A Year of Brexit Uncertainty Lies Ahead: Deal, No Deal or a Second EU Referendum by Autumn 2018?

Barnier.jpgAs Brexit negotiations proceed, British politics is navigating into unchartered waters. Kirsty Hughes, Director of the Scottish Centre on European Relations, outlines potential scenarios for the unpredictable year ahead.

 

With only a year to go to agree a Brexit deal or not, the looming deadline next autumn should start to focus minds – whether on getting a deal or on whether Brexit can be halted via a second referendum or other means.

There has been an almost ground-hog day quality to the last year of chaotic Brexit politics, as Theresa May continues to insist she wants a bespoke deal that leaves the UK neither in the EU’s single market nor in its customs union. But as the Brexit deadline nears, the year ahead cannot be one of content-less mantras either from the UK government or from opposition parties.

Barnier has said the deal needs to be done by October 2018 to allow time for ratification votes in the European Council, European Parliament and in the UK before March 2019. Meanwhile Theresa May continues to suggest that the only vote Westminster will be allowed is between a deal and no deal – a binary choice the opposition rejects as neither a real or democratic one.

The timetable might slip to December 2018, but an exit deal, incorporating transition arrangements and an outline framework of a trade deal, will need to be finalised before the end of 2018 if ratification is to happen on time. A fraught and uncertain year lies ahead.

Political uncertainties abound for 2018

The coming year looks unlikely to be a ground-hog one but political uncertainties abound. Will Theresa May remain as Prime Minister until the end of 2018? Will the Tory government stay in power or might there be another general election – and if so with what outcome and what implication for Brexit?

Labour’s Brexit positions remain ambiguous but still lean towards a trade deal outside the EU single market and perhaps (or perhaps not) outside its customs union – meaning their Brexit stance differs little for now from the Tories. Whether Corbyn can be persuaded to switch to supporting a single market, ‘soft’ Brexit is unclear – and many Labour MPs remain reluctant to endorse the free movement of people that such a policy stance would entail.

So far, the focus of the Brexit talks, and of much of the UK political debate, has been on the divorce deal, particularly the EU’s three priorities of EU citizens’ rights, the divorce bill and Northern Ireland. The UK government does now want a two-year transition period – and there is some recognition, if not by the foreign secretary, that the EU27 are only likely to offer a time-limited continuation of the current acquis, which may mean staying in the single market and customs union without a voice or vote.

While the divorce bill will remain a highly sensitive issue, the biggest Brexit question is the form of the future UK-EU relationship – and its impact on the economy, migration, and almost all sectors of the economy from the National Health Service to financial services. While the Lib Dems and Scottish National Party both want the UK either to stay in the EU or aim for a ‘soft’ Brexit of staying in both the single market and the customs union, Labour and Tories for now are in similar places on the future relationship – even while they deny this. But this could yet change – with a change in leadership of the Tory party and so of the Prime Minister, or an election that might put Labour in pole position to form a government.

What sort of future UK-EU27 trade deal: A December wake-up call?

The form of any outline framework trade deal between the UK and EU27 will, in any event, soon get huge political and business attention. It is likely that the EU27 will decide at their December 2017 summit that they are ready to start discussing a trade deal. Then both the EU and UK positions on what a trade deal might look like should clarify rapidly.

The EU27 will provide Barnier and his team with new guidelines on key conditions for a trade deal: these guidelines are likely to act as a sharp wake-up call to anyone in the UK government or Labour who thinks a ‘deep and bespoke’ deal or a ‘jobs first’ Brexit can look anything like our current EU single market membership, or allow frictionless trade. Equally, the EU27 are also likely to spell out once again that full single market access depends on full respect for the EU’s four freedoms.

On current political trends, the EU27-UK focus is likely to be on a Canada-style trade deal – one that allows tariff-free trade in goods but does not remove all regulatory and non-tariff barriers and that does not allow much services access (beyond WTO rules). Such a deal would be damaging to UK-EU27 goods trade, and very damaging to services trade. But May’s government will find it hard to push the EU27 beyond that – at least in time for the end of any transition period in 2021. And the EU’s guidelines may well not give Barnier a mandate to go beyond a Canada-style deal.

The EU’s guidelines on trade may also act as a further incentive for businesses to start to implement contingency plans to move staff and operations to the EU27. Overall, once the likelihood of substantial (mainly non-tariff) barriers to trade becomes apparent for all to see, perhaps as early as this December, the politics and the economics of Brexit debates and decisions will start to shift.

If a ‘deep and bespoke’ deal starts to look a non-starter, then a Canada-style deal will become the centre of attention. Such a deal could mean UK-EU27 trade potentially falling by almost 50 per cent, so the political and economic reality of Brexit may start to hit home more widely than it has in the British debate. And the UK government may start to look even more on the defensive as the reality of the future EU-UK trade deal sinks in.

