Any transition period must be time-limited and with the end goals clearly defined

Any transition period must be time-limited and with the end goals clearly defined

Two important factors from the last few days both figure prominently in Clean Brexit, the book I have co-authored with Liam Halligan. One is the implication of the German elections and the political environment on the continent; the other is the Prime Minister’s call in Florence for an implementation period, or transition deal.

The re-election of Chancellor Merkel should allow a focus on the importance of the future UK-EU relationship for German exporters. Ahead of the election, German industry avoided making this a political issue there, but behind the scenes there are deep concerns about the prospects for its exporters.

The UK will hope that by maintaining that we will leave the single market and the customs union, this will increase the chances of striking a Free Trade Agreement (FTA) with the EU – possibly during the two-year Article 50 negotiation period, but if not, soon after. Influential business lobbies of major exporting nations such as Germany, France and Italy will be mindful of the benefits of maintaining favourable UK trading arrangements in specific sectors.

The other key aspect of the German election result – the support for the AfD – highlighted some of the current problems at the core of the euro area. Parties challenging the pro-EU political consensus have now made headway in a number of countries, with their support having risen dramatically in recent years. Whether directly, or indirectly, this will impact the political dynamic on the continent, as we discuss in Clean Brexit. Populist anti-EU politicians are now well-established, tapping into deep-seated concerns among many voters. Such populist parties are unlikely to go away, particularly if the EU’s response is more centralising control.

The support for the AfD reflects some of these issues and also the disproportionate burden Germany has shouldered in terms of registering and accommodating asylum-seekers entering the EU in recent years. Concerns about migration, as well as the cost of bailouts associated with euro membership, are likely to shape German politics for years to come. Clearly the UK cannot control how other countries will approach future negotiations, but we can influence them. And that was part of the Prime Minister’s Florence speech.

In Clean Brexit we outline 25 negotiating principles that the UK should follow to make Brexit a success. Repeating that no deal is better than a bad deal is one of them. We also outline the future domestic policies we should follow too. One negotiating principle is to agree on a Temporary Transition Agreement for Britain (T-Tab) to help make Brexit as smooth as possible. The ‘for Britain’ reflects that the destination it takes us to is bespoke, and not off-the shelf like the EEA.

The UK and EU can minimise business disruption by agreeing a T-Tab. Subject to negotiation, this could comprise a ‘zero-for-zero’ tariff deal and mutual recognition agreements – to remain temporarily until they are updated or, better still, subsumed under a comprehensive UK–EU FTA. The T-Tab should also allow specific government support for certain domestic sectors.

A transition would give businesses and the Government more time to adjust to agreed future arrangements. It should help alleviate concerns most in those sectors highlighted by the Prime Minister in her Article 50 letter, namely the auto sector and those with integrated supply chains, and ease concerns and help planning horizons in the City.

Any transition period must be time-limited, with the end goals clearly defined. So T-Tab must only come into force once the new deal on long-term arrangements with the EU has been struck.

We suggested no more than two years, until March 2021, and are pleased that this is the limit the Prime Minister has set. For those who want longer, this still allows firms at least a full two years to respond and plan in the wake of our final deal that will be agreed before March 2019. Also, let’s not overlook that March 2021 would be close to five years since the June 2016 Referendum.

The UK would need to remain free of ongoing ECJ jurisdiction and not be bound by new EU rules and regulations during this transition. If not, one risk is that we would be subject to new rules that could reflect badly on our business. Also, being subject to EU rules would constrain our ability to work on future FTAs with the rest of the world.

Our FTAs with the rest of the world should focus on access for the services sector and investment flows, safeguarding of intellectual property rights and a commitment to remove tariff and non-tariff barriers (NTBs). But negotiating on regulations is a vital part of removing NTBs, particularly in the service sector. And three-quarters of our economy is services.

Any FTA negotiated before March 2019 that does not come into force until we have left breaches no EU treaty obligations. But we would not be able to negotiate on them if we are not in control of our regulatory agenda after March 2019 during any transition.

The UK already sells 56 per cent of its exports outside the EU, the majority to countries where the EU has no FTA. And we have tremendous future potential to take the lead on boosting global trade in services.

The UK’s share of exports to the EU is declining. The EU’s share of the world economy is declining too. And the single market in services does not work properly. It is thus not only important that we leave the EU on good terms – as the Prime Minister made clear in Florence – but also that we get our domestic economic policy and our future global agenda right too.

Clean Brexit by Gerard Lyons and Liam Halligan was recently published by Biteback. BrexitCentral readers can purchase the book for just £15 (a 25% discount) by entering the discount code “CBX15” at the checkout on the Biteback website.