Negotiating Brexit will be a tortuous business

There is a less than 50/50 chance of a comprehensive agreement by March 2019

With the government publishing a bill giving it authority to trigger Article 50, the EU treaty’s divorce provision, attention turns to the likely shape of the Brexit negotiations. The most significant elements of Article 50 are to be found in clauses 2 and 3: the “framework” and the time limit.

Unless the UK and the other 27 member states agree to an extension, Britain will leave the EU in March 2019, with or without a deal. Securing one will require two separate agreements, and preferably three. And they will not provide the certainty about the detailed terms of future UK/EU trade which British business seeks.

There will be three distinct strands to the negotiations. The first, like Article 50, will be only about the terms of the divorce, about settling outstanding bills and pension liabilities. The European Commission maintains that only when a financial deal is struck will it be possible to turn to other topics, such as the trading relationship. But the text of the treaty contradicts them because clause 2 requires them to “take account of the framework” for the EU’s future relationship with the UK. If no such framework existed, any Article 50 deal would be legally vulnerable.

So the second strand of the negotiations will be about devising one. It should be less controversial. The passages in Theresa May’s speech on January 17 about the UK’s wish to become the EU’s closest friend and partner were well received elsewhere. There should be a perceived common interest in devising structures for future co-operation on, for example, foreign policy issues, energy and transport networks. It might be possible to agree on the principles governing the future trading relationship and institutional arrangements for managing it.

However two years will not be long enough to translate principles into practice. Hence the third strand of the negotiations, which will concern transition arrangements and implementation periods, to avoid a “cliff edge” in 2019. This might in practice prove the most difficult because negotiators are rarely willing to make concessions in an interim agreement that would be unacceptable in a permanent one.

The different strands of the negotiations are linked. Just as the treaty requires the first to take account of the outcome of the second, so there will be no operational framework if the money negotiation breaks down. The first and second strands should, logically, be simultaneous. The third can only start if and when they succeed.

Moreover, it seemed from the prime minister’s speech that UK negotiators may be required to seek permanent “associate” membership of the EU customs union for certain goods and partial membership of the single market for certain financial services. These are novel ideas, not obviously compatible with World Trade Organisation rules. Two years may suffice to complete the three components of the negotiation.

But detailed new trade terms cannot be agreed sector by sector and ratified in two years. The commission is likely to say that customs union membership is, pace Mrs May, a binary choice, and that cherry-picking to solve supply chain problems is not possible.

Economists and financiers may rightly argue that the City of London is a major European asset and that damaging it will damage the EU. But politics are likely to defeat economics in Europe, as they clearly have in Britain.

As for the outside world, third countries will need to see our settlement with the EU, and the terms on which we drop out of its agreements with them, before they consider bilateral deals with us. Being first in the queue for a deal with a US trumpeting “America first” protectionism might be a mixed blessing.

How will the Brexit negotiations end? Clearly there is a less than 50/50 chance of a comprehensive triple agreement by March 2019 — on the withdrawal terms, a substantive framework permitting real progress on future trade terms and a detailed implementation agreement. The UK might still leave then, with a money deal but only a thin framework, or with no deal at all. That would mean legal uncertainty and economic disruption. Or extra time could be sought.

Finally, there is the theoretical possibility that the UK might withdraw its Article 50 notification, as it legally could. It could decide not to leave in 2019 because, having tested to destruction the assertion from Boris Johnson, the foreign secretary, that we can have our cake and eat it, we look into the abyss and draw back.

That is not likely at present but two years is a long time in politics.

The writer was British representative to the EU (1990-5) and FCO permanent undersecretary (1997-2002)

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.