What can possibly go wrong? Nine Brexit bear traps for 2018

BRUSSELS (Reuters) - European Union leaders gave a green light to the main phase of Brexit negotiations on Friday after applauding Prime Minister Theresa May’s efforts to settle divorce terms for Britain’s withdrawal in March 2019.

An EU flag and Union flag are seen flying together during an anti-Brexit protest near the Houses of Parliament in London, Britain, December 8, 2017. REUTERS/Toby Melville

But despite a surge in optimism that the coming year can set a smooth glide path to a free trade pact via a seamless period of transition, 2018 is studded with pitfalls to test the nerves of negotiators, businesses and millions of ordinary folk.


This is the theory. EU negotiator Michel Barnier is set to calm worried investors and in January offer May the roughly two-year transition she wants to offer stability while a future trade agreement is hammered out. Like all tempting quick deals, though, it comes at a price and the EU’s demands are not ones May will find easy to sell to Brexit enthusiasts. You can keep single market membership, Barnier tells Britain, but you will keep paying Brussels and be bound by all EU rules including ones not yet made, without having a say on making them. Plus, there are quite a few wrinkles that mean “status quo” cannot be quite so simple. Stand by for more long arguments.


EU leaders want to agree their common negotiating position on trade at a summit on March 22-23, allowing talks with Britain to start some weeks after that. But while the 27 member states quickly agreed this year on what to demand from London on the divorce -- notably money and rights for their citizens living in Britain -- they have divergent interests for the future. Close neighbours do a lot of trade with Britain, others further east are more interested in keeping Britain’s military muscle on hand than in tariff-free commerce. The EU has done big trade deals before, but none with an economy so big and so close. This might take some time -- though time is in short supply.


On the other side of the Channel, there is also internal negotiation to be done before trade talks open. Barnier says he understands what Britain doesn’t want -- being in the single market and customs union, accepting EU court rulings, and open immigration. But, he says, what does Britain want? He’s looking for an answer before finalising the EU position. And May is facing battles inside her own government team, or cabinet, and with opponents in parliament, where she has a slim majority, on whether quitting the single market and/or customs union is really such a good idea for the British economy. Those keen on Brexit want a clean slate to cut deals with other parts of the world, but many worry about the cost of new barriers in Europe.


One reason her fellow leaders gave May a round of applause over dinner on Thursday night was to offer encouragement for her perseverance, despite deep splits in her own party, in keeping a semblance of order in a Brexit process she did not want. But can she keep it up? A host of scenarios could see May out before Brexit. Dependent on Northern Irish allies after a botched snap election in June, she was defeated on Wednesday in a vote that now gives parliament a final say on a Brexit deal. When her strongest card seems to be that no one else is keen to take on a thankless job with little future, then stability is not a given.


Last week’s “joint report” with Barnier that unlocked the EU agreement to open trade talks depended on fudging how they will avoid erecting the infrastructure of a “hard” EU-UK border that could disrupt peace in Belfast. Brussels and Dublin will say May must honour a pledge to keep Northern Ireland in “regulatory alignment” with the EU to the south -- effectively in a customs union. But she also promised to keep the north aligned with the rest of the UK and to let the UK diverge from the EU. With her Belfast allies determined to avoid any barriers with mainland Britain and pro-Brexit London ministers set on breaking with EU regulations, May faces a tough task agreeing a “framework” for future relations before Brexit.


Despite all those problems, both sides are clear that a treaty settling the terms of withdrawal -- including as yet undecided and potentially explosive issues such as how they will be enforced -- must be ready by about October. That is so the process of ratification in the European and British parliaments can be completed in good time for Brexit in March 2019. But months of negotiations so far have produced relatively little in the way of detailed outcomes, so that target looks ambitious.


The risk for both sides is that failure to reach any deal will see a “cliff edge” Brexit in which Britain, under Article 50 of the EU treaty, simply ceases to be a member as midnight chimes in Brussels going into Saturday, March 30, 2019. Without any treaty, that will open up a vast expanse of legal limbo. No one can rule out extending the deadline, though neither side wants it to be long -- British Brexit voters want delivery on their referendum and EU states, though they are sorry to see it go, do not want the upset of endless negotiations with Britain.


May’s government talks about having a free trade deal ready to be signed almost as soon as Britain leaves -- it cannot be signed before. But Brussels says the best Britain can hope for as it leaves is a “political declaration”, alongside the withdrawal, on what the framework of a future relationship will be. That will not be legally binding and leaves huge scope for the kind of detailed trade negotiation that usually takes years. Barnier says an agreement, similar to one the EU has with Canada, can be ready by January 2021, when the transition may end. But that uncertainty also creates another “cliff edge”.


Could the transition period go on longer, with Britain, like Norway today, a taker of EU rules without having a say on them? France and others want that kind of endless limbo avoided, though some in Brussels can envisage an extra year or so. Brexit supporters hate the idea but some of who campaigned against leaving -- including Scottish nationalists eyeing a new bid for independence -- see a tempting possibility to stay in the Union’s ante-chamber before trying to get back in. Cue more furious debate in Britain, and an uncertain response in Europe.

Editing by Timothy Heritage