03 October 2017

Paul N. Goldschmidt: “Brexit” - The Trap of the Transition Period!

The arguments over the “transition period” may turn out to be essentially a diversion aimed at papering over the growing internal infighting within the Conservative party and its fear of offering 10 Downing Street to Labour on a silver platter, writes Paul N. Goldschmidt.

[...]the absence of a prior agreement both on the divorce terms and the future relationship would void the very concept of a transition since one remains in the dark as to the destination. Having greeted positively the idea to discuss (subject to an appropriate amendment of his negotiation mandate) a transition period to avoid falling off the cliff after the deadline of March 29 2017 detrimental to both parties, Michel Barnier warned, nevertheless, that this option implied that the UK would continue to abide by all relevant rules in force in the EU; hoping to negotiate exceptions to this requirement would have little chance of success and would shorten further the time available to negotiate the separation agreement needed to ensure a programmed and orderly Brexit. [...]

If the idea of a transition period can be considered as conditionally agreed upon, its implementation requires the UK to sort out its objectives. The very broad declarations expressing the wish for a “deep and bespoke” future relationship only confirm the rejection of existing formulas that have proved successful: membership of the Single Market, membership of the Customs Union, classical Free Trade Agreement; each present both advantages and drawbacks. The first two limit the freedom to negotiate separate trade agreements, the third implies a negotiation, the timetable of which would extend far beyond the time available (transition period included). The prospect of a “transition period” is therefore far from being a satisfactory answer giving the necessary assurances regarding an extension of the status quo in order to have sufficient time to adapt business plans or create the administrative structures required by Brexit.
 
Even if at the start both parties are subject to identical rules, it should be clear that the advantages Britain hopes to reap from its reclaimed “sovereignty” are, in due course, incompatible with the conditions required for unfettered access to the Single Market. It should be clear that, among other safeguards, the Union will not accept that – once free from State Aid restrictions – the UK should be allowed to compete for foreign direct investments by granting incentives (Government promises to Toyota) that make the country a privileged base for accessing the European market.
 
Despite all the expressions of goodwill, some of which are not exempt of hypocrisy (Theresa May’s wishes of success of EU reform – EU‘s recognition of the progress made) time devoted to the transition period carries the risk of compromising the success of the basic negotiations, all the more that substantial differences prevail in the British camp concerning both its length and the constraints it implies (no parallel trade negotiations – payments for “interim” access to the single market).
 
The roadmap agreed by the European Council envisaged discussing initially the terms of the divorce settlement followed by the shape of the future relationship between the EU and the UK; such a sequence lent itself perfectly to include a transition period. However, negotiating the latter without any knowledge of the destination would render its terms void if no divorce agreement was reached in time (similar to the scrapping of the Cameron - EU agreement after the referendum). The instance by the British to include negotiating the terms of a transition period at this juncture could well prove counterproductive.
 
In Britain, partisan political prejudice seems to be weighing increasingly over the search for the common good! The Brexit ideologues may be hoping to be exonerated from the disastrous consequences of Brexit by the dissensions that could arise among the EU27. They may find temporary solace in the results of the German elections which limit the Chancellor’s ability to back wholeheartedly the ambitious vision of President Macron on EU reform. This vision is already being seriously challenged, in particular in France where the notion of “national sovereignty” remains a strong undercurrent as demonstrated by the critics of the Siemens-Alstom merger or the STX sale which are resented as French defeats rather than European victories. [...]

Full article on Paul N. Goldschmidt website

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