EU plays hardball over UK stepping out then trading back in

1 July 2016. By Lewis Crofts and Poppy Bullock.

The EU’s top trade official sent a message to the UK’s candidates for prime minister last night: The country has to step out of the EU before it can negotiate a deal to trade back in.

That position could mean a decade or more of negotiations and implies a strict application of the official exit process. But British negotiators may hope for flexibility once they have set out their plans for a new EU-UK trade relationship.

Yesterday, EU trade commissioner Cecilia Malmström told the BBC TV program Newsnight: “There are actually two negotiations. First you exit, and then you negotiate the new relationship, whatever that is,” she said.

This follows the letter of Article 50 — the EU treaty provision that the UK must activate to leave the bloc.

In Malmström’s eyes, the UK will need to conclude the exit deal — expected to take at least two years — before it can seal a new trade agreement. The EU’s recent free-trade deal with Canada took seven years. During any such negotiations the standard global trade rules and tariffs would apply.

In total, the UK could be looking at a decade of diplomacy with its EU partners, extricating itself from the union’s legal structures and setting the terms for future business relations. This will be compounded by the domestic difficulties of rewriting its laws for its new “independent” status.

But UK officials may hope that this scenario could be smoother and swifter than Malmström is proposing.

First, the exit agreement could set some parameters for the new trade deal. And that deal could be easier to seal since the UK already adheres to the EU’s legal norms.

How

Before anyone will budge, the EU’s institutions want to see what the UK’s vision is for a new relationship. Once that has been set out — by the new prime minister — the 27 other EU countries must decide whether this is attractive to them.

In an ideal world, for both sides, there will be a willingness to do a deal. But with the UK’s Conservative Party in turmoil, and candidates yet to set out a detailed view of a future relationship, European governments are sitting tight.

Article 50 of the Lisbon Treaty says there will be an agreement “setting out the arrangements for [the UK’s] withdrawal, taking account of the framework for its future relationship with the union.”

The question is: How far can that exit deal solve the problems of the future trade deal? And that will depend on what the new prime minister’s vision is.

Again, in an ideal world, that exit agreement could set out many of the parameters, leaving the separate trade deal to fill in numbers. But given the EU has never drafted such an exit text, no one knows how far it might go.

Timing

Malmström was clear that the trade talks follow the exit deal. And for the time between signing one and signing the other, World Trade Organization rules would apply.

Once the UK sets out its demands, however, some suggest work on the new trade deal could proceed in parallel to the exit talks, shortening the overall timeline.

Also, given that the UK loses negotiating power once it triggers Article 50 talks, London will likely be looking for some assurances from its EU partners on a future trade deal ahead of the formal activation.

But EU leaders have been united in denying the UK any “informal negotiations.”

Who

While Malmström heads the commission’s trade policy and her word carries weight, EU governments have made it clear they will keep the UK exit talks on a short leash. This means that the pragmatism of national governments with commercial and political interests might trump the legal approach of the commission.

As German Chancellor Angela Merkel stressed after a summit of EU leaders this week, Article 50 stipulates it is the “union” that negotiates with the UK, not just the commission.

It is up to EU governments to draft the “guidelines” for conducting the talks, and then there will be a negotiating team making use of the commission’s policy expertise, she said. The European Parliament may also have some involvement.

But given such a text has never been drafted, it’s unclear how prescriptive it will be. Governments want to keep a strong hold on the talks and, if the UK comes forward with an attractive vision, they could massage the process to stop the Brexit saga dragging on longer than necessary.

Even in that optimistic view of proceedings, it’s still not going to be plain sailing for the UK.

An exit deal needs only a majority of governments to agree. But a trade deal usually requires unanimous support.

And after that, national and regional parliaments throughout the bloc might have to give their approval on some parts of the text.

Placating a small negotiating team of EU officials — who will be trying to keep the union on track and retain trade ties with the world’s fifth-largest economy — will be just the start.

	Eliot Gao

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