could take more than two years. Canada’s deal with the EU took seven, and it’s still not ratified and doesn’t accommodate financial services.
9. What might a trade deal look like?
Though May speaks of a “bespoke” deal, there are potential models in how Switzerland, Canada, Turkey and Norway trade with the EU. A “soft Brexit” would look like Norway’s model with the U.K. giving ground on immigration, while a “hard Brexit” would see it accepting either WTO rules or trying to land a free-trade agreement over time.
10. What about future trade with non-EU countries?
As a member of Europe’s customs union, the U.K. is prevented from negotiating its own trade deals or tariffs. Some on May’s team would like to leave the customs union and start lining up commercial accords with the likes of the U.S. Others warn that would subject British manufacturers to border checks and other bureaucracies that could prove costly. One possible compromise is Britain stays in a customs union for some products and sectors of the economy while leaving it for others, although the rest of the EU may not agree.
11. Does the U.K. have any card to play?
May won’t rule out offering to pay the EU to allow certain industries to maintain tariff-free trade with the single market — though the issue
splits her ministers. Since Britain is a net contributor to the EU budget, its withdrawal could hurt nations that are net recipients, especially those in eastern Europe. These nations are likely to push for the U.K. to keep paying — potentially until the current budget period ends in 2020, diplomats said — and could be open to accepting some British demands. Officials have also signaled some wiggle room on immigration by saying “highly skilled, highly paid” individuals will still be allowed to move to the U.K. to work. The election of Donald Trump as U.S. president may also make EU members more willing to embrace the U.K. so as to maintain ties to its military strength and intelligence capabilities.