Why the Brexit negotiations are about to get harder

By J.P.

THERESA MAY heads to the European Union summit this week hoping that her fellow leaders will approve the Brexit deal she recently struck in Brussels. The British prime minister’s deal wraps up three issues in the first phase of negotiations under Article 50, which governs Brexit: determining the rights of EU citizens in Britain; settling the British exit bill; and avoiding a hard border between Northern Ireland and the Irish Republic. If attendees at the summit agree, negotiations will then move to a second phase, on transition and future trade relations. Yet phase two may prove harder than phase one—and it will be conducted largely on the EU’s terms.

Negotiations began after Mrs May triggered Article 50 on March 29th. Brexiteers insisted on several red lines, including taking back control of laws, money and borders, and leaving the EU’s single market and customs union. Yet after some lengthy summer bargaining, the government has softened most of these positions. For instance, the European Court of Justice (ECJ) will keep a say in EU citizens’ rights for at least eight years after Brexit. Britain will pay an exit bill of some £35-39 billion ($47-52 billion). And the agreement on the Irish border commits the government, even in the event that no trade deal is reached, to retain full alignment with all rules of the single market and customs union that matter for the Good Friday Agreement (the accord struck in 1998 that largely brought an end to three decades of violence in Northern Ireland) and the all-island economy.

The pattern of conceding ground will persist in phase two. Mrs May’s cabinet is so split over Brexit that it has yet to debate, still less to agree upon, what future trade deal it wants. In contrast, the EU is preparing two sets of negotiating guidelines. The first will say that, in the time-limited transitional period of roughly two years that Mrs May has requested, Britain must observe all EU rules, including accepting new laws and ECJ jurisdiction. The second will say Britain faces two choices for a future trade deal. One is that of Norway, which has the benefits of full single-market membership but must observe all single-market rules, including free movement of labour, even though it has no say in them. The other is that of Canada, which has a comprehensive free-trade agreement with the EU that covers goods but almost no services, even though services make up 70% of the British economy and 40% of its exports.

This choice will test the unity of Mrs May’s government. Soft Brexiteers like Philip Hammond, the chancellor, want to cleave closely to the EU’s rules so as to maximise trade with it, especially in services. Hard Brexiteers like Boris Johnson, the foreign secretary, want to diverge from them and instead seek more trade with third countries. The phase-one deal to avoid an Irish border suggests that soft Brexiteers are more likely to win this argument, preserving more trade with the EU, but making free-trade deals around the world much harder to establish. Mrs May will find it difficult to reconcile the two sides—and accordingly hard to negotiate through phase two. The clock is ticking: under Article 50, Brexit is due to happen on March 29th 2019. Next year will be a tough one for the prime minister.