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  • Brexit: Can the UK Dive Across the Finish Line?

    One and a half year has passed since the government of the United Kingdom (UK), led by Prime Minister Theresa May, activated Article 50 of the Treaty on the EU (TEU). With it, as of March 2017, the UK has turned the hourglass over and initiated a two-year period to settle its divorce from the Union.[1] Fast-forward to October 2018 and the deal is still out of sight. The latest episode of the informal Salzburg summit, where the EU27 have openly rejected May’s latest proposals laid out in the so-called Chequers plan, shows the gravity of the situation. As time is running out, the lack of progress in negotiations has led both sides to recognise the fact that a ‘no-deal’ scenario is now a realistic option.

    The aim of this blog is to examine how and why Brexit negotiations have turned out to be such a difficult task. Hence, in the following parts, the key issues of negotiations are presented and analysed, with a special focus on the issue of Northern Ireland, which has turned out to be the biggest hurdle.

    Brexit is Far from Over

    Both sides in the negotiations, the EU and the UK, are well aware that no post-Brexit option can fully compensate the benefits provided by EU membership.[2] Nevertheless, the process of UK’s withdrawal will continue as long as the UK government does not decide to withdraw its notification of an intention to leave the EU (which seems unlikely).[3] In the meantime, both sides will have to persist in overcoming hurdles set by the ongoing disintegrational process called Brexit.[4]

    To no one’s surprise, Brexit has proven to be quite a demanding and exhausting feat. Right from the beginning of the negotiation process, it became clear that the following issues would represent key and essential areas which will need utmost effort and the highest attention:[5] issues related to citizen’s rights, the issue of financial settlement and the Northern Ireland border issue.

    After six rocky rounds of negotiations in 2017, both parties have reached an agreement in principle in all three areas under consideration. First, a common understanding has been reached on reciprocal guarantees to safeguard the status and rights of (three million) EU and (one million) UK citizens, derived from the EU law.[6] Then, the UK has committed to honour its share of financial obligations undertaken while it was an EU member[7] – it is estimated that the size of the financial settlement will amount to around 40 billion euros (£37.1 billion).[8] Finally, the UK essentially agreed to an open border with the Republic of Ireland. So far so good? Well, not really.

    What makes the whole process especially difficult and far from over is the UK’s stated intention to fully withdraw both from the Customs Union and the Single Market after the end of the transition period.[9] With such red lines, the UK government has essentially made Northern Ireland the single greatest issue of the negotiations, as having no borders is hardly possible without remaining in the Customs Union and the Single Market.

    The Issue of Northern Ireland – Raising the Stakes

    What makes the issue of Northern Ireland so sensitive is the fact that it has gone through a three-decade long period of violence dubbed “the Troubles”, during which around 3500 people had been killed.[10] The year of 2018 marked exactly two decades since “the Troubles” were brought to an end with the signing of the EU-supported[11] Good Friday Agreement (Belfast Agreement).[12] Since then, Northern Ireland has witnessed occasional turbulence and instability, but the Agreement nonetheless stood the test of time. With its enactment, not only has the conflict seized, but the military surveillance posts and border controls were done away with as well, thus allowing the normalisation of life on the Island and mitigation of divisions among the post-conflict communities to take place.

    With Brexit, the reconciliation process and peace of the Island are at stake, as it not only violates the Agreement’s assumption of a continued joint UK-Irish membership of the EU, but also goes against the basic principles upon which the Agreement was founded – free movement of people, increased social and economic cooperation, and further integration of the Island as a whole. Many have warned that an option of re-establishment the “hard” border would drive a wedge between the communities that still bear the scars of the conflicts from the past and thus threaten to undermine the Good Friday Agreement. Such existential threat is exactly what has made the Irish Prime Minister Leo Varadkar state that Brexit is the “challenge of our generation” and call for compromises. Contrary to him, Northern Ireland’s Democratic Unionist Party (DUP), with whom the UK conservatives formed the government after snap elections in June 2017, has been reluctant of giving any concessions and has strongly advocated for a fully integrated UK.

