The Trouble with Transition - No Off-the-Shelf Arrangement for the UK ...
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SWP Comments
Introduction
Stiftung
Wissenschaft und
Politik
German Institute
for International and
Security Affairs
The Trouble with Transition
No Off-the-Shelf Arrangement for the UK after Brexit
Nicolai von Ondarza
The transition will be the most important medium-term issue in the second phase of
the Brexit negotiations. The United Kingdom is due to leave the European Union offi-
cially in March 2019, too soon to negotiate a detailed agreement on future relations.
With neither side standing to gain from a cliff-edge, the British request for a transitional
arrangement falls on open ears. But finding agreement will be no easy matter. From
the EU’s perspective the only acceptable option is full and complete replication of the
status quo, with the UK accepting and implementing EU rules for two years without
having any say over them. This will include Prime Minister Theresa May needing to
secure a parliamentary majority accepting “rule-taker” status for the UK – and breaking
all the promises of the advocates of Brexit for at least two years.
The clock is ticking for London. After trig- already a difficult process. May is politically
gering Article 50 of the Treaty on European weakened after losing her majority in early
Union on 29 March 2017, the UK is due to elections she called herself in June 2017; her
leave the EU exactly two years later. Before cabinet is divided and she depends on North-
the UK becomes a third state on 29 March ern Ireland’s Democratic Unionist Party for
2019, Prime Minister Theresa May hopes her parliamentary majority. This left her un-
to negotiate a comprehensive “Deep and able to conclude the first phase of negotia-
Special Partnership” with the EU, with the tions with the EU-27 as hoped in October
UK outside the single market and the cus- 2017.
toms union. After tough negotiations, especially on
Currently, however, the two sides are the Irish question, May made significant
miles apart: talks on such an agreement are concessions in all three areas; in December
only just about to begin. The EU-27 made 2017 the EU negotiators were finally satis-
negotiations on the shape of the future rela- fied that sufficient progress had been made.
tionship conditional on “sufficient progress” Now the truly difficult questions about the
first being achieved on the divorce settle- future relationship must be tackled (see
ment – on London’s outstanding financial SWP Comment 49/2016). The European
obligations to the EU, the rights of EU citi- Council is now preparing to define the EU-
zens and the Irish border question. This was 27’s guidelines for future relations in trade
Dr. Nicolai von Ondarza is Deputy Head of the EU / Europe Division at SWP SWP Comments 54
December 2017
1and other matters such as foreign policy, The Interests of the EU-27
security, defence, and the fight against The EU-27 has its own ideas. It is willing in
terrorism at its next meeting in March principle to agree a transition phase. In its
2018. Experience to date – with wide- guidelines for the Brexit negotiations, the
reaching free trade talks in general and European Council stipulates that transitional
with the Brexit negotiations specifically – arrangements may be made “to the extent
suggest agreement on anything more than necessary and legally possible”.
a general framework will be virtually im- Crucially, however, the European Com-
possible to achieve before “Brexit day” at mission regards a transitional phase prin-
the end of March 2019. cipally as a means to gain more time for the
complex negotiations on the future rela-
tionship. In this view the withdrawal agree-
Three Concepts for the Transition ment will only define the general political
The rigidity of the timeframe magnifies the principles for the future relationship. But
urgency of finding a transitional arrange- full trade negotiations will only be con-
ment. May first explicitly floated the idea cluded during the post-Brexit transition,
in her Florence speech in September 2017. after the UK has become a third country.
There are, however, three distinctly dif- The Union’s stance for this “standstill”
ferent concepts concerning how the tran- transition is predicated on preserving the
sition should be defined and what goals it integrity of the single market, without
should pursue. British businesses want to exceptions, in pursuit of three objectives:
be able to plan for the period after March Firstly, a transition phase only makes
2019, without fear of a “disorderly Brexit” sense for the EU-27 if the UK accepts the
causing great economic disruption. Espe- EU’s entire acquis for the whole period and
cially in the financial sector, they therefore participates fully in all the Union’s policies.
