Brexit

What to expect from the Brexit negotiations

What might be some of the early issues for consideration, and what should one watch out for in the negotiations?

BY Andrew Lilico   /  17 March 2017

We finally now must talk of the Article 50 Act, not the Article 50 Bill. Theresa May has all the authority she needs to trigger, and will do so before the end of March. What might be some of the early issues for consideration, and what should one watch out for in the negotiations?

Presumably one of the first matters on which agreement might be obtained is the general right to reside and work of EU citizens in the UK and UK citizens in the EU27. There will probably not be a detailed agreement on matters such as benefit entitlements or how governments fund healthcare provision to or pensions for each others’ citizens until the final deal, but the basic right to remain and work may come early.

A second early point to look out for would be some agreement not to tread on each others’ post-Brexit turf. The UK might agree to abstain in all votes on directives and regulations and initiatives such as an EU army that would only come into force post-Brexit. In return, the EU might grant the UK leave (if indeed the UK requires such leave, but let’s set that aside for now) to negotiate post-Brexit trade deals with countries such as the UK, Australia or New Zealand.

A third area might be an early agreement on general terms and principles, such as that any post-Brexit deal will certainly not leave the rights for UK and EU27 citizens to visit each others’ countries or move personal money around to be any worse than the mutual visitation or cash movement rights that currently apply between the EU and non-EEA countries such as Australia. There might also be some general agreement on goals, such as that an early agreement is better than a later one, but a deeper agreement is better than a shallower one, and an agreement that changes the status quo less is better than an agreement that changes the status quo more, but an agreement that does not respect both the Single Market and the EU Referendum result will not be feasible. I wouldn’t expect much from such a general agreement beyond warm words.

Then the EU27 will attempt to focus attention upon the issue of how much money the UK will pay. The politics of 2017, with multiple elections across key EU member states, is likely to mean this will involve much brinkmanship. Remember the number of times talks between Eurozone leaders and Greece have apparently broken down over the past seven years? Think of the deadlines, the deadlines missed, the summits until six in the morning, the last-minute agreements. We can expect a lot of that sort of thing through 2017 (except perhaps the six in the morning agreements — my guess is that May will consider that theatrical, melodramatic and undignified, and will tell leaders she’s off to bed and if they come up with something they can contact her in the morning, after breakfast).

One thing to be wary of with all that is over-interpreting financial market movements. Markets love having things to trade on, and doubtless this or that apparent disagreement will cause apparently significant swings that headline writers will enjoy. But that’s mainly focal points. Care only about where the pound is, the FTSE is, and so on on December 31st versus March 1st. The rest is fluff.

A pretty core question is whether the UK is prepared to concede even the principle that it has liability for any EU expenditure, beyond the pensions of UK citizen employees of the EU, if that expenditure occurs after Brexit. My guess is that that will not be conceded per se, but that one could imagine some notional payment being made, for purely political presentational reasons, to secure a trade deal. I’m thinking of something like £7bn under some pretext-or-other, plus an annual agreement to participate in this or that research funding programme and some pan-European anti-crime-and-terrorism fund.

Another question is the extent to which Theresa May believes she has political scope to offer easier immigration terms to EU citizens than to non-EU immigrants to the UK. And, within that, whether there is any scope for the EU to concede differential treatment between member states — e.g. easier migration for the French than the Bulgarians. My guess is that the EU will not find that ultimately feasible, even though the UK might prefer it, but that the prospect of differential treatment might be floated so that the UK can be seen to compromise and so that the Western European EU members can be seen to be standing up for the East.

A further complexity on which the UK government will have a high appetite for early reassurance concerns the Ireland-Northern Ireland border. What might be said on that?

Two last areas we might look out for over the 2017 phase of the negotiations concern financial services and cars. The Brexit trade deal is likely to focus mainly on goods, because if services are included it would be likely to need individual chamber ratification (think CETA and the Walloon parliament). Most services the UK government might feel can wait, but it has come under a lot of pressure to provide some early indication of where things are likely to go on financial services, particularly as a number of firms believe they would find it legally impossible to trade, on their current regulatory basis, for a number of months post-Brexit without some arrangement being in place, and would need eighteen months to adapt their systems and locations if they need to. So they think they need to know broadly where things stand by later this year.

Will there be a financial services annex to the main trade deal? Will there be a separate “transitional” arrangement? Will there at least be a “bridging scheme” (e.g. allowing UK firms to apply to EU institutions on a “third-country” basis even before the UK is formally a “third country”, so their applications can be processed in time for Brexit)? Will the focus be on “regulatory equivalence” and, if so, will current regulatory equivalence be extended?

Finally, cars. Various analyses (including the ones we at Europe Economics did for the UK government) have suggested that the UK car sector was one of the biggest gainers from Single Market membership. Conversely, tariffs and non-tariff barriers on non-EU car imports into the EU are fairly severe. The UK government is understood to have made some undertakings to Nissan. Will that be followed up by some special scheme? Might we get hints of that in 2017?

We won’t see a final deal this year, or anything like it. But the above should give us plenty to chew on for now.