Economy

A work in progress: Brexit explained in 11 questions

With just three months to go, many details must still be worked out by Britain’s Brexiteers

Brexit negotiations: “Officials have signalled some wiggle room on immigration by saying ‘highly skilled, highly paid’ individuals will still be allowed to move to the UK to work. Photograph: Daniel Leal-Olivas/PA Wire

Simon Kennedy
Timothy Ross
and Ian Wishart
Tue Jan 3 2017 - 08:12

UK prime minister Theresa May enters 2017 with just three months to meet her self-imposed deadline to trigger divorce talks with the European Union. May’s reliance on wordplay (“Brexit means Brexit”) underscores how many details still need to be worked out. David Davis, the UK’s Brexit secretary, says the talks to come might be “the most complicated negotiation of all time”.

1. What's taking so long?
While Britain voted in June to leave the EU, the prime minister has stalled on kicking off two years of formal talks in order to prepare a negotiating stance. The EU has stuck to its line that it won't hold even informal discussions until Britain triggers article 50 of the Lisbon Treaty, which governs withdrawal from the bloc. And there is disagreement over who, exactly, has the power to invoke it.

2. So, who has the power to invoke it?
May says she does, but the UK'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 try to secure more details of the government's plan and attempt to shape it. That could delay the start of talks with the EU. May insists that her deadline to start negotiations, March 31st, would still hold.

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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 member – including the UK – agree. Once May proposes the terms of an exit, the rest of the EU might 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 it will also need to obtain the consent of the European Parliament.

5. How will the talks be structured?
The UK has to negotiate both its break from the EU and the terms of a new trading relationship. The European Commission's 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. Borders, pensions for British EU staff, and the rights of UK 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 win trade-offs in the talks.

6. What happens at the two-year mark?
At the end of two years, Britain will leave the EU regardless of whether it has secured a new trading relationship with the bloc. If it hasn't, or if a transitional phase has not been put in place, then exporters in both economies will 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 are needed between the UK's exit and the formalising 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 UK and EU agree not to impose duties on each other’s goods until a new deal is signed off.

8. What are the obstacles to a new trade deal?
The UK would like maximum access to the single market for goods and services, but May has signalled that her priority is regaining control of immigration. The EU doesn't want Britain to "cherrypick" 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, but it is still not ratified – and does not 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 UK giving ground on immigration. A "hard Brexit" would see it either accepting 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 UK 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 US. Others warn that would subject British manufacturers to border checks and other costly bureaucracies.

One possible compromise is that Britain stays in the 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 UK have any card to play?
May won't rule out literally paying 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 UK to keep paying – potentially until the current budget period ends in 2020, according to diplomats – and could be open to accepting some British demands.

Officials have also signalled some wiggle room on immigration by saying “highly skilled, highly paid” individuals will still be allowed to move to the UK to work. The election of Donald Trump as US president may also make EU members more willing to embrace the UK so as to maintain ties to its military strength and intelligence capabilities.

– Bloomberg

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