Brexit talks headed for a second, more difficult phase

An anti-Brexit protester flies flags near the Houses of Parliament in London, Britain on Dec8, 2017. PHOTO: REUTERS

BRUSSELS (NYTIMES) - Now comes the hard part.

Under severe constraints of time and internal politics, British Prime Minister Theresa May on Friday (Dec 8) hammered out an initial agreement with the European Union to move British talks on exiting the bloc to the next, more serious phase.

A senior European official, Martin Selmayr, even posted on Twitter a picture of white smoke billowing from a chimney, as if a new Pope had been elected. Yet, this initial deal was no miracle but a hard slog, with harder battles ahead.

The pact resolved a trio of issues that had taken the better part of nine months to negotiate. It avoided a "hard" border in Ireland; set the mechanism to calculate Britain's "divorce bill," estimated at US$47 billion to US$52 billion (S$63.5 billion), roughly double May's original offer; and established judicial protocols to protect the rights of the 3 million European citizens in Britain and the million British citizens in the European Union.

May clinched the deal with a unilateral promise - details to be negotiated later - that Britain would not reimpose physical border controls between Northern Ireland and the Republic of Ireland, a member of the EU, even if Britain ultimately fails to strike a trade deal with the bloc.

The pact put a patina of success on an effort by the government that was characterised by internal quarreling and an occasionally humiliating and ultimately hopeless effort to bend the EU to its will. It was punctuated by a disastrous election that left a weakened May with a minority government and numerous pretenders to her throne circling like sharks in a tank.

Difficult as that was, most analysts agree that the second stage of negotiations will be far harder. Britain and the EU will begin to tangle with the finer details of the divorce settlement and the structure, at least, of the future relationship that Britain, as a non-member, will have with the European Union.

For that to happen, though, the badly divided Cabinet members will have to stop bickering and begin to work out agreements among themselves.

At the same time they will need to grapple at the negotiating table with a dominant EU that is determined to make an example of Britain to any other member states thinking of cutting ties.

"This deal has only been done through a mixture of fudge and playing for time," said Peter Ricketts, a former senior British diplomat with long European experience and a member of the House of Lords.

On the border, he said, "no one has solved the underlying problem of how to have a border if there is no deal with the European Union," which will be the subject of further talks.

Even then, he added: "This was the easy part, but now the British Cabinet has to confront some real choices. Now, we get to the really divisive part about what kind of future trading relationship we want with Brussels."

That debate boils down to two opposing sides: those who want the closest possible future relationship with the EU for the sake of trade and business ties, and those who want a sharper split, so that Britain can freely negotiate trade deals with countries like the United States and Australia without being hampered by allegiance to all of the European Union's regulations and standards.

The problem for the British government is that it is no closer to deciding the matter than it was when May invoked Article 50 in March, initiating the process of withdrawal, or Brexit.

May has declared only that Britain would not seek to remain a member of the single market or the customs union, while also saying that she wants the best possible trading relationship with Europe, which is, after all, where most of Britain's trade goes.

Simon Fraser, a former senior British diplomat who runs a consulting company that focuses on Brexit, said that "Britain wants to move quickly to phase two, but in fact it does not have a policy for phase two."

Brexiters argue that Britain is so important to Europe that London should be given a special or "bespoke" deal, given the 44 years of bloc membership. But the EU is legalistic, bureaucratic and runs by precedent. And there are only a limited number of templates for a future relationship, Brussels officials consistently say.

Britain could work out a deal, much like Norway has, where it remains a member in everything but voting power and name - trading freely but subject to freedom of movement and labor for EU citizens and continuing to pay into the union's budget. That seems unacceptable to Britain, which voted to leave in large part to stop freedom of movement.

Or Britain, as a third country, could negotiate a free trade deal with the European Union, as Canada and Japan have done. But those deals have taken many years to finish and leave out services - in banking, investment, advertising - that make up 80 per cent of Britain's economy.

That is one reason May, and British businesses, want a transition period of at least two years after Britain formally leaves at the end of March 2019. During that time its relations with Brussels would remain roughly the same, allowing breathing room to negotiate a trade deal and avoid a chaotic "cliff-edge" exit.

Businesses have been warning that they need some clarity soon; otherwise executives would be forced to make decisions on future investments that assumed the worst. There was a touch of optimism and relief Friday that talks would move ahead and that a transition period would provide the needed breathing space.

"Significant progress has clearly been made, particularly on citizens' rights, but let's not kid ourselves. Problems remain," said Anand Menon, director of The UK in a Changing Europe.

However the specific issues play out, Fraser sees 2018 as extremely complicated, a rush to finish a withdrawal deal that fills in all the blanks in the current agreement and settles a host of other questions, like air travel and other logistics. It will have to be finished by October or November, he said, to allow time for ratification.

But that deal will also be dependent on negotiating a transition after March 2019, to which all member states must agree, and is likely to be one of the first orders of business early next year.

Such a transition would take some of the heat off the negotiators trying to avoid a chaotic exit and would reassure businesses, airlines and tourists, too. But it would also mean Britain continuing to pay into the EU budget, which could anger Brexiters.

Then there is the task of defining the "outlines" of a future relationship, which the British call a trade deal. But for Brussels, there can be no trade deal until Britain leaves the bloc. And few believe it can be negotiated in two years.

At best, Fraser and Ricketts believe, there will be an agreement in two more years on the "headline" understandings of a trade deal, which will have to be filled out painstakingly. And that can be done only after Britain decides how close it wants to remain to the European Union and its laws and standards.

Then there will be negotiations on Britain's future security relationship with the bloc, which is one of Britain's strengths. Britain, as a critical member of NATO, a nuclear power and a member of the Security Council, has vowed to preserve and even enhance its defence ties and commitments to Europe. Some Brexiters want to use that as a bargaining chip for a trade deal, but that idea is controversial and is resented in Brussels.

And then Britain has to figure out how to handle or renegotiate all the trade deals that the EU has with third countries, of which Britain is now a part but will not be in the future. Countries that gave trading concessions to the huge EU market of more than 500 million people may not be so generous in their dealings with Britain alone, a country of some 65 million people that is highly dependent on its service industries.

"The real negotiations on the economics will be in the period of the transitional deal," Fraser said. "But this British government may never get there," citing the political weakness of May and the fights to come among "the remainers, the Brexiters and the hard Brexiters in the Cabinet," he said.

He added, "2018 is going to be a very difficult year."

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