Britain | Now for the difficult bit

Britain approaches crunch time in the Brexit talks

The government girds itself for a year of testing negotiations

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NO MATTER how hard Theresa May tries to focus her reshuffled government on other matters, Brexit seems certain to overwhelm the agenda this year. The EU wants a deal agreed on by October so as to allow enough time for ratification before March 29th 2019, when Britain is due to leave. The deal should comprise three parts: fixing the terms for a post-Brexit transitional arrangement; giving legal effect to the Article 50 withdrawal deal that was provisionally struck last month; and drawing up an agreed framework for the future trade relationship.

Both sides have contingency plans for no deal at all, but the expectation after last month’s draft agreement is that one will now be done. The easiest bit should be transition, talks on which are due to start this month. Britain accepts that this “implementation period” will prolong the status quo without voting rights, although a few knotty issues remain, such as how to set fishing quotas without any British say. Officials in London concede that it will be impossible to make transition legally watertight by the end of this March, but its principles should be clear enough to reassure businesses such as airlines that must plan a year ahead. The trickiest question of all may be whether there can be explicit provision to extend transition beyond the end of 2020, the EU’s preferred cut-off date, but that could yet be fudged.

Giving legal effect to the Article 50 withdrawal agreement will throw up more problems, not least whether payment of Britain’s exit bill can be made contingent on the future trade deal. The thorniest issue may arise from putting into treaty terms the agreement to avoid a hard border in Ireland. Britain thinks this commitment can be made consistent both with leaving the EU single market and customs union and with diverging from EU regulations. Yet few in Brussels (or Dublin) agree.

Indeed, regulatory divergence and how to manage it will be central to future trade negotiations. The EU is taking a tough line: if Britain leaves the single market and customs union and wants regulatory divergence, it can only have a deal that is mainly restricted to trade in goods. Michel Barnier, the EU’s chief Brexit negotiator, likes to argue that Mrs May’s own “red lines”, on ending free movement of people and escaping the jurisdiction of the European Court of Justice, point to a free-trade agreement little more comprehensive than those with South Korea or Canada. There can be no bespoke deal and no cherry-picking, the EU insists; and Britain must also maintain a level playing-field on regulation, competition and state aid.

Britain’s response is broadly to accept the trade-off that exists between regulatory divergence and access to the single market, but also to note that the country is unique in starting in full compliance with EU law. That should leave room for a bigger deal, accompanied by an agreed mechanism for settling disputes over any regulatory divergence. All the EU’s trade deals are bespoke to some degree, even those for countries like Norway that are members of the European Economic Area (and thus also of the single market). And when Mr Barnier insists that he cannot add financial services to the mix, the British government notes that exactly this was proposed in the EU’s abortive free-trade talks with America half a decade ago.

The next step will come at the end of March, when EU leaders will issue negotiating guidelines on trade to Mr Barnier and his team. Before Christmas there was some talk of Mrs May delivering a big speech about exactly what Britain wanted on trade, but this is now being played down. Already in her Florence speech last September she made clear that she was looking for a deal on a far more ambitious scale than Canada’s, including one that covered services as well as goods.

One hope in London is that, when the hard bargaining begins, the other 27 EU countries may not be as united as they were in the Article 50 talks last year. Germany and France are backing a tough line to protect the integrity of the single market, but several other countries besides Ireland are keen on a deep free-trade deal with Britain. In return, some of Mrs May’s red lines may be blurred a little. But in the end she cannot avoid the choice between insisting on extensive regulatory divergence or cleaving close to EU rules. Much will turn on her answer.

This article appeared in the Britain section of the print edition under the headline "Now for the difficult bit"

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