Time Better Spent?

23 Apr 2020

Policy area: Brexit

There’s been much speculation whether the transition period and negotiations on the future relationship between the UK and EU being prolonged. In recent weeks, the Government’s focus has been on tackling Coronavirus, given the immense effect it has had on transforming the way we go about all aspects of our lives. The institutions of the EU and member state governments have been similarly occupied.

Both sides are trying to arrive at a free-trade agreement which is likely to follow that of the relationship between the EU and Canada. From a real estate perspective, trade in goods would be tariff-free, but trade in services would not be included. Further, it is likely that additional regulatory requirements will accompany trading arrangements, simply because the EU will not accept compromise of environmental protection, social protections, consumer rights and so forth.

The first (virtual) meeting of a joint UK-EU Committee, took place at the end of March, holding consultations on the future trading relationship. However, negotiations on the future trading relationship have largely stalled, only recommencing over four days this week. With other matters pressing, there would be a very good case for postponing negotiations until all parties have the headspace to continue, as many business leaders have begun to request. Yet, consistently through April, UK negotiators have maintained that they will not extend the transition period under any circumstances; the Prime Minister said on 18th March that the legislation was in place to close the transition period, and that there was no intention of changing it. Without changing the legislation, indeed the Government would be at risk of breaking its own law since the Withdrawal Agreement Act prevents ministers to agree a transition period; legislation would be needed to enable any extension for the purposes of the UK side. Like everybody else, MPs and Peers are social distancing.

From the perspective of the terms of engagement of the EU negotiations, under the terms of the Withdrawal Agreement, both sides have until June to propose a postponement. The means by which this could occur is by either Maros Sefcovic or Michael Gove exchanging a letter asking for an extension; both parties must agree.

Over the last few days, Robert Frost, the UK lead negotiator has confirmed his view that it is not in the UK’s interest to extend the negotiations. He has said that to do so would entail the UK continuing to pay contributions to the EU which could be better spent at home. The Prime Minister’s Official Spokesman also said on Thursday that the UK needed legislative and economic flexibility to manage its response to the coronavirus pandemic. While we knew that the UK Government would not countenance seeking an extension, the Spokesman’s position that the UK will not agree to a request from the EU marks a hardening of the UK’s position. This is a little worrying, since (as was the case during Article 50), if no agreement is reached, we may exit on no deal terms.

What’s the reason for this hardening? It’s certainly possible that the UK Government is concerned about how the EU’s plans to use half a trillion euros to ease the coronavirus pandemic. Earlier in April, measures were agreed in outline, but there is some disagreement among member states as to what is exactly proposed. For some Governments, common EU debt could be issued to foster economic growth. For others, not such thing will happen. Regardless as to what it all means, how anything will be paid for was noticeably absent from the inked deal between EU Finance Ministers. Let’s not forget that during transition, the UK still has to contribute financially.

The answer is probably a bit more subtle; the EU as a project has always struggled with its role as a unifying and coordinating force and the cleavages within its membership and institutions around how much Europe is enough, and whether economic freedom or social protection are more important. Coronavirus exerted additional pressure in that regard and seems to have engendered some unease and introspection among member states and the EU institutions. Maybe the UK Government knows only too well the perils of negotiating with a partner in a climate of internal division and does not wish to prolong that agony.

The problem remains that the transition period is not just for Government and the EU to engage in trade negotiations; it is also to enable businesses and individuals to prepare for implications arising from the future relationship (and preventing the adaptation to one regime and then another that we as BPF have warned off the Government in the past). It is also to help give the UK Government and businesses time to meet any commitments that need to be in place at the end of the transition period. This makes the Government’s claim that to extend the negotiations would invite uncertainty a little spurious; delays in negotiations and divided attentions at negotiations make it all but inevitable that uncertainty for business will be the result; extending the time horizon for negotiations would give business a longer perspective on emerging implications from negotiations and time to fully-prepare.