The second phase of the Brexit talks is just kicking off. And just as we had come to terms with the jargon during the phase-one talks – all becoming experts in regulatory alignment, the single market and the customs union – we now face into a whole new lexicon. Welcome to the world of Canada-plus, transition agreements, bespoke arrangements and even, if you're brave, rules of origin and the Turkish customs union.
The much quoted passage, thought to have appeared first in a US educational textbook in the 1950s, is relevant. It goes: “The answers we have found have only served to raise a whole set of new questions. In some ways we feel that we are as confused as ever, but we think we are confused on a higher level and about more important things.”
In this spirit, here is what we know . . . so far.
The talks will now break, roughly, into three different bits. But remember that, to use the old cliché, nothing will be agreed until everything is agreed.
1. Turning what was agreed in December into a formal deal
To recap, in December the phase-one talks agreed on issues relating to the UK’s departure . The main headings were citizens’ rights after Brexit, “Irish issues,” including the Border and the UK’s financial commitments to the EU as it left. The challenge is turning what was a political agreement into a formal, binding legal text – the withdrawal agreement. In particular, the Irish Government will want to see the agreement on the Irish Border reflected in a way which it feels is as bulletproof as possible. The problem is that the December deal was a fudge, albeit one offering some negotiating advantage to the Irish Government. If the UK continues to insist that it will leave the EU trading bloc – the single market and customs union – then it is very difficult to avoid the return of some Border checks. Much of the lexicon of this debate is already familiar.
Words to watch out for
The single market: The first key building bloc of the EU's trading system, designed to allow free movement in goods, services, capital and people by ensuring the same rules and regulations apply. This means, for example, that checks at borders are not needed to confirm that rules of origin – ensuring goods are from where they say they are from – and safety standards in areas like food are respected.
The customs union: The second key element of the EU trading bloc, under which all EU members agree to trade with no barriers and apply the same rules and tariffs to goods coming in from outsider the EU. A tariff is also known as a customs duty and is a special tax imposed on an import into a country.
Regulatory alignment: If no other way emerges to stop the return of a hard Border between the North and the Republic, the UK promised to ensure "full alignment" with the rules and regulations of the customs union and single market to protect the all-island economy, North-South co-operation and the Belfast Agreement. There is scope for a row on what this means.
Bluffer’s phrases
Junior cert: "If the UK leaves the single market and customs union, it will be hard to avoid the return of a hard Border."
Leaving cert: "The ambiguity of the agreement on the Border in December could come back to haunt the talks."
2. The transition agreement
The UK will leave the EU at 11pm on Friday March 29th, 2019. Much of the detail of its future relationship with the EU will remain to be worked out. So both sides agree that a transition period is needed, when the UK will remain in the EU trading bloc, continue to make contributions to the budget and be subject to EU rules and courts. The politically difficulty bit here for London is that this means continuing to abide by EU rules and the EU courts, even when having no input into framing any new ones . Already there are tensions about whether the UK will take EU immigrants during the transition on the same terms as now.
The EU has proposed that the transition agreement runs until December 2020 and has more or less offered the UK a take it or leave it deal.
Words to watch out for
A la carte: The EU side insists that the UK cannot pick and chose during the transition phase – it has to be all in, applying all the current rules and regulations rather than picking and choosing. "The single market cannot be a la carte," EU's chief negotiator Michel Barnier said.The EU view is that it should be a status quo transition with the UK remaining fully signed up to EU rules and regulations in what is called the acquis, which is the accumulated body of legislation and court decisions which lay down how things run.
Third country deals: The UK wants to negotiate new trade deals with third countries – countries outside the EU like the US, Brazil and so on – during the transition phase. The EU may allow this to happen, but only on the understanding that no new deal comes into force until after the end of the transition period. In the meantime, the UK – and the EU – are going to approach around 60 third countries with which the EU currently has deals, to ask are they happy to continue to trade with the UK on those terms immediately after the UK leaves the EU. There are huge potential complications hidden here, particularly relating to supply chains in sectors such as car manufacturers which cross borders in and out of the EU where complicated rules of origin regulations kick in. There are also hundreds of other agreements covering non-trade areas between the EU and third countries which will have to be sorted.