want to see trade arrangements for the peri- Permitting London to cherry-pick the most
od after 30 March 2019 clarified by spring advantageous aspects of the acquis would
2018 at the latest, with full participation undermine the single market and weaken
in the single market and the customs union the EU’s position in negotiations over the
guaranteed for as long as possible after Bre- future relationship. Secondly, the EU-27 has
xit. Otherwise, they argue, businesses will its own interest in seeing the UK leave the
have to prepare for a disorderly Brexit and EU’s political institutions in March 2019:
activate contingency plans. as a third state it will no longer participate
Prime Minister May, on the other hand, in the Union’s decision-making processes,
speaks of an “implementation phase”. She nor stage elections to the European Parlia-
sees this being agreed at the same time as ment in May 2019. Thirdly, a transitional
the future relationship – whereby the tran- arrangement would allow one of the most
sition would ease the way into the new difficult Brexit issues – the problem of the
relationship. May’s implementation phase border between Northern Ireland and the
would thus gradually transition the UK into Republic of Ireland – to be deferred. Not-
its new role as a third state with a “Deep withstanding the UK’s commitment to
and Special Partnership”. This also implies “regulatory alignment” with the EU’s single
that parts of the EU’s acquis would succes- market and customs union in the areas
sively cease to apply in the UK as the pro- necessary to keep the border open as part
cess rolled out. This would be comparable of the political agreement on “sufficient
to reversing the transitional arrangements progress”, the challenges involved in actu-
for new EU member states, for which some ally realising this are far from solved. From
parts of the EU acquis (like full freedom of the EU’s perspective any transition arrange-
movement of persons) only came into force ment must therefore guarantee that the
step by step after they joined the Union. status quo is preserved, by keeping the UK
SWP Comments 54
December 2017
2fully in the single market and customs ket represent in the first place a shared
union. legal order. On the other hand, under Ar-
ticle 50 (3) the EU treaties cease to apply
in the departing state on the day the with-
The Devil in the Details drawal agreement comes into effect. For
In principle the UK government, British that very reason, London is transposing the
businesses and the EU-27 would all like to entire EU acquis into British law with effect
see a transitional phase. Where they differ from Brexit day, through the so-called With-
is in what shape and for how long the ar- drawal Bill. At first glance that would
rangement should apply. The EU in particu- appear to ensure ongoing convergence be-
lar will insist on a comprehensive agree- tween EU law and British law. At the same
ment with a “status quo transition”, and time, however, the Withdrawal Bill revokes
refuse gradual implementation. the European Communities Act of 1972,
But there are also legal and political which is the central legal foundation of the
obstacles to a “status quo” arrangement. UK’s membership and the conduit connect-
Legally speaking, the UK cannot maintain ing British and European law.
its status quo, given that the very essence of Even if the Withdrawal Bill passes both
Brexit is that the UK’s status changes from houses of the British parliament and the
EU member state to third state. So the two country adopts European law in full, four
sides will need to agree the conditions and legal – and thus political – challenges
timeframe for maintaining the substance remain:
of the UK’s EU membership, in particular Firstly, the vision of the UK as a fully
participation in the single market and the sovereign country whose laws are – as de-
customs union. manded by Theresa May – made only in
So a mere political agreement to pre- Westminster and the UK’s devolved parlia-
serve the status quo will not be enough, ments and overseen only by British courts is
especially given the recent discussions in fundamentally incompatible with remain-
the UK questioning the seriousness of the ing within the EU’s legal order. One of the
political commitments that ended phase Brexiteers’ central arguments has been to
one of the Brexit negotiations. Instead a restore national parliamentary sovereignty
format will need to be found for a tran- (“take back control”). This is incompatible
sition regime that keeps the UK within the with one of the fundamental principles of
EU’s legal order. Legally speaking, transi- European law as established by rulings of
tion rules can be adopted as part of the the European Court of Justice (ECJ): in any
withdrawal agreement under Article 50 conflict between national and European law,
as long as they are clearly limited in time. European law takes precedence. The With-
But politically this would require London drawal Bill annuls that principle with effect
to submit to European law – over which it from the date of departure, permitting the
no longer has any say – for the duration of British parliament and government to devi-
the transition period. The more closely the ate from EU law. In legal terms, this is the
requirements are examined, the more seri- very essence of Brexit. Yet a status quo tran-
ous the doubts about the political feasibil- sition would require London to guarantee
ity of transition. ongoing primacy of EU law equivalent to
the existing European Communities Act, by
accepting the rulings of the ECJ as binding.
