LONDON — Philip Hammond on Monday dropped the biggest hint yet that Britain will try to secure a transitional agreement to prevent the country plummeting from a cliff-edge immediately after leaving the EU.
“The further we go into this discussion, the more likely it is that we will mutually conclude that we need a longer period to deliver,” the chancellor of the exchequer told the Treasury select committee.
A transitional arrangement would take effect as soon as the two-year negotiating period allowed by Article 50 concludes and would remain in place until a long-term UK-EU trade deal is implemented.
In theory, a transitional deal would make the Brexit process smoother and less damaging to the national economy, at least on a short-term basis.
However, Chris Bryant, a specialist in EU law at international law firm Berwin Leighton Paisner, suggests that government ministers are naive and over-optimistic in regards to Britain’s hopes of striking a transitional deal.
“I did read his [Hammond’s] speech with interest,” Bryant told Business Insider on Tuesday afternoon.
“Maybe this is me reading too much into the words he said, but it seemed in terms of what he was talking about, as far as a transitional deal was concerned, was basically just delaying the point at which we actually leave.”
The option to request additional time on top of the two-year Article 50 period is available to Britain but would need to be agreed by all 28 EU member states. The government has so far ruled out any extension of the Article 50 process. However, Bryant believes they will be forced to strongly consider requesting additional time, as finalising a deal in two years is pretty much impossible.
“Where things become complicated legally is if we are negotiating a new bespoke transitional deal that ties us over until the permanent deal is in place. There seems to be quite a bit of naivety from politicians around this in assuming that a transitional deal is really easy and straightforward to do. It’s not. “They will need to apply to World Trade Organisation (WTO) rules, which seems to be getting overlooked.
“There seems to be quite a bit of naivety from politicians around this in assuming that a transitional deal is really easy and straightforward to do. It’s not.”
“Looking at it from the point of view of financial services, the main requirement for a WTO compatible deal, including for a transitional deal, is that it must have substantial sectoral coverage. So, all of this talk about just doing a deal on financial services won’t work. We have to cover most sectors of the service economy if it is going to be a WTO compatible deal. This is fine, but it adds a lot of time and complexity and when you’ve only got two years.
“Trying to negotiate a transitional deal in those two years while trying to negotiate the divorce agreement at the same time is not going to happen.”
The difficulty that awaits the UK’s Brexit negotiators was highlighted by the EU-Canada trade deal, known as CETA, that was finalised in October. The deal took seven years to complete and nearly collapsed at the eleventh hour after the Belgian region of Wallonia continually vetoed it before agreeing to a series of revisions. A transitional deal between Britain and the EU will no easier to arrange than CETA, according to Bryant. “That agreement doesn’t have anything like the complexity of what we need even in a transitional agreement.”
He added: “Realistically, I think that to have a transitional agreement Britain has to go for either what I think Hammond was hinting at, that was that we don’t actually leave by March 2019, which is legally fine but I don’t think they’d get away with it politically. Or, we go for an off-the-shelf transitional deal, such as being in the single market temporarily and the customs union as far as goods are concerned, which is entirely legal possible but again has its own political difficulties. Even on a temporary basis, I think that’s going to be politically difficult.”
Remaining a member of the single market would mean continuing to accept the free movement of people, as dozens of EU figures, including Jean Claude-Juncker and Guy Verhofstadt, have pointed out. As Bryant explains, this is legally possible but politically dangerous, given that polls suggest reducing immigration was very important for so many of those who voted Leave in June. “The difficulty will be finding something between the legal pressures and political pressures that works on both fronts,” he says.
Pursuing a transitional deal could leave the government in a lose-lose situation. Trying to agree on a deal that meets WTO standards will take much longer than two years, while, although legally feasible, opting to continue as a member of the EU’s internal market until a permanent deal is agreed would be politically dangerous.
The near-collapse of CETA was a result of the EU’s strictly federal approach to ratifying trade deals. Usually, all 28-member states must agree before a deal can be signed off, a requirement that Bryant says could thwart Britain’s attempt to agree on a transitional deal unless the EU decides to make an exception for May’s government.
“There are two types of agreement the EU could reach with us,” he said.
“They could decide to sign the deal off without the agreement of all individual member states, but this is not the usual approach to any trade agreement. It is usually mixed with both the EU and its individual member states signing it off. That’s where you get difficulties of things either being held up like we saw with CETA where Wallonia managed to cause difficulty or by things not happening at all, like the EU-Ukraine deal which was rejected in a referendum in the Netherlands.
“Britain has to make sure that any transitional deals falls exclusively into the EU’s powers so we don’t risk a Wallonia-problem.”
“If we don’t do a transitional deal in two years, then it’s not worth doing a transitional deal. The deal is only going to be of any use if it applies from the end of the two year period, otherwise forget it. If you look at things like financial services and passporting, if there’s even a week where that’s not allowed, there’s no point in having it.
“I’m sure that’s the thinking of the Brexit ministries.”
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