    Solving the Unsolvable?

    In 2017 April guidelines, the European Council has indicated that “flexible and imaginative solutions” will be required in view of the unique circumstances of Northern Ireland. Realising the paramount importance of the Northern Ireland question, in December 2017 the UK has agreed to guarantee to avoid a hard border. Moreover, in the absence of agreed solutions, the UK has committed to maintaining a full alignment with those rules of the Internal Market and the Customs Union, which support North-South cooperation, the all-Island economy and the protection of the Good Friday Agreement in all parts.[13] Despite such optimistic commitments, the negotiations have since stalled and concrete plans for operationalisation and implementation acceptable to both sides are yet to be found.[14]

    Numerous think tanks, researchers, and scholars, as well as the EU officials,[15] have tried providing a way out. For instance, the proposed solutions range from the Norwegian option of membership in the European Economic Area (EEA); the Switzerland-like clutter of bilateral agreements; to Ukraine-like Association Agreement;[16] and finally the Turkish modeled membership in the EU Customs Union.[17] Despite a large number of potential options, none of them fully renders the border invisible and frictionless, which is why their purpose is to act only as a second-best solution.

    As the UK has fallen short of introducing a satisfactory and practical proposal for avoiding a hard border in practice, the EU has made its move. In February 2018, the EU proposed establishing a “common regulatory area” across the island of Ireland, which would effectively keep Northern Ireland within the EU Customs Union, whilst excluding the rest of the UK from it.[18] Such an assertive, and maybe aggressive move by the EU served as a reminder that the clock is ticking and that the ball is on the side of the UK. Despite the fact that PM May has swiftly rejected the idea of creating the “customs and regulatory border down the Irish Sea”, the UK has nevertheless reluctantly recognized the need to include a “backstop” solution in the Withdrawal Agreement, which would act as a legally binding guarantee that there would be no hard border unless and until another solution is found.

    After May’s Mansion House Speech in March 2018, the UK has narrowed down its own confusion over a future trade deal, by providing a clearer perspective of potentially developing a comprehensive Canada Plus free-trade agreement,[19] albeit never remaining all too clear about it.[20] Nevertheless, what remains clear is that a deal of this kind would not get rid of the Irish border, nor would it successfully and efficiently overcome many other hurdles standing in the UK’s path. [21]

    The originally agreed deadline for the UK to provide an operational plan for resolving the Irish question was June 2018.[22] As the EU’s proposal of establishing a common regulatory area is out of the picture, it is up to the UK to propose a future trading agreement and operational plan for Northern Ireland. The most recent proposal of the UK, named the Chequer’s plan, was swiftly dismissed,[23] due to its incompatibility with the EU institutional and market setting, thus leaving the UK once again in a process of developing an alternative solution.

    Preventing the ‘No Deal’ Scenario in the Last-minute Negotiations

    Whereas the whole Brexit negotiation process functions under the caveat that “nothing is agreed until everything agreed” and the principle of no “cherry picking”, the unresolved question of Northern Ireland has the potential to disrupt the whole process if no credible solution is found to address it in the upcoming weeks. All in all, the time is running out for the UK, as it the final deal is supposed to be reached by the end of October or eventually in November, in order to leave enough time until March 2019 for the ratification process to take place in the European Parliament, the Council of the EU and the UK Parliament.[24]

    As the probability of the “no deal” scenario is increasing, as one week passes after another, the UK will be under pressure to finalise the deal and potentially offer concessions. It is possible that the UK will erase some of its red lines and thus accept keeping Northern Ireland as part of the EU’s regulatory area, at least in some form, until the moment a better solution is found. With such a move, peace in Northern Ireland would be sustained, while the final Brexit deal would be saved from its doom. Whether this idea will in fact materialize or instead some other creative solution will be worked out, it will be known soon enough.

