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Article 50 Triggered: 6 Hugely Complicated Brexit Deals Theresa May Now Has Just 2 Years To Make

This is going to be tricky

29/03/2017 12:30 | Updated 29 March 2017

With Article 50 triggered, Theresa May now has two years to carry out the most complex set of negotiations in UK history.

The future of Britain’s trading relationship with the EU - and ultimately the world - rest on the deal the Government can secure with Brussels.

Here are six vital areas the PM has just two years to secure agreements on.

1) The Divorce Bill

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The most contentious part of the negotiation – if the preliminary skirmishes are anything to go by – is how much the UK will have to pay the EU when it leaves.

Figures floating about either side of the Channel go as high as €60billion, while some in the UK don’t think we should be paying anything.

The bill relates to already-agreed projects, pension payments and other commitments made by the EU which have yet to be paid for.

There is an argument that as the UK is leaving the EU, it could just walk away without handing anything over, but that is perhaps not the best way to start trade negotiations.

Theresa May will of course be keen to get this figure as low as possible, but she might calculate paying a bit more cash in the divorce settlement might grease the wheels of the trade negotiations.

The two years allowed by Article 50 should be enough to get this deal done, although with elections in France and Germany in May and September respectively, getting down to the odd euro here and couple of pennies there might have to wait until Autumn.

2) Rights Of UK And EU Nationals

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Theresa May has refused, insisting other EU countries need to make the same guarantee for Brits living in their counties.

But while an understanding may be reached relatively early on in the talks, it is unlikely to be legally agreed until the end of the two-period.

As Brexit Secretary David Davis said on the BBC’s Andrew Marr Show earlier this month, when it comes to the EU, “nothing is agreed until everything is agreed”.

3) A New Trade Deal

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With UK out of the Single Market, businesses will no longer be able sell their products into the EU without incurring tariffs unless a trade deal is agreed.

If Theresa May carries out her threat of walking away without a deal, the UK would revert to World Trade Organisation (WTO) rules.

There is some dispute as to what this relationship would look like, but there seems to be a sense that the UK would inherit the WTO rules that the EU has already agreed.

Therefore, cars sold from the UK to the EU would incur a 10% tariff, alcohol would be nearly 20% and dairy products would be more than 35%.

House of Lords

May will have to negotiate a comprehensive free trade deal with the EU in order to remove these tariffs. However, some members of the EU may resent this.

With the UK out of the Single Market, other countries operating within it may spot an opportunity to exploit the gap left.

Motor vehicles, medicines and mechanical appliances were in the top exports from the UK to the EU in January 2017, and other EU members may try to entice producers of these products to resettle in their countries as they can guarantee them tariff-free access to the world’s largest Single Market.

ONS

Brexiteers argue it is within the EU’s interest to maintain tariff-free trade, as the UK buys more from the continent than it sells.

In January 2017, exports to the EU were worth £12.8billion, whereas UK imports from the EU totaled £19.5billion.

There is another problem with reverting to WTO rules. Under the agreement, the EU has quotas on how much of a certain product can be imported into the bloc without any tariffs being paid.

This particularly affects agricultural products such as beef and cheese.

If the UK was to keep the same WTO rules as the EU, it would still be constrained by this quota, and would have to negotiate with Brussels for its share of the products.

It is not just tariffs which cause problems when it comes to exporting.

The EU has set standards which apply to a vast range of products and services. It is the reason why America cannot sell chlorine-washed chicken in the UK – it is banned by Brussels.

One of the key arguments for Brexit was that many businesses who do not export to the EU still have to abide by its laws, and after the UK has left they will only impact those who wish to trade with the bloc.

But those businesses will now not have a seat at the table when new regulations and laws are made, yet will still have to comply with them when they seek to sell into the Single Market.

Francois Lenoir / Reuters
Canada's Prime Minister Justin Trudeau and European Council President Donald Tusk attend the signing ceremony of the Comprehensive Economic and Trade Agreement (CETA), at the European Council in Brussels in October 2016.

Securing a comprehensive free trade deal with the EU is the jewel in the crown when it comes to the negotiations, and it would be a considerable feat to complete this work in the next two years.

The EU’s trade deal with Canada took seven years to negotiate, but Brexiteers believe that as the UK and the EU already have a trade deal of sorts it won’t take as long as the pact with Ottowa.

