25th Mar 2018

Trade talks could only start post-Brexit

  • The UK's post-Brexit trade policy would have to be clarified before London can start trade talks (Photo: European Commission)

Much of the anticipation around the UK entering the second phase of Brexit negotiations stem from the hope that those will yield to trade talks and clarify eventually what the true cost of leaving the EU will mean for Britain.

An EU source warned, however, that the UK should not count on detailed negotiations on trade any time soon.

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Another EU source said substantial trade talks can only start once the UK becomes a 'third country', that is after March 2019.

If, in December, Brexit talks reach sufficient progress for EU leaders to move negotiations onto the second phase, that will only include talks on a framework of relations the EU and UK want to have after Brexit.

The second phase will entail giving a legal form to the agreement on the key issues of citizens' rights, the Irish border and the financial settlement, and start a joint thinking with the UK and the EU on the kind of relationship they want for after Brexit.

This could include aspects on defence, foreign policy, and security.

The actual trade deal between the EU and the UK will have to be negotiated after the two phases of discussing the withdrawal agreement are completed.

The trade deal could be anchored in one or more agreements.

And while the withdrawal agreement needs a qualified majority of member states to be adopted - and the European Parliament's approval - the trade deal will be a mixed agreement with member states' national and regional assemblies having a say in ratification.

Provisional application would probably have to kick in before the ratification process is finished.

The trade deal with Canada entered into force in September, and so far only three member states have ratified it. It took seven years to negotiate.

That raises the question how long the Brexit transition period needs to be.

British prime minister Theresa May suggested two years, but hardline Brexiteer Conservatives such as foreign minister Boris Johnson and environment secretary Michael Gove warned her in a letter recently not to go beyond that.

Meanwhile, Ireland's foreign minister, Simon Coveney, proposed a significantly longer, five-year transition period.

What's on offer?

EU diplomats have been drawing up plans for what sort of relationship to have with the UK, based on the 'red lines' set out by the Theresa May.

According to early discussions, EU diplomats foresee a transition period that would be based on the status quo – membership in the single market and the customs union – without the political participation of the UK in the institutions, meaning London would not have a political voice.

These EU diplomats have also agreed, in preliminary talks, that the bloc could offer a Canada-style free trade agreement.

EU sources however add that the UK needs to spell out in detail what kind of relationship it strives for with the EU once it has left the bloc.

Turkey-like transition?

Andre Sapir, a senior fellow at Bruegel think tank in Brussels echoed that, saying that during this transition period the UK would leave the political institutions in the EU, but remain part of the single market and the customs union.

The UK by then would have had to make it clear what sort of relationship it wants to reach.

"We have to know what we are going to transition 'to'...," Sapir told EUobserver, adding that the length of the period depends on how ambitious the UK wants to be in its goals.

During the transition the UK would be in a situation much like Turkey is in now - which has a limited customs union with the bloc for goods.

Turkey needs to align its trade policy to that of the EU. And while it does not have a say in trade deals, and preferential partners do not have to open their markets to Turkey, Turkey's market can be accessed by these countries via the EU.

Sapir pointed out however that it is unlikely the UK would fall under a new trade deal it had not participated in negotiating.

Once the transition period is over and the UK leaves the customs union, it needs to notify the World Trade Organisation (WTO) on what trade policy it wants to pursue before it can start negotiations with other countries about trade deals.

FTA plus

Under a possible free trade agreement, the UK and the EU could aim for a tariff-free trade on manufactured goods and most agricultural goods.

The tariff-free trade would however still mean border checks, and rules-of-origin would have to apply.

"It could be an FTA-plus," Sapir said.

A deal could include elements of the single market, depending on how much of that the UK would want to hold on to, and what the EU is willing to give.

"The issue to be seen is how much of the single market they [the UK] keep," Sapir told EUobserver.

It would raise several stumbling blocks, including what role the EU's top court, the European Court of Justice in Luxembourg, would retain.

"It will be a bumpy road. But creative people can find all kinds of solutions if there is political will," he said, adding that he is confident there will be a withdrawal deal because it is in the interests of both sides.

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