Vassal state: Arch-Brexiteer, UK MP Jacob Rees-Mogg warned that the UK would, under the EU proposals, be a "vassal state" during the transition period, taking its rules from the EU while having no input around the table.
Bluffer’s phrases
Junior cert: "Less than two years will hardly be long enough for the transition phase, with all the stuff that has to be negotiated."
Leaving cert: "I wonder can the UK keep its trade access around the world after it leaves the EU in March 2019. I see New Zealand is already causing trouble about access for its products."
3. The future relationship between the UK and EU
The EU and UK will seek to agree how the relationship between them will work after Brexit. The idea is to scope out the principles of this before the UK leaves and negotiate the detail during the transition phase. A lot of the focus will be on trade arrangements, but other areas such as security and defence will also feature. The EU has said it will outline its ideas for a future relationship in March. It has repeatedly called on the UK to do so, but this has not yet happened.
Words to watch out for
A bespoke deal: The UK wants a deal with the EU which suits what it wants, giving access to EU markets for its businesses – including manufacturers and service providers like banks and other financial institutions – while also allowing it trade on its own terms around the world.The EU has indicated this will be difficult, though French president Emmanuel Macron did say this week that the UK might find a "special way," perhaps hinting at some flexibility. There may be a particular row over financial services, a vital sector for the UK. And the EU's existing trade deals with third countries may complicate the negotiations, as in some cases it will be obliged to offer the same terms to these other countries as it is offering to the UK under the so-called most favoured nation terms.
Cake and eat it/cherry picking : The EU says that the UK is being unrealistic and wants to maintain the advantages of the EU trading bloc, while at the same time escaping its obligations. It insists that the integrity of the single market must be respected – meaning the UK can't retain access to some bits of the single market, without being fully in. The talks will also include sectors such as aviation and fisheries and how UK regulations in areas such as tax and the environment may evolve.
Canada: If the UK does leave the EU trading bloc, then EU negotiators say it could be offered a deal similar to that done with Canada, signed in 2016. This abolishes most tariffs on trade in industrial goods between the EU and Canada, though retains restrictions in agriculture and particularly services. As the UK would seek better access to EU markets than Canada, particularly in financial services, there has been reference to a "Canada plus" or even "Canada plus plus" deal.
Norway: Norway is outside the EU, but is in the single market. It contributes just under €900 million a year to the EU budget. It has full access to the single market in most areas – agriculture and fisheries are exceptions – and abides by the bulk of the rules and regulations. As the UK says it will leave the single market, a Norway-style deal would mean a U-turn. Taoiseach Leo Varadkar has said he would like to see a Norway plus agreement.
Other countries which will be quoted include Switzerland, which has an arrangement with the EU springing from around 100 historical bilateral agreements covering different sectors. The EU is unhappy with aspects of this and a row has broken out over attempts to instal the European Court of Justice as a final arbiter on trade disputes. The Swiss have agreed contributions to EU cohesion funds. Turkey, meanwhile, has a customs union deal with the EU covering most goods, though not agriculture. Though not in the single market, it is not free to pursue its own trade deals with third countries – a red line for the UK.
A "no deal" Brexit: This is the nightmare scenario where the UK leaves without any agreement. If it does happen WTO rules would apply, imposing tariffs on trade between the EU and UK, highest in sectors such as agriculture and imposing customs checks and bureaucracy. There is also the potential for real difficulties in areas such as aviation and pharma, where common regulations apply – and for uncertainty in the financial sector.
Bluffer’s phrases
Junior cert: It would be easier if the UK just stayed in the single market and customs union.
Leaving cert: A Canada plus deal might be the most that can be achieved, though if the UK relents maybe it could move towards Norway.