But Labour will have to face this too. If Jeremy Corbyn continues to claim he would negotiate a ‘jobs first’ Brexit, he will be hard-pressed to explain how he would persuade the EU away from a Canada-style deal and how his approach to a future trade deal differs from the Tories, if the UK is to be outside the single market. Corbyn would surely come under renewed pressure from ‘soft’ Brexit backbenchers – and Labour supporters – to at least backtrack on remaining in the single market and accepting free movement of people.

He might perhaps agree to argue for staying in the EU’s customs union, something Keir Starmer has been pushing. But Turkey’s customs union with the EU has not stopped queues at its border with the EU and many other trade frictions (since Turkey is not in the single market). A Labour position of staying in the customs union – and so adopting EU tariffs on third countries, but with no say in how the EU negotiated its trade deals – while not retaining single market benefits, would get exposed as meaning considerable harm to UK-EU27 trade since it would not remove all non-tariff barriers. Nor would it solve the challenge of keeping an open Ireland/Northern Ireland border – which would need both customs union and single market membership (as the recent European Parliament Brexit resolution on 3rd October underlines).

There will be many related questions of how fast such a new deal can be negotiated: will it be in time for the end of a 2 or 3 year transition? Will businesses and other sectors of the economy have enough clarity to prepare in time for the new trade deal. But the prospect of a Canada-style, principally goods trade deal, while very damaging compared to single market membership, would be much better, even so, than the even larger damage that would occur if no deal at all was concluded.

A halt to Brexit – but how?

So, by early 2018, the UK’s Brexit politics may be entering a new phase. How the politics of the trade framework being negotiated plays out is one big issue. Another is whether the UK government can get its EU withdrawal bill – and other Brexit-related bills (customs, trade, agriculture, migration and more) – through Westminster, and whether the Scottish parliament and Welsh assembly will consent to the bill(s). Unless a compromise is found, it is quite possible that both Holyrood and the Welsh assembly could refuse legislative consent for the EU withdrawal bill, setting up a major constitutional clash.

Labour will also surely come under pressure to say whether it will vote against the overarching Brexit deal in the autumn as the outlines of the future trade deal become clear. Lib Dems and SNP too will have to say whether they will oppose any Brexit deal at Westminster. Lib Dem and SNP opposition may look self-evident but it may be that the formal UK-EU27 deal will focus only on the exit deal and the transition period rather than the future trade framework (since it will only be an outline).

The European Council, according to Article 50, will vote on the exit deal, including a transition period if it is part of that deal, by a super-qualified majority – and the European Parliament must vote on it too. But how the European Council will adopt an outline framework agreed with the UK on the goals of a future trade deal is less clear. It could be in the form of a summit statement. Equally, how the UK government will get approval for such a framework is an open question for now.

If the UK government survives until next autumn, and agrees a deal with the EU27 – rather than the UK facing a no-deal crisis – then the crunch question is whether it can get that deal through Westminster. If not, the ensuing political crisis could well force a general election. The real question then would be whether Labour would rethink its support of Brexit at that point or not.

For now, the Lib Dems and the Greens, are the only parties backing a second EU referendum, with a choice between the deal and staying in the EU. Nicola Sturgeon has said that it might become harder to resist such an option – but for the SNP backing a second referendum on the EU raises some complex political issues over when – and when not – to have a second vote, even though they want, ultimately, a second independence referendum.

But if both Lib Dems and SNP backed a second EU referendum – and with London mayor Sadiq Khan already supporting this – the political dynamics around this option could change, and possibly put more pressure on Labour to open up to this choice. For now, having majority support for a second referendum at Westminster looks unlikely. But in the event of a rejection of a UK-EU deal next autumn, or in the event of no deal – it might come into play more strongly. Or, if a tough position from the EU27 on a future trade deal impacts on the UK Brexit debate by early 2018, support for a second EU referendum might even grow earlier on.

Overall, the chances of reversing Brexit do not currently look strong. But with the huge array of Brexit challenges to be addressed in the coming year, and with growing awareness of the political and economic realities – and damage – of Brexit, there is at least a scenario where this could yet happen.

The next year will throw up big Brexit debates and challenges. From managing ever-trickier talks with Brussels to big political uncertainties around Brexit policies and tactics of both government and opposition, at Westminster and in Wales, Scotland and Northern Ireland, it is hard to predict where we will be in a year’s time. But with time getting short, and the politics getting ever tougher, halting Brexit may not end up as the least likely scenario.

 


Dr Kirsty Hughes is Director of the Scottish Centre on European Relations.


This article was originally published by the Scottish Centre on European Relations and is reposted with permission.


Note: The views expressed in this post are those of the author, and not of the UCL European Institute, nor of UCL. 


Image of Michel Barnier (c) Flickr user DG EMPL (CC BY-ND 2.0)

 

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