Preserving the EU’s Legal Order Otherwise, for example, London would be
If the UK is to preserve the status quo dur- able to undermine the single market by
ing the transition it will need above all to adopting lower standards than the EU’s.
promise to remain within the EU’s legal Secondly the UK would have to promise
framework. The Union and its single mar- to transpose all new EU legislation. Most EU
SWP Comments 54
December 2017
3legislation is based on directives, which In order to satisfy all these requirements,
member states are required to transpose in the UK would have to at least partially sus-
their national legislation within a defined pend the Withdrawal Bill for the transition
period. As long as the UK retains full access period and enact instead a “Transition Act”
to the single market during the transition equivalent to the European Communities
it will have to promise to transpose all new Act. In other words, the prime minister
directives in British law – without having needs a political majority in both houses of
any say in their drafting. To date this has parliament for effectively making the UK a
been guaranteed by the UK’s European Com- rule-taker during the transition. In view of
munities Act, which also obliges the Scot- her dependence on the pro-Brexit DUP for
tish, Welsh and Northern Irish regional her slim majority, and more than forty hard
governments to transpose EU directives in Brexiteers in her own parliamentary party,
matters falling within their powers. In pub- it is by no means certain that she could win
lic statements London has shown itself such a vote without the support of the oppo-
open to a solution, arguing that legal acts sition. If this involves binding the devolved
requiring transposition during a two-year administrations of Scotland, Wales and
transition would largely be those in whose Northern Ireland to the EU’s legal order –
creation the UK government had already as currently provided by the ECA – the mat-
participated. Political conflicts are, how- ter could become even more politically
ever, easily imaginable over EU directives in challenging.
areas where the UK often disagrees with the
rest of the EU, such as financial regulation.
Thirdly, EU law also has direct effect in The UK and the EU Institutions
the member states. In the UK to date this Any transitional arrangement will also
has also been guaranteed by the European have to clarify the UK’s institutional posi-
Communities Act. But if the UK wishes to tion. Prime Minister May has already an-
continue participating in the single market nounced that the British will leave the EU’s
it will have to guarantee at least to enact “political” institutions during the transi-
EU regulations in such a way as to give tion. What exactly that is supposed to mean
them immediate force in British law (as remains to be determined. The European
the EEA states already do). That would also Council, on the other hand, clarified that
apply to EU regulations adopted largely the UK will no longer “participate in, nomi-
or entirely without British participation nate or elect members of the EU institutions,
during the transition phase. nor participate in the decision-making of
Fourthly it would be necessary to define the Union bodies, offices or agencies”.
effective legal enforcement mechanisms While that is simply a natural conse-
for the transition. This raises questions con- quence of leaving the EU, it becomes politi-
cerning the jurisdiction of the European cally sensitive in any transitional arrange-
Court of Justice: To what extent do its rul- ment, especially in relation to policy areas
ings remain binding on British courts? Can where the EU makes distributive decisions.
the UK be brought before the ECJ if it fails In the Common Fisheries Policy for exam-
to fulfil its legal obligations? Can British ple, the EU-27 could adopt quotas disad-
courts refer legal questions to the ECJ dur- vantaging the UK. For that reason Michael
ing the transition, and if so under what cir- Gove, current British secretary of state for
cumstances? Although Prime Minister May environment, food and rural affairs and
has not entirely ruled out a role for the ECJ a leading figure in the leave campaign, is
during the transition, the details of any ar- demanding that the UK leave the Fisheries
rangement for jurisprudence, dispute settle- Policy during the transition phase. Other
ment and enforcement of EU rules are likely North Sea fishing nations like Denmark,
to turn out to be extraordinarily complex. the Netherlands and Ireland are likely to
SWP Comments 54
December 2017
4be keen to preserve the EU quotas, assert the question of freedom of movement is
their own fishery interests and insist that highly charged: as far as the British govern-
the UK remains bound by quotas the EU ment is concerned, reducing (labour) migra-
will decide without its participation. tion from other EU states was a (if not the)
Nor should sight be lost of the difficul- central motive behind the British leave vote.
