What Will A Transitional Brexit Deal Look Like?

Theresa May’s decision to make her big speech on Brexit in Florence rather than in London was no doubt meant to underline the message that while the UK is leaving the EU, it is not leaving Europe. But the reassertion in that speech that the UK will seek a ‘period of implementation’ post-Brexit where the ‘existing structure of EU rules and regulations’ will continue to apply, might have led Leave voters to wonder whether the UK was even leaving the EU.

For months commentators have been urging UK and EU negotiators to firm up whatever arrangements might be needed not just to secure an orderly withdrawal for the UK from the EU, but also to create a ‘transitional’ framework to a future UK-EU relationship. Yet during this time, UK ministers – and especially the Prime Minister – refused to speak the same language as those commentators, by talking instead of an ‘implementation period’. This phobia towards ‘transition’ reveals the division at the heart of government between those who simply want to get on with Brexit, and those for whom Brexit comes with significant short-term economic risks.

During the summer, the Chancellor of the Exchequer, Philip Hammond finally broke cover, telling business leaders that he favoured an ‘off-the-shelf’ transitional framework in the form of a ‘stand-still’ that would see trade continue on current terms pending agreement on a future trade deal.

The UK is creating its own domestic ‘stand-still’ framework in the form of the European Union (Withdrawal) Bill. Its aim is to take a snapshot of existing EU law and maintain it in force as a matter of UK law until such time as Parliament decides to enact new rules. The Bill is a highly complex legal undertaking, and in political terms, there have already been significant delays to its progress through Parliament.

But even if the Bill makes it onto the statute books that doesn’t solve the problem of how to secure continuing access to the EU Single Market at the moment when the EU’s treaties cease to apply to the UK. So what happens in the period between Brexit and agreement of a future UK-EU relationship, and how could such a ‘stand-still’ operate?

Much depends on what type of relationship the UK might seek with the EU. Ministers typically repeat that the UK wants a ‘bespoke’ deal rather than any of the existing models such as the recently agreed Canada-EU trade deal or the older European Economic Area Agreement that countries like Norway have with the EU. Nonetheless, it seems likely that the final arrangement will be a modification of one of these models.

If what the UK wants is, in essence, a ‘Canada+’ trade deal – providing tariff-free trade for goods originating in the UK and EU, with arrangements to minimise the creation of new regulatory barriers to trade in goods and services – then one option would be for the EU treaties to cease to apply to the UK as planned on 29 March 2019 but – as a time-limited derogation – certain key provisions might continue to apply as if the UK were still a Member State. This would create a ‘stand-still’ for those saved provisions in a way that would mirror the aims of the UK’s own Withdrawal Bill. It would also mean that the Court of Justice would retain a role in policing the application of the saved provisions. During the operation of this transitional period, the UK and EU would conclude the future trade deal.

If the UK were to seek a closer relationship with the EU through an ‘association agreement’ then a transitional framework might look like an interim version of such a deal with many of the existing provisions of EU law cut and pasted into such an agreement. However, as the intention is to adopt a transitional deal on the basis of Article 50, it is legally doubtful whether an interim association agreement could be based on this provision not least because association agreements require unanimity among the EU states whereas Article 50 only requires a qualified majority vote.

The UK could rejoin the European Free Trade Association and gain access to the Single Market through its European Economic Area agreement with the EU. It is an idea that has support in some Labour circles. This model has been ruled out by the PM and it looks less like a transitional framework and more like an endpoint to which a transition might itself be necessary.

In agreement with the EU27, the UK could simply defer its withdrawal but that would delay departure rather than create a transitional framework. In his evidence to the House of Commons Select Committee on Exiting the EU on 25 October, the Brexit Secretary David Davis expressly ruled that out. But a partial retention of certain provision on a time-limited basis might well be what the UK has in mind.

Whatever the precise mechanism, and whatever the exact terminology, a lot of time and effort will be devoted to keeping things the same. As an outcome it is likely to perplex Leavers and frustrate Remainers.