Once the deal is agreed between the EU and the UK, it still needs to be ratified by all 27 member states – again, a extremely ambitious target to complete within two years.

The Canada/EU deal was held up for a weeks because a regional Parliament in Belgium initially voted down the agreement.

4) A New Immigration System

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One of the key questions for Theresa May is how the UK’s immigration system will operate after Brexit. Currently, anyone from the EU can come to live in the UK provided they have a job, or find one within three months of arriving.

The Government said it will no longer abide by the EU’s Free Movement Directive after Brexit, and will “design our immigration system to ensure that we are able to control the numbers of people who come here from the EU.”

May has also ruled out adopting an Australian-style points-based system – the immigration model proposed by Vote Leave in the run up to the EU referendum.

Speaking on Question Time on Monday, Brexit Secretary David Davis said immigration levels would rise and fall once the UK leaves the EU.

“I cannot imagine that the policy will be anything other than that which is in the national interest which means that from time to time we will need more, from time to time we will need less.

“That is how it will no doubt work and that will be in everybody’s interests - the migrants and the citizens of the UK.”

That seems to suggest a work-permit system based on gaps in the UK workforce – most probably where EU migrants already dominate.

Additionally, the EU may insist that in order to get a free trade deal the UK has to accept freedom of movement – something the Government has ruled out.

5) Protecting The UK’s Financial Sector

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Bashing the bankers may be a national pastime in the UK, but without the flourishing financial sector the country’s economy would be seriously weakened.

A report for the City of London estimated the UK’s financial sector pumped £71.4billion into the Treasury in the year to March 2016 – 11.5% of all taxes collected by the Government.

City of London

Brexit places this at risk, as banks will no longer automatically have access to all the financial sectors across the EU – a practice known as ‘passporting’.

Frankfurt, Paris and Dublin are already trying to woo banks away from London, so Theresa May will have her work cut to get the financial sector the same passporting rights it currently enjoys. After all, the German, French and Irish governments may try to block the move in order to get a slice of the very lucrative pie for themselves.

In order to counter this, Chancellor Philip Hammond has already suggested he will slash business rates if the EU start playing hardball in order make the UK extremely attractive for banks to set up in.

Of course, the flight of bankers from the UK might ultimately prove a good thing for the country, as the economy could be rebalanced so it is less dependent on one sector.

But be in no doubt, the success or failure of Brexit will depend an awful lot on how the UK handles this aspect of the negotiation.

6) A New Customs Arrangement

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When Theresa May announced the UK would be leaving the Customs Union in her Lancaster House speech, many were surprised by such a bold move.

However, it should have been blindingly obvious this was going to happen when she created the Department for International Trade.

As all members of a customs union charge the same tariffs on goods coming in, International Trade Secretary Liam Fox would be unable to sign deals that purely applied to the UK.

Outside of the Customs Union, Fox can begin securing those coveted deals, although a House of Lords report earlier this month warned negotiating such treaties was currently “far beyond” the ability of his department

Once those deals have been signed, it is still unclear how the UK will work alongside the EU’s Customs Union.

Imagine the UK secures a free trade deal with the EU, but is not part of the Customs Union.

It can sell products made in the UK to the EU with no tariffs. Simple.

But what about products assembled in the UK with parts made in countries which do not have a free trade deal? The exporter will have to provide all the relevant paperwork to show the correct tariffs have been paid, adding a complex level of bureaucracy.

The Government’s White Paper calls for a “new arrangement” with the Customs Union, but it is unclear what this will be.

“To our knowledge, no precedent exists for an agreement outside a customs union that entirely eliminates the need for customs checks and the additional burden of associated administration and costs. We are also concerned that the introduction of a new IT system for customs—planned for the year the UK leaves the EU—may further complicate the change of trading conditions for businesses around Brexit.”

If May doesn’t get this deal within two years, she may well push for a transitional arrangement with the EU – which could still leave the UK under the jurisdiction of the European Court of Justice, which passes judgment on the rules underpinning the Customs Union.

Alternatively, if the UK leaves the Customs Union entirely, it will have to dramatically increase its customs checks at ports and start processing all products leaving the country – which could lead to tailbacks at the UK border as lorries are searched and their goods examined and documented.

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