ties arising in the EU’s second-tier bodies, That is why Theresa May initially announced
including the comitology committees in 2016 that freedom of movement would
where implementing decisions for EU legal end as soon as the UK left the Union.
acts are agreed. The significance of the com- In the meantime London has conceded
mittees, in particular for the functioning that freedom of movement will continue to
of the single market, was highlighted by apply in the transition period. EU citizens
the recent controversial glyphosate deci- who settle in the UK during this period will
sion. European Economic Area members be required to register, and the system’s
are admitted to the committees under Ar- compatibility with EU law will need to be
ticle 100/101 of the EEA Agreement, while carefully scrutinised.
other third states are not. While the UK The rights of EU citizens within the UK
would be bound by their decisions, the cur- are also affected. In the first phase of Brexit
rent Council guidelines rule out partici- talks London and Brussels agreed to safe-
pation by British representatives. Drawing guard the rights of all EU citizens living in
comparisions to the EEA, the UK will have the UK on the date of withdrawal. If free-
grounds to object to that principle. dom of movement is retained, however, the
There are also doubts concerning the same question arises for EU citizens enter-
UK’s role vis-à-vis the currently thirty-eight ing the UK during the transition phase.
EU agencies, some of which play crucial Most jobs appointments and university
roles in regulating the single market. Third courses operate on timeframes longer than
states like Norway are represented in the the planned two-year transition. The EU
agencies alongside EU member states on a needs to insist that the UK supply legal
case-by-case basis. But they generally have clarification on this point and ensure that
no voting rights, even though they are these citizens are not forced to leave again
bound by the agencies’ decisions, associated at the end of the transition. The same should
EU legislation and ECJ judgements. Both for naturally also apply to British citizens in
the transition and for the future relation- the EU.
ship, the UK and the EU-27 will therefore
have to negotiate UK participation for each
of the thirty-eight agencies separately. Trade and the Customs Union
Finally, on a general level, the UK’s role In order to temporarily maintain the status
during the transition period as a taker quo, special provisions will also be needed
of EU rules it cannot influence raises the in relation to external trade policy. After
question of an institutional forum. The UK leaving the EU the UK will legally become a
will have legitimate grounds to claim that third state like any other, and will no longer
even as a third country, if it is fully bound be covered by trade agreements between
by EU rules, there need to be some institu- the EU and other third states such as Cana-
tional forum for information exchange, dis- da, South Korea or the EEA.
pute settlement and coordination. This is principally the UK’s problem.
Most such agreements contain clauses re-
stricting their validity to the territory of the
EU Citizens and Freedom of Movement EU or of its member states. So in the tran-
Another of the EU-27’s conditions for a tran- sition period the UK will already be seeking
sition phase is the preservation of all four to adopt the EU’s agreements with third
freedoms of the single market. In the UK states – as quickly as possible and largely
SWP Comments 54
December 2017
5unaltered. But to judge by initial discus- UK is covered by the respective agreements
sions, such an outcome is neither guaran- during the transition. That would demand
teed nor without consequences for the EU considerable political and legal effort, even
partners. For example, the EU-27 and the if most third states are likely to be funda-
UK have proposed to the WTO that the EU’s mentally cooperative.
existing import quotas be shared between
the EU-27 and the UK. But partners like the
United States, Australia and Canada object New Budget Obligations – Even after the
on the grounds that the proposal restricts “Brexit Bill”
their freedom to redirect exports in line Furthermore, the status quo can only be
with economic developments. Furthermore, preserved if financial arrangements are
remaining within the EU’s customs union kept in place. In the agreement that brought
during the transition will limit the UK’s the first phase of the negotiations to its
ability to strike trade deals with other third conclusion, the UK committed to fulfilling
countries, as it will still be bound by the all the financial obligations it took on as EU
EU’s customs regime at least until transi- member state, in particular during the cur-
tion ends. rent multi-annual financial framework (MFF).
