March 19, 2018 / 4:54 PM / 6 months ago

Breakingviews - Brexit transition deal buys little but time

LONDON (Reuters Breakingviews) - The latest Brexit deal buys little more than time. The agreement unveiled on Monday effectively keeps Britain in the European Union until the end of 2020, giving companies longer to prepare for departure. But key disputes about the United Kingdom’s future relationship with the EU are unresolved, and the risk of a chaotic exit remains.

A banner encouraging people to support a local Brexit campaign hangs on the side of a building in Altrincham, Britain May 3, 2016. REUTERS/Phil Noble

EU negotiators describe the period after the UK formally leaves the EU next March as the “transition” while their British counterparts insist on “implementation”. Right now, however, there is nothing to transition to, or implement. The 21-month stretch in which Britain will effectively pay to stay in the EU’s single market and customs union is better described as an extension.

Negotiators must now thrash out a broader agreement for Britain and the 27 remaining EU countries to approve later this year. Some tricky issues remain up in the air, though. One is a mechanism for resolving future disputes between the two sides. Another is avoiding a hard border in Ireland. That looks difficult unless Britain joins a customs union with the EU - an option that Prime Minister Theresa May has ruled out.

Britain has conceded that a legally binding version of the “backstop” it signed last December - which commits the UK to full alignment with EU rules in the absence of a better outcome over Northern Ireland - will be part of the final deal. But a solution that is acceptable to the Republic of Ireland, May’s Conservative party, and the Democratic Unionist Party on whose support her government depends looks elusive.

Even if Britain and the EU can clear these hurdles, details of a future trade relationship between the two are unlikely to be finalised until after the transition period has begun. Companies that depend on free trade with the EU will continue to face uncertainty. Some have already assumed the worst. Others will put investment on hold.

In the meantime, politics may intervene. Britain’s parliament must approve the final deal, leaving scope for the opposition Labour party to team up with pro-European Conservatives to defeat the government, or demand a second referendum. Alternatively, a collapse in the talks could send Britain tumbling out of the EU next March, without a parachute. Even the time it has bought comes with caveats.

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