Brexit trade deal involves confronting Brexiteer taboos

The relief in Brussels was palpable. Despite its ambiguities and conditionalities, notably on Ireland, the phase-one divorce deal on key priorities reached last Friday has allowed us all to proceed at Thursday’s summit to phase-two discussions on the future relationship.

The phase-one agreement, along with ancillary agreements on issues such as Euratom or the status of goods in the market following Brexit, will now be completed and given binding legal standing in a divorce "withdrawal treaty" later in 2018.

It remains unclear, however, how the “no hard border” promises about Ireland, dependent as they are on the shape of an EU-UK trade deal, will be formulated in such a treaty – the treaty needs to be approved before Brexit, but the EU can only embark on “framework” discussions on trade by then.

Before these can begin, however, there must be talks on the likely two-year transition period following Brexit, when, by common consent, the UK will continue to behave like a member, benefiting as such and honouring all member obligations. It will not have a role in decision-making, however. The guidelines for these talks will be agreed on Friday.

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Free trade

Importantly, from an Irish perspective, the phase-one deal appears, as Taoiseach Leo Varadkar had hoped, to have set some "parameters" for phase-two discussions. The UK position seems to imply a willingness to negotiate a "softer" Brexit, with free trade and full regulatory alignment between the UK and the EU. Although, as the European Commission task force observed, "This intention seems hard to reconcile with the United Kingdom's communicated decision to leave the internal market and the customs union."

For the diplomatic “hard to reconcile”, read “impossible to reconcile”.

This is the nub of the problem. The EU has been willing to accept strong UK pledges in phase one, all the while remaining deeply sceptical about its ability to deliver on them. But there’s no point in looking a gift horse in the mouth, and the offer was accepted.

Things do not get easier now. As chancellor Angela Merkel has warned: "Brexit trade talks will be more complicated than the first phase", and council president Donald Tusk, with his fondness for pop songs, put it (cannibalising Neil Sedaka): "Breaking up is hard [to do], but building a new relationship is harder."

Not least of their problems, as frustrated ministers from the EU27 observed on Tuesday, is that we still do not know what model of future trade partnership the UK aspires to – except that it is “outside the customs union and the internal market”. The EU can’t prepare its own position, let alone open talks, until London gets its act together.

In essence, however, with various red lines drawn and Theresa May insisting on a “bespoke” model, there appear to be only two broad realistic options, characterised as “Norway” and “Canada”. Both, however, will require confronting serious taboos and some intellectual gymnastics to reconcile with both currently stated positions and new commitments on the Irish Border.

Single market

The first option – Norway, still the preferred Irish option – involves some form of European Economic Area (EEA) membership akin to the Norwegians, implying participation in the single market and almost certainly in the customs union, to address the issue of the Border.

That would mean London breaking with almost all the Brexiteers’ most cherished principles: acceptance of free movement of labour, abandonment of an ability to do bilateral trade deals with other countries, the automatic transposition of new EU regulations into UK law, and the payment of hefty fees to the EU as its share of the maintenance of an internal market level playing field.

Norway currently pays yearly contributions equivalent to more than 80 per cent of the per capita net UK contributions . . . so much for the bottomless pit of returned cash promised by the Brexit campaign!

The Canada option – it has recently signed a free trade agreement with the EU, Ceta, after seven years of talks – would not involve the same engagement with the single market, or the complete abolition of tariffs and quotas, and regulatory equivalence would be negotiated.

But a free trade deal, as Fabian Zulleeg of the European Policy Centre points out, “raises a number of questions for integrated supply chains and for particular sectors that are usually, at least partially, excluded from free trade negotiations: agriculture, fisheries, energy and, crucially, services, including financial services, and capital and data movement”.

Red lines

As long as the UK maintains its red lines, he argues, Canada – or "Canada plus, plus", as David Davis put it at the weekend to include areas like agriculture and services – may be the most realistic outcome on the table for the UK.

From an Irish perspective it poses huge problems, however. Unless all trade is freed by such an agreement, the need for border controls will remain. And as the EU upgrades its regulatory arrangements, there would have to be automatic mechanisms put in place to see them also transposed into UK law.

To meet the commitments made last Friday it would appear that any Canada-like deal would end up looking very like Norway.

Which is why so many people in Brussels say the circle will simply not square. As the song says, breaking up is hard to do.