The economies of the EU-27, however, It should be noted that the current MFF
must also reckon with indirect effects. expires at the end of 2020. If the transition
Firstly, the UK’s status as a third state also phase extends beyond that, further British
changes rules of origin calculations. For contributions to the EU budget will be re-
example, under its free trade agreement quired. That would complicate the nego-
with the EU, South Korea charges no tariffs tiations for the next MFF, in which the UK
on imported cars if at least 55 percent of would figure simultaneously as member
their content is produced within the EU. state and future third state. At least for
After Brexit, car parts produced in the UK the duration of any transition, the EU will
will no longer count towards the EU share, insist on further financial contributions. In
which could then in some cases fall below comparison, Switzerland and Norway also
the exemption threshold. contribute to certain EU funds in propor-
Secondly, therefore, even if the UK re- tion to their GDP – without having a vote
mains in the single market during the tran- on the EU’s budget planning. Furthermore,
sition customs controls will still be required when the UK leaves it will also lose the
between the UK and the EU-27/EEA to en- famous budget rebate that has capped its
force rules of origin. This will also affect net contribution since 1985.
border arrangements between Ireland and The political sensitivity of further finan-
the UK. cial demands should not be underestimated.
Thirdly, many important free trade May promised that the days of large finan-
agreements contain most-favoured-nation cial contributions would be over after Brexit,
clauses. Under CETA for example the EU and struggled to secure backing within her
must offer Canada any tariff concessions party and cabinet for the commitments
it grants to other states in a comparable already made by the UK. The British would
framework. So the EU and the UK cannot feel that the EU was coming straight back
agree reciprocal exemption from duties for more, when they had just agreed to pay
without granting the same to other third the EU a figure in the high tens of billions.
states, and thus accruing additional obli-
gations.
If the EU wishes to preserve the complete Duration and Extension
integrity of the single market, the EU-27 Finally, the duration of the transition regime
will have to seek the agreement of the EEA will need to be agreed. British business rep-
and all other affected third states that the resentatives have called for a period of up
SWP Comments 54
December 2017
6to five years, as has the Irish foreign minis- seat at the table and right of veto for the
ter; Prime Minister May and Brexit Secre- duration. And the already fragile British
tary David Davis speak of about two years. government would have to abandon its cen-
The EU-27 have yet to agree on this point. tral symbolic objective of accomplishing its
The “natural” deadline would be the end departure by March 2019. But if the UK
of the current MFF in December 2020, but finds itself facing growing economic pres-
that leaves a transition of just twenty-one sure and/or political turbulence, a request
months. In view of the experience of the to extend the deadline would be conceivable.
Brexit talks thus far, even two years will not Another option, in the event of failure
be enough to conclude a comprehensive to reach agreement, would be for the UK to
agreement on future relations between the leave without a transition. Given that the
EU and the UK. In addition, a future trade transition is being negotiated as part of the
deal will most likely be a mixed agreement, Article 50 process, this would call into ques-
which requires lengthy ratification across tion the entire withdrawal agreement. There
all the EU’s national parliaments. are presently two “no deal” scenarios. One
This immediately poses the question of would follow the overall collapse of talks
whether the transition period can be ex- (“hostile no deal”) without agreement on
tended. If trade talks run into obstacles the withdrawal, transition or the future rela-
EU-27 and/or the British government might tionship. At the end of the two-year period
be interested in acquiring more time, but all the EU treaties would cease to apply
the mere suggestion would provoke howls to the UK, without any alternative legal
of protest in the UK. But the two-year limit arrangements. The currently politically
on Article 50 has already proved to be a sig- agreed divorce settlement would not come
nificant complicating factor for the Brexit into force either, negating the UK’s commit-
negotiations. Any transitional arrangement ment to securing the rights of EU citizens
should therefore contain an extension and meeting its financial obligations. As well
option from the outset. as reverting to WTO trade rules, the UK
would fall out of all the Union’s other regu-
latory arrangements with dramatic conse-
Alternatives quences for the British economy. The first-
Despite fundamental willingness on both phase agreement, where London made
sides, (rapid) agreement on a transitional significant concessions, has made this sce-
arrangement is therefore anything but nario considerably less likely.
