Stage two of the Brexit talks: the rows to come

Last week, the UK and the European Union struck a first stage Brexit withdrawal deal. The EU decided that talks had made sufficient progress on the three key subjects of EU citizens' rights, Northern Ireland and the financial settlement such that, pending approval from the EU27 at the European summit starting today, talks can now move on to the future relationship.

But there's a problem. The EU-UK deal agreed last week contains multiple contradictions. That will lead to plenty of rows in the first few months of 2018, as "phase two" talks get going. The coming summit is expected to move talks onto the thorny question of transition—while any trade discussions will be put off until March. On both of these, there is scope for some serious fallings out.

Transition Rows

So, first up will be a transition row—likely to span January and February 2018. The UK is seeking a transitional deal so as to give space for government, business and other actors to adjust to being outside the EU. The idea is that Britain will after leaving the EU in 2019 enter a sort of "halfway house" before full exit later on.

The EU27 are most likely to offer a short two to three year transition. At the EU summit, guidelines will probably be issued insisting that during any such period, the UK must be fully under the EU's existing acquis of laws, regulations, judicial overview and more but with the catch that, since the UK will have formally left the EU in March 2019, it won't get any voting rights.

The UK government will probably want some exceptions from EU rules while cherry-picking the best bits of keeping to them during the transition. But this is unlikely to be offered by the EU27—nor would the European Parliament go along with it. Overall, the EU27 have made clear that during any transition, the UK must meet all rules of the EU single market and customs union. Theresa May is likely, in the end, to accept this.

What's more, if the UK does stay in the customs union for the interim period, the EU is likely to argue that it cannot at the same time negotiate future trade deals with other countries. All this will be hotly debated.

What else? Both Labour and the SNP would like to see a longer transition, perhaps four or five years—or even as long as it takes to negotiate a full future UK-EU27 relationship including a full trade deal—but that period of time is unlikely to be on offer.

The European Commission wants EU citizens who come to the UK during the transition to have full rights as EU citizens already here before March 2019 will, according to the EU-UK draft stage one deal. Cue a big Tory row over that. And on top of that, if the transition period goes into 2021, the UK will have to pay more for continued access to the EU's market on top of the divorce bill (and the EU will argue that it then gets no rebate on payments).

Trade Rows

Negotiations over the transitional deal will clearly be fraught. But the trade talks which follow, once we've settled the transition issue, will be even trickier. First, we will get a UK cabinet row over what sort of deal to go for. As Philip Hammond confirmed recently, they are, extraordinarily, still to have this conversation.

The EU may not issue its trade guidelines until the UK says what it wants—and anyway looks like holding back until March before it talks trade. Then there will be multiple EU-UK rows over issues such as regulatory divergence, customs, access for service sectors and more.

May's opening stance on trade is likely to be a request for almost full single market access, much as Britain has now. But with no ECJ, no budget payments, no free movement and different regulations (with perhaps some regulations the same in some sectors, and some with the same goals but different detail in others). The EU will effectively say "go whistle" on any such pitch from the UK.

May will want better services access than Canada. The EU will say go whistle on that too. The EU may look at regulatory equivalence for financial services, at third country access rules for aviation, but overall the EU won't open its services market in any substantive way to any third country—and that includes the UK.

The EU will be strict on how the UK proves "regulatory conformity" for its future exports to the EU. And it is likely to offer minimal or no mutual recognition of the sort the UK gets inside the single market. When Britain does leave the customs union, there will be serious border checks—just-in-time production will be a thing of the past. Seeing such a deal coming down the tracks, businesses will trigger relocation plans. And crucially, as such a deal starts to look likely from March onwards, then the Irish border row, which is connected to so many of these other important issues, will take off again. The fudge reached in stage one will start to come unstuck.

A EU-UK Canada-style deal will be "Canada-dry," without many add-ons. In the face of a hard UK-EU border that such a deal implies, the UK will then suggest "specific solutions" for the Irish border. The EU27 is likely to reject those if they are similar to UK ideas on using "technology" as the solution earlier this year.

Then we will have the meaning of "full alignment" row which is the promised backstop in the first stage agreement (as things stand, if no further agreement is reached on the Irish border, there will be full alignment between the UK and EU in the areas of North-South cooperation and the Good Friday Agreement so as to prevent a hard border).

The UK will say full alignment means "similar but different" regulations to the EU. It will also say full alignment only needs to apply in six areas of the Good Friday Agreement (despite the broader December deal): tourism, transport, environment, agriculture, health, education. But Ireland will say "all island economy" and "full alignment" (in the stage one deal) mean customs union and single market regulations are vital. How this stand-off will be resolved is quite unclear.

It will take until April to cover at least the first round of these rows. As things get tense, will Labour take any stance on the emerging Canada-style deal—or will it continue fudging its stance? Will the SNP call a second independence referendum in the face of a Canada-style deal or hold its fire?

As for the crunch question of how to keep the Ireland/Northern Ireland border open without a border in the Irish sea, there are few who think this circle can be squared. So what will give—and will the DUP pull the plug again?

Getting to the end of stage one of the talks will soon look like what it is—the easy bit.