May faces a long battle before winning back control

Theresa May: Deal may take far longer than she anticipates

By Chris Mehigan

No negotiation without notification. The EU-27 held the line over the past nine months refusing to budge on this position. While the UK Government sent out messages about how Brexit would be conducted and what the UK would achieve, all within the two year time limit, the EU-27 and the EU Institutions kept their cards close to their chest.

When the UK triggered Article 50 last week, the EU responded by dismissing the Brexit narrative spelt out by the UK Government and setting out the process for the negotiations in the draft Political Guidelines.

The Political Guidelines are an important part of the exit process, Article 50 dictates that negotiations must be conducted in their regard. The draft document will be negotiated over the coming weeks and will be adopted at the European Council meeting on April 29.

 

The risk to the EU-27 businesses is that competitors based in the UK, but with access to the EU market during the transition period, will have a competitive advantage.

 

A notable feature that stands out in the Political Guidelines is the clear position that the EU-27 cannot enter trade negotiations with the UK until the UK has left the EU and has become a Third Country. This is directly contrary to the position put forward by the UK Government over the past nine months. This in itself raises a number of questions about the preparedness of the UK Government.

 

Transition phase

The Political Guidelines introduce a new phase to the exit process, one that had been flagged repeatedly by commentators in the EU but dismissed out of hand by the UK Government: The transition phase.

The transition phase is the period where a country ceases to be an EU Member State but has yet to agree a new trading relationship with the EU as a Third Country. It is the time from when the Article 50 negotiations conclude – resulting in a withdrawal agreement, and the Article 218 negotiations conclude – to put in place a trade agreement to provide for the future relationship.

The transition is intended to bridge that period with minimum economic shock and negative impact. There are a number of scenarios to consider as to how a transition can be put in place but a key issue on each scenario is the requirement for a level playing field.

Simply put, European businesses require that if competitors from another country are to access the European market it must be on the basis of an equal footing, those competitors should not have access to the EU market unless bound by the same rules, regulations and decisions of the ECJ. They must all operate on a level playing field.

Indeed the draft Political Guidelines state in the first paragraph that: ‘A non-member of the Union, that does not live up to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member.’

The level playing field is achieved typically through regulatory convergence. As the UK is an exiting member, and will at the date of exit have the same rules and regulations as the rest of the EU, there exists a high degree of regulatory convergence. The question is how long will that last?

The UK have repeatedly stated they are taking back control, in particular getting away from the decisions of the ECJ. They have also given strong hints at changing their regulatory framework to make it easier for companies to operate. Every step they take on this route will bring about regulatory divergence.

The risk to the EU-27 businesses is that competitors based in the UK, but with access to the EU market during the transition period, will have a competitive advantage.

The EU-27 will insist that during the transition phase the UK Government will continue to follow EU rules, adopt EU regulation as it is enacted, and abide by ECJ rules. All during a period where the UK, as a third country, will have no input into the workings of the EU. They will be required to hedge their sovereignty for several years in those areas while a trade agreement is put in place.

The alternative is no deal. A scenario that is facing increased opposition from the business community in the UK.

‘Taking back control’ may take longer than Theresa May has said.