March 19, 2018
Brexit may not be avoidable after all.

The United Kingdom and the European Union (EU) announced on March 19 that they have agreed on a “large part” of an agreement that would result in Britain leaving the EU.

Why is this transition deal significant?

The deal is important for three key reasons:

First, the deal provides much-needed clarity on key issues for businesses and citizens on both sides of the English Channel for almost two additional years. The tentative deal establishes a transition period from March 2019 (when the UK will formally leave the EU) until December 2020.

Most importantly, the UK will remain within the EU’s single market throughout the transition, avoiding the pernicious consequences of a disruptive “cliff-edge” exit on March 2019 in case no final deal had been agreed by then. Thus, the transition deal ensures that no major disruptions of supply chains or other business activities will take place, bolstering the chances of an orderly UK exit from the EU.

Without the deal, most observers argue, the timeline for Brexit negotiations before the March 2019 deadline would have become unsustainable. It is worth noting that the agreement is still conditional. It needs to be ratified by the European Council, which meets on March 22.

Second, for British Prime Minister Theresa May, the draft deal likely strengthens her position domestically and within her own party. A revolt from hardline Conservative Party Brexiteers seems contained, although we will have to see how they react to the deal announced on March 19.

The transition deal offers some bitter lessons for those in support of a hard Brexit—the UK has limited leverage in these negotiations, as its acceptance of the continued application of the four freedoms of the single market—goods, capital, services, and labor—shows. There also seems no hope for Brexiteers to apply a “divide-and-conquer” strategy to exploit the different positions of the EU-27 in the talks, as some in London had promised at the start of the process.

Michel Barnier, the European chief negotiator on Brexit, and governments across the Continent have thus far maintained exceptional unity throughout the process and this united front shows no signs of cracking.

And third, this deal greatly reduces the chances of any sort of reversal that would allow the UK to stay within the EU.

What is in the deal?

The deal grants the UK a transition period for twenty-one months, until December 31, 2020. While the UK will formally leave the EU on March 29, 2019, it will still remain under EU law during those extra twenty-one months. That includes being part of the single market, the customs union, and maintaining the four EU freedoms. The UK, however, will not have a say in any new EU regulations during this time.

The transition period will be a “Brexit in name only” of sorts, where the UK is technically not an EU member but almost everything else remains the same.  

Why December 31, 2020? The EU imposed this end date with an eye on its multiannual budget for the 2021-2028 period, which kicks in on January 1, 2021. The December 31, 2020, date gives the EU a clean sheet to define its budget priorities without the UK. This constitutes another concession from the UK, which favored a longer transition period. It is yet unclear if the transition period could be extended.

The deal also reaffirms the agreements previously reached in December 2017 concerning the financial settlement (what the UK owes the EU due to previous commitments) and the issue of citizens’ rights (the rights of EU citizens in the UK and vice versa).

What is not in the deal is just as important

The most significant questions around the border between the Republic of Ireland and Northern Ireland remain unresolved.

Although negotiators reached an agreement on Northern Ireland’s border in phase one of the negotiations, it is by no means a closed chapter. That agreement implied the UK would propose a solution that avoids a “hard border” with physical border inspections, but London has yet to deliver any specifics.

Barnier has stressed that the EU plans to fall back to its “backstop” option if no other solution is found. Under this option, the EU would keep Northern Ireland within the Union’s internal market to avoid an external EU border on the Irish isle. However, this would create a “border” at the Irish Sea, dividing the UK’s internal economy.

The UK has called this an attack on its constitution, and has put forward the idea that better technology will solve the issue. The burden of providing a feasible solution remains on the UK.

Agreeing on a transition deal without providing for this key issue looks like the EU giving up some leverage, although the deal could very well be reversed.

Another issue that remains unresolved concerns the role of the European Court of Justice (ECJ), which the UK wants to limit and is an especially sensitive issue for Brexit hardliners.

Finally, an important question is whether the UK will be able to negotiate free-trade agreements with third parties. These agreements include a possible US-UK free-trade agreement, but also around 750 other deals that the UK will need to renegotiate with the rest of the world for an orderly transition.

The transition deal agreed on March 19 prohibits the UK from ratifying or implementing any such agreements until the end of the transition period in 2020, but negotiations between the UK and third parties could theoretically start before that. However, it seems unlikely that any third party will seriously engage with the UK before knowing exactly what its relationship with the EU will be.

What is the path ahead?

The European Council will have to ratify the deal at its meeting on March 23. That milestone should provide Barnier with a mandate to negotiate the future UK-EU relationship in a post-transition period. If all runs smoothly, those negotiations should be finalized by October, allowing for sufficient time for ratification before the March 2019 deadline. Ratification is necessary both by the UK and EU.

On March 29, 2019, the UK will find it has fewer cards in its hand to negotiate the future relationship with the EU.

Bart J. Oosterveld is C. Boyden Gray fellow and director of the Atlantic Council’s Global Business and Economics Program. Follow the program on Twitter @AC_GBE.

Jörn Fleck is an associate director in the Atlantic Council’s Future Europe Initiative. Follow the program on Twitter @ACFutureEurope.

Álvaro Morales Salto-Weis is a program assistant in the Atlantic Council’s Global Business and Economics Program. Follow him on Twitter @alvarosaltoweis.

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