    [1] Article 50 specifies that the Treaties shall cease to apply to the State in question two years after the State had notified the EC of its intention to withdraw.

    [2] PM May has publicly stated that even though the UK will enjoy less access to EU’s market, it will nevertheless leave the Union, as this was the will of the people.

    [3] Calls for a second referendum on Brexit are continuously being voiced. Among them was also the UK’s ex-PM Tony Blair. Even though May’s Government has strongly declined the possibility of conducting one, it is not impossible to imagine such scenario from happening before the negotiation process ends. However, due to the vagueness of Article 50, the question remains whether the notification of withdrawal is at all unilaterally reversable. As there has been no case law on this question, it is likely that the Court of Justice of the EU (CJEU) would be the ultimate arbiter in such a scenario.

    [4] According to the European Council, the main purpose of the negotiations is to ensure the UK’s withdrawal as to “reduce uncertainty” and, to the extent possible, “minimize disruption” caused by it.

    [5] Other separation issues covered by negotiations were the following: Euratom-related (nuclear specific) issues; ensuring continuity in the availability of goods placed on the market under Union law before withdrawal; judicial cooperation in civil and commercial matters; police and judicial cooperation in criminal matters; ongoing Union judicial procedures; ongoing Union administrative proceedings; and issues relating to the functioning of the Union institutions, agencies and bodies.

    [6] The agreement covers the following issues: residence, administrative procedures, social security coordination, professional qualifications and governance. However, some other relevant issues regarding citizens’ rights remain yet to be agreed upon.

    [7] UK’s financial obligations are in relation to the following: the EU budget (and in particular the Multiannual Financial Framework 2014-2020), the European Investment Bank, the European Central Bank, the Facility for Refugees in Turkey, EU Trust Funds, Council agencies and also the European Development Fund.

    [8] According to the UK’s independent budget watchdog Office for Budget Responsibility, UK’s financial commitments may be broken down in the following manner: half of the money is to be paid by the end of transitional period (i.e. December 2020) as part of the EU’s Multi-Annual Financial Framework 2014-20; most of the other half is to be paid by 2028 (money also known as reste à liquider); and finally, a small part of the financial deal (6.25%) is directed towards the coverages of pensions of EU officials and Members of the European Parliament – until 2064.

    [9] In March 2018, the chief negotiators of the UK’s withdrawal process, Michele Barnier (EU) and David Davis (UK), have both agreed to have a transitional period which would last until December 31st, 2020 – Article 121 of the Draft Withdrawal Agreement. Both having made compromises, it was agreed that during this period the UK will be allowed to sign its own trade deals with third countries (something which the EU originally had opposed), while the UK will need to continue implementing EU rules drawn without its input, as well as guaranteeing the freedom of movement of people (something which the UK originally opposed).

    [10] The fighting had broken out between the Unionists (Protestants) and Republicans (Catholics), whereas the former wanted to keep Northern Ireland as part of the UK, while the latter had desired to reunify the whole island of Ireland.

    [11] The EU has shown a great deal of creativity in this case, by offering substantial economic funds to the impoverished Northern Ireland, using its policy of “conditioning“, through which it had tried to incentivise the establishment of co-operation between authorities, organizations, firms and political actors on both sides of the conflict in return for its funds.

    [12] Good Friday Agreement has regulated the relationship between the following: Republicans (Catholic) and Unionists (Protestant) from Northern Ireland; Northern Ireland and the Republic of Ireland; and the UK and the Republic of Ireland. Additionally, it has left the possibility to the people of Northern Ireland to express their wish for reunification with the Republic of Ireland in the future. If a post-Brexit solution does not tackle the issue of Northern Ireland in a suitable manner, a possibility lies open that it might, in near of distant future, decide to secede from the UK and re-join the Republic of Ireland. With no doubt, the UK is definitely set on avoiding such a scenario from occurring.

