Which transition?

In a previous piece I suggested that “Flexcit is dead” and that British politics since 23rd June had killed it. Beyond the raw headline, in my opinion what had specifically died was the idea of parking the UK in an EFTA-EEA solution for 20 years or more while the EU allegedly and hopefully rescinds control of the single market to global bodies.

I wrote my post just before the prime minister stood up and made a speech on Brexit on 17th January — a speech that all but confirmed my view.

But I also added at the end of my piece:

“That’s not to say that EEA cannot come back into the frame under any circumstances or in any form — it might. A point on which I may write in future.”

What I was obliquely referring to was the fact that there will be two parties in the coming negotiation and once the EU27 come into play as the other party, new dynamics will open up.

At the moment, the UK government under Theresa May are just stating what they want, with no reference to the EU27. Well anyone can do that but the point about a negotiation is that there will be give and take between the parties. Indeed the prime minister herself acknowledged this in her speech:

“We are about to enter a negotiation. That means there will be give and take. There will have to be compromises. It will require imagination on both sides.”

Indeed so. And therefore no one can predict exactly where this will end up. Mrs May’s apparently less-than-flattering descriptions of the EEA option prompted many to believe that the UK won’t touch the EEA position (like Norway) with a bargepole. For example, she said:

“I do not mean that we will seek some form of unlimited transitional status, in which we find ourselves stuck forever in some kind of permanent political purgatory. That would not be good for Britain, but nor do I believe it would be good for the EU.”

That sounds unequivocal but, to be specific, she is referring to a Flexcit EFTA-EEA scenario where the words “transition” and “interim” are stretched beyond political breaking point as the UK is parked in EFTA-EEA potentially for decades, with no subsequent step to a bespoke deal. Indeed joining the EFTA ‘pillar’ in order to take up an EEA position could very well signal to all (including to the EU27) that the UK is willing and happy to risk such a position becoming a permanent or near-permanent parking place. If that was ever politically palatable, it certainly isn’t now.

The key point here is (and has always been) that one can reject EFTA-EEA — “the so-called Flexcit strategy” — without rejecting an EEA-based interim step. Moreover, EEA-as-a-technical-transition to a bespoke comprehensive trade-based agreement is not a Flexcit concept or objective.

And as joining the EFTA pillar will be politically difficult (because of its indication of permanence, never mind the possible views of existing EFTA members), if an EEA interim option is to become feasible at all, it now seems more likely to be an EEA-style position that broadly replicates the EEA Agreement (without EFTA), and yet is stitched together so that it holds up just enough for a time-limited transition period. That could, for example, mean temporarily docking the UK to the EFTA Court for EU/UK dispute resolution until the full final deal and its corresponding structures can be agreed. An interesting blogpost here by Tony Edwards explores this idea further.

In other words, the only EEA interim option that could still potentially work for the UK government given the constraints it has set itself, is one that looks like the EEA, makes temporary use of the EFTA Court, but has its own separate time-bound transition agreement running up to the final bespoke deal. Something suspiciously like this scenario was captured in an Open Europe piece last August where they observed:

“This leaves the possibility of a transitional EEA-style relationship (it is unlikely that the UK would join the EEA formally, a more likely arrangement is one that mirrors the EEA in almost every aspect) pending a tailored, bilateral agreement being thrashed out.”

The question is why and whether the negotiating parties would alight on such an EEA-style step particularly when:

  1. The EU would probably insist on it being taken as a whole package, free movement and all, potentially causing short-term political difficulties for the May government.
  2. It would still take time to set up
  3. These days, the approach has some interesting competition from the Shanker Singham concept of interim bespoke sectoral arrangements, which has gained favour among Government ministers and key Leave voices (like Michael Gove). The speech by Theresa May on 17th January seemed to partly point to a Singham-esque approach. Stories in December of a “grey Brexit” also pointed strongly in the same direction.
  4. David Davis answered a question in the House of Commons last week ruling out membership of EFTA as it “would put us within the reach of European regulations and the European Courts.”

So an EEA-style transition still feels very unlikely when surveying the above points. Then again, as stated, the negotiations haven’t started yet and we need to remind ourselves that matters will move beyond where each side starts.

Has the EU itself indicated what it sees as a reasonable transition/interim structure? We can’t be sure but what we do know is that some big voices in the EU have said there can be no “cherry-picking”.

Added to this, we now have Sir Ivan Rogers’ testimony to the European Scrutiny Committee where he was quite explicit about what the EU27 are likely to seek:

“On your transition EEA point…I think the appetite to do a bespoke interim deal will be probably — if I’m candid — quite limited. People will say well you want a bespoke final deal and we should focus on the final deal and the final destination and where you want to get. And then I think you’re probably right that they’ll want either a ‘cookie cutter’ or standard non-bespoke set of transitional arrangements to bridge us to there and that may be wholly unpalatable to us……
……I don’t think there will be appetite from the other side of the table [the EU] to do loads of different legally binding sectoral agreements on a different timescale. I think it’ll be the classic European jargon of ‘nothing’s agreed until everything’s agreed’.”

Sir Ivan seemed to be saying the EU will reject the Singham approach adopted by the government. In the full transcript, Rogers named Flexcit in the middle of the above section but his overall comments suggested he had misunderstood it — he thought the EEA could be used as a genuine transition step towards a full bespoke deal in the early-to-mid-2020s: a “sort of exit antechamber before you get to full exit.”

None the less, Rogers’ comments added to the debate about what sort of transition might be agreed and other comments emerging from EU diplomats seem to come closer to the Rogers view than the Singham view.

So there is still all to play for around the nature of the transition deal. Of course none of this precludes the possibility of a Crème Brûlée Brexit that I detected in the May speech. The chosen transition mechanism will cover what specifically happens at the beginning of the soft bit of the Crème Brûlée — the two year anniversary of the triggering of Article 50.

But the government needs to tread a careful line here. If it becomes over-confident about the Singham route (as it currently seems to be), it might politically box itself into rejecting any form of EEA transition, and could then be stuck with an EU only able/willing to offer exactly that. Otherwise it’s the WTO option.

Indeed it may all hinge on how viable the government thinks WTO really is.