Philip Hammond and Liam Fox’s Brexit transition plan is a pipe dream
It’s been a grimly entertaining August, watching government ministers arguing about whether a transition is needed and, if so, what form they would prefer it to take. The international trade secretary, Liam Fox, appears to have bowed to the inevitable and realised that some kind of transition is the only way to make Brexit work. But the price of Fox’s assent appears to be a type of deal that would in fact be impossible to agree with the European Union. In the Sunday Telegraph, Fox and the chancellor, Philip Hammond, wrote: “We are both clear that during this period the UK will be outside the single market and outside the customs union.”
But it is the EU that will decide the nature of the transition Britain will get. Europe’s Brexit strategy is underpinned by two principles: protect the EU’s legal order from Britain’s attempts to cherry-pick; and maximise the leverage that article 50’s two-year deadline provides. If the Brexit talks collapse and no deal is struck, trade and investment in Britain would take a big hit – and while the EU would be hurt by this, it would incur much smaller losses than we would. And there is not much time to negotiate: the Brexit agreement must be struck by October 2018 because the European council, the UK parliament and the European parliament will need six months to ratify it. These facts are the source of the EU’s bargaining power. Since it holds the aces, the EU will insist that any transition deal is an off-the-shelf one.
There is simply not enough time to negotiate both a made-to-measure transition and the outline of the final deal in the time remaining. If Britain wanted a very simple agreement that kept trade tariff-free but lacked any of the single-market rules that tackle important non-tariff barriers to trade, a transition wouldn’t be needed: the whole thing could be wrapped up quickly. But any agreement comprehensive enough to be economically tolerable for Britain will take much longer to negotiate. And during the transition period itself, the 27 will insist that all EU rights and obligations continue. If it disagrees, Britain will need to go over the cliff-edge and try to negotiate a trade deal from outside the single market.
The decision to leave the customs union means that Ireland, France, Belgium and the Netherlands will have to make big investments in IT systems and lorry parks at their ports to cope with the post-Brexit surge of customs declarations and shipment checks. These are costs that the UK is imposing on them. Why would those countries agree to an interim customs agreement that requires them to scramble to invest in their ports, simply to reduce costs at the EU border for Britain and to allow Liam Fox to negotiate trade deals with countries outside Europe?
It is also obvious that Britain will not be ready to leave the customs union or the single market in March 2019. The National Audit Office warned the government last month that its new customs IT system might not be ready in time. It was commissioned before the referendum, so was not designed with Brexit in mind, and any deal with the EU will probably require customs procedures that its designers did not anticipate. The government will have to build lorry parks in English ports and in Northern Ireland so customs checks can be made. These are not being built because it is not yet clear how big they will have to be; and that will not be clear until a customs agreement is struck with the EU.
Neither are cabinet ministers any closer to agreeing the migration regime that will replace free movement. A new framework will require legislation to determine which EU citizens will be allowed to work. The UK does not have a register of EU citizens who are currently in the UK, and a registration scheme will require new IT systems and staff. Such new bureaucracies usually take longer to set up than ministers hope.
Given the political and practical obstacles to Fox and Hammond’s transition plan, why did they publish it in the first place? There are three possibilities. First, the phrase “during this period” provides some wriggle room. The UK might seek a transition with a few years of full membership of the single market and customs union, and then a period when free movement of workers ends and the new customs arrangements kick in. (Given the EU’s cherry-picking rule, this is unlikely to happen).
Second, the government might try to retain single-market membership and just give it another name. Rather than the European court of justice, a new UK-EU court might adjudicate disputes during the transition. EU citizens might have to fill out more comprehensive registration forms, while still being allowed to work.
Third, we know that ministers’ words have become devalued – remember Boris Johnson saying that the EU can “go whistle” for the money the UK owes? Cabinet members are trying to rebuild party unity after a month of open disagreement, and are laying down fudge as the foundation for compromise.
Whatever their motives, Fox and Hammond’s words are demonstrably too detached from reality to be taken seriously.
John Springford is director of research at the Centre for European Reform in London.