    [13] Such breakthrough was what allowed the European Council to conclude that “sufficient progress” has been made, thus allowing the negotiations to enter the next phase.

    [14] May’s government has had originally proposed two post-Brexit proposals for future customs arrangements back in August 2017. The first was called “customs partnership”, also known as a “hybrid” model, and the second “highly streamlined customs arrangement” known as “max-fac”. The former and May’s favourite, envisioned aligning precisely with the EU’s external customs border and applying same tariffs as the EU for goods arriving in the UK but were destined for the EU, whilst keeping independent trade policy for goods intended for its own market. The latter foresees a frictionless customs border by simplifying the requirements on EU goods and providing better border facilitation though an advanced use of highly sophisticated technology. The EU has ruled out both options, deeming them as “cherry picking”.

    [15] Taking into account the UK’s red lines, Mr Barnier has provided an illustration (Image 1) of a stairway to Brexit, in order to showcase that the more red lines the UK sticks to, the further away it will be from smooth and efficient relations with the EU.

    [16] The European Parliament has endorsed a draft resolution in which it backs the idea introducing the Association Agreement as a possible framework for future EU-UK post-Brexit relations. It envisions relations established on the following four pillars: trade and economic relations; internal security; cooperation in foreign policy and defence; and thematic cooperation (e.g. cross-border research and innovation projects.

    [17] The option of retaining a full membership in the EU Customs Union has been publicly backed by the UK Labour Party. In addition, in April 2018, House of Lords have made the same suggestion in the form of an amendment to the EU Withdrawal Bill, dealing a hard blow to PM May, as this may encourage the pro-European members of her Conservative Party to step up their efforts in securing a majority in the House of Commons for future votes on customs relations. However, even if the UK were to remain a full member of the Customs Union the border would not be nullified, as it does not include freedom of movement, nor does it secure full regulatory compliance needed for frictionless trade.

    [18] According to the EU, the Common Regulatory Area would allow for the free movement of goods, and include provisions on agriculture, fisheries, the Single Energy Market, environmental protection, and state aid.

    [19] Mr Davis argued that the so called “Canada Plus” model implies better access than Canada in some areas (smells like “cherry picking”), whilst being combined with a deal to recognise shared regulations and customs procedures. In March 2018 Guidelines, the European Council confirmed its readiness to initiate work towards a comprehensive free-trade agreement, which could be finalised and concluded once the UK is no longer part of the EU.

    [20] President of the European Council has noticed that after PM May’s Madison House Speech in March 2018, that it seems that the only remaining possible model is a free-trade agreement.

    [21] As people of Scotland have voted to remain in the EU, the Scottish government has since then desired, short of EU membership, at least keeping Scotland in the EU Single Market and Customs Union.

    [22] Republic of Ireland has even threatened to veto progress on a Brexit Withdrawal Agreement if a credible deal on Northern Ireland is not reached by the European Council summit in June 2018.

    [23] The Chequers plan tried to do solve the issue of Northern Ireland, by doing two things. On the one hand, it proposed establishing a free trade area for goods, which implies that the UK would maintain a common rulebook for all goods; and on the other hand, the plan called for a facilitated customs agreement with the aim of installing a combined customs territory, in which the UK would be responsible for collecting EU tariffs and implementing EU trade policy for goods passing through the UK, intended for the EU market, whilst keeping its own tariffs and trade policy and tariffs aimed for UK market. Unsurprisingly, the plan was dismissed, as it would require the EU relinquishing control of its external borders and revenue to a third country.

    [24] In addition to the Council’s decision to conclude the Withdrawal Agreement, 20 out of 27-member states would need to give their assent in the Council (via a qualified majority), there is a chance that member states might decide to ratify the Agreement themselves, in case it ends up extending to areas which fall under national competence. In such a case, the Agreement would have to be ratified by all member states.

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