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15 December 2017

A two year Brexit transition period will not be long enough

The EU-Canada trade deal took seven years. Britain will need far longer than two to limit economic harm. 

By George Eaton

The Brexiteers used to insist that no “transition period” at all would be required after the UK leaves the EU. David Davis argued that Britain could negotiate both its divorce and a new trade deal within the two year Article 50 period (nine months after withdrawal began, the former has only just been agreed). 

But, as in many other instances, the Leavers collided with reality. As the Brexit talks advanced painfully slowly, they accepted that a transition period (or “implementation period” as Theresa May calls it) would be needed. Though Britain is due to leave the EU on 29 March 2019, it will continue to obey the rules of the single market and the customs union for at least two years. A refusal to do so would create an economically punitive “cliff-edge” as the UK departs without new arrangements in place. 

In the view of the Brexiteers, two years is rather excessive. Liam Fox, the International Trade Secretary, would prefer 12 months; Boris Johnson has emphasised: “two years and not a second more”. Yet to most, two years appears dangerously ambitious. It took the EU and Canada seven years to negotiate a free trade agreement which Britain aspires to improve upon (“Canada plus, plus, plus” in Davis’s words). While the CETA deal was limited to goods, the UK’s economy is dependent on services (which represent 80 per cent of its GDP).

Davis, as I reported in August, has privately predicted a time-span of five years (the same figure yesterday cited by Irish deputy prime minister Simon Coveney). If Britain is to leave the single market and the customs union (“hard Brexit”), it will need time to develop new IT systems for registering EU immigrants and new border infrastructure at Channel ports. 

But the EU has no desire to prolong Brexit. It wants what chief negotiator Michel Barnier has called a “short and supervised” transition (the European Parliament has proposed a maximum of three years). A long interim period, the EU fears, increases the incentive for other member starts to depart. Theresa May, or any Conservative successor, would also struggle to resist pressure from Tory MPs for a “clean break” in advance of the 2022 general election. 

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Britain, then, faces a choice: it can either depart after a short transition period with an inadequate trade deal, or it can embrace “soft Brexit” – membership of the single market and the customs union (a permanent purgatory). The former would have painful economic consequences, the latter painful political ones (reducing Britain to a rule-taker, rather than a rule-maker). Both strengthen the argument that the best option is no Brexit at all.