certain. The question of alternatives to the The second “no deal” scenario would be
“status quo” transition outlined above is a pure withdrawal agreement between the
pertinent for both the EU’s negotiators and EU and the UK, including the components
the British government. agreed in the first phase but without Lon-
The simplest route in legal terms would don agreeing to conditions for the tran-
be to extend the two-year deadline for the sition. In this scenario of orderly withdrawal
withdrawal talks. Under Article 50 (3) TEU trade would also revert to WTO rules, but
this can be decided at any time without the two sides would at least agree flanking
legal constraint, by agreement of all mem- measures to avert the worst (for example
ber states including the UK. The latter would permitting British airlines to continue fly-
remain a normal member of the EU until ing to the EU). This is technically possible,
agreement was reached or the agreed ex- but politically problematic, as the Con-
tension expired. But politically neither side servative Party in particular would have to
is currently speaking about such a solution. accept the budget liabilities with no tran-
For the EU-27 it would mean the departing sition in return. It is also questionable how
UK participating in the next European Par- the British-Irish border could be kept fully
liament elections in May 2019, keeping its open under this scenario.
SWP Comments 54
December 2017
7At least in theory the UK could revoke with business’s demands for rapid clarifi-
its notification of intention to leave under cation. The red lines on both sides and the
Article 50 and remain a member of the EU. experience to date with the Brexit talks
Although this option is not explicitly men- suggest that more hard talk is still to come
tioned in the treaty, EU leaders like Euro- – not just between Brussels and London,
pean Council President Donald Tusk have but between different sides in London. But
always insisted that the door remains open. it is not just the UK that will have to make
In view of the current state of British poli- tough choices over the shape of the tran-
tics, however, the likelihood of such a turn sition. The EU-27 will also face difficult
of events must be small. Barring a major questions, for example concerning the UK’s
shift in British public opinion, a Brexit role in the EU institutions, further post-
U-turn would tear even further into the 2020 financial obligations, and the role of
Conservative Party and the divided nation. the ECJ. The extent to which the EU’s free
trade agreements apply to the post-Brexit
© Stiftung Wissenschaft und UK will also have to be clarified with third
Politik, 2017 Outlook states.
All rights reserved
A transitional arrangement thus remains Thirdly, the transition phase will not
These Comments reflect the best of a range of problematic options form a bridge to a predefined future rela-
the author’s views. for both the UK and for the EU-27, despite tionship between the EU and the UK. It will
SWP the complexities involved in implementa- merely be a means to keep the UK within
Stiftung Wissenschaft und tion. On the basis of the above overview of the EU’s legal framework for a little longer
Politik
German Institute for the components required for a transitional in order to negotiate the future relation-
International and arrangement that maintains the status quo, ship. March 2019 is an unrealistic deadline
Security Affairs
three central conclusions can be drawn. for a comprehensive agreement, even a two-
Ludwigkirchplatz 34 Firstly, the British government will have year transition phase is ambitious. The tran-
10719 Berlin
Telephone +49 30 880 07-0
to deny all the main objectives of the Brexit sition is not a side-show; it will shape the
Fax +49 30 880 07-100 supporters, at least until 2021, if it wishes relationship between the United Kingdom
www.swp-berlin.org to fulfil the EU-27’s conditions for main- and Europe for years to come.
swp@swp-berlin.org
taining the status quo during a transition
ISSN 1861-1761 phase. A status quo transition regime will
Translation by Meredith Dale only be viable if the UK anchors the EU’s
legal framework in UK law for the duration
(English version of
SWP-Aktuell 78/2017) of the transition by means of a “Transition
Act”, including the primacy of EU law, its
direct effect and jurisdiction of the ECJ.
This is made more difficult by the May gov-
ernment’s domestic weakness, where she
will need the support of hard Brexiteers in
her parliamentary party and in cabinet to
turn the UK into an (albeit at least time-
limited) rule-taker. Instead of taking back
control, the UK would in effect cede sover-
eignty to the EU on an unprecedented scale.
Instead of enjoying voting or even veto
rights, it will be reduced to accepting and
implementing EU decisions. This makes
agreement on such transitional arrange-
ments far from politically certain.
Secondly, the complexity of the highly
controversial political negotiations clashes
SWP Comments 54
December 2017
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