There are two ways of looking at Brexit. One is confusing, the other is clear, and both are true. Many people in Britain would prefer not to look at all at Brexit. They would prefer to undo it by calling a second referendum, or contriving a slow legislative throttling that, like the assassination of an anti-Putin oligarch, leaves no visible marks. But Monday’s breakthrough—British and European Union negotiators have agreed a framework for a transition period that begins in March 2019—confirms that Brexit, as Theresa May said “really means Brexit.” So we have no choice but to look at Brexit.
The first way of looking at Brexit is that the 2016 referendum was a non-binding vote which, after a confusing campaign, produced an unconvincing margin in favor of an unclear policy. The British voted to leave the European Union. In a touching display of class deference, they left the work of defining exactly how they were going to leave to their betters, or at least their elected representatives, or even Theresa May, who became their prime minister in 2016 without being elected, and who failed to win a Commons’ majority in the election that followed. All this is quite clear, and highly confusing.
The second, clearer way of looking at Brexit is that the British want to go from being in the European Union with lots of “opt-outs,” to being outside the European Union with lots of opt-ins. Before Brexit, the British enjoyed the European Union’s open borders, and its tariff-free common market and customs union. But they negotiated opt-outs from otherwise compulsory Eurohabits like using the common currency, driving on the wrong side of the road, and speaking French. After Brexit, the British want to close the open borders that admit unwanted foreign workers and terrorists, while opting in to the free movement of money and goods. It’s simple, really, though of course it confuses the European Union. Yesterday, the British wanted it their way. Tomorrow, they still want it their way.
Are the British getting it their way in this week’s deal? The answer, I’m afraid, is complicated, though some parts are clear. The British negotiators, led by David Davis, and the European Union’s negotiators, led by Michel Barnier, have agreed that Britain’s departure from the EU should be managed through a “transition period.” The duration of that period has now been fixed. It will begin on March 29, 2019, and end on December 31, 2020.
Rabid, pull-up-the-drawbridge Brexiteers and punitive, let-them-eat-cake Europeans will not like a 21- month transition. Both would have preferred to insult each other with a quick, clean break. Remainers and those Europeans hoping that the British might change their minds will also be unhappy with a 21-month transition. They would have preferred a longer period. But the financial and business sectors on both sides of the Channel will breathe a shared sigh of relief. So will government economists and civil servants in Brussels and London.
In 2016, Britain exported £240 billion (approximately $336 billion) in goods and services to the rest of the EU; a figure equivalent to 43 percent of its total exports. According to British figures, other EU countries sold about £320 billion ($448 billion) in exports to Britain. These figures are debatable. Those who wish to minimize Britain’s reliance on EU trade point to the ‘Rotterdam Effect’, by which British goods are exported to European ports like Rotterdam, but only so they can be shipped outside the EU. Those who wish to emphasize Britain’s reliance on EU trade point to the EU’s method for calculating the value of its exports, which would give a higher figure; in 2015, £390 billion in exports to Britain, versus the British figure of £295 billion.
Either way, the British and European economies are interdependent. Some 80 percent of the British economy is service-related. The eurozone countries come out at least £80 billion ahead in their trading with Britain. Germany, the biggest euro economy, has the biggest trade deficit with Britain. There are good reasons for managing Brexit without spooking the markets. A transition period is good for all sides. Fixing one suggests that the parties are creaking their way toward recognizing common interests.
Britain has agreed that it will continue to be subject to European Union laws during the transition, but it won’t be allowed to vote in the European Union’s councils. In return, the European Union will allow British traders to continue using the free market and customs’ union, and British holiday makers to continue fighting drunkenly in the streets and discotheques of the Mediterranean littoral. This too seems eminently fair to the interests of both sides, unless you happen to live in a Mediterranean resort.
Between now and the end of the transition period, Britain and the European Union will try to agree new terms of trade relations. While this is going on, Britain will be allowed to negotiate trade deals with non-EU countries. EU members are not allowed to negotiate individual trade deals. Lifting this restriction was one of the selling points for Brexit. The EU’s share of global output is falling, whether we measure it by GDP or PPP (purchasing power parity). Currently, the EU creates about 15 percent of global trade, but this is forecast to decline to as low as 12 percent by 2030.
Meanwhile, the share of British exports that go to the EU has fallen from 54 percent in 2000 to 43 percent in 2016, and the value of its trade with non-EU states is rising. The United States is the largest single purchaser of Britain’s exports (from just under £50 billion in 2000 to £100 billion in 2016), and the second-largest origin state for British imports (from £40 billion in 2000 to £66 billion in 2016)._
It is true that in 2015 Britain exported more to Germany alone (£48.5 billion) than to the Commonwealth nations of Australia, Canada, India, Malaysia, New Zealand and Singapore combined (£32.8 billion). That confirms the risk of Brexit, and, now that Brexit is happening, the imperative for Britain to expand its trade outside the EU, and to secure free-trade deals as quickly as possible. This week’s deal allows Britain to do that. In January, Treasury Secretary Steven Mnuchin said that Britain was still at the “front of the queue” for a bilateral free-trade deal after Brexit.
If this all seems simple, it’s not. The terms of the British-EU trade deal remain to be discussed. To keep Brexit on schedule, the terms of the deal will have to be agreed by late 2018, so that national parliaments will have time to ratify it. And then there’s Northern Ireland.
The Good Friday Agreement of 1998 provides for a “soft border” between the Republic of Ireland and the U.K. territory of Northern Ireland. But the EU doesn’t want the border to become a back door into the eurozone for British exports, and the British don’t want the border to become a back door into Britain for illegal immigration. This week, Britain agreed that if no deal is agreed, the “backstop” will be that Northern Ireland will continue to be subject to EU rules after Brexit.
Theresa May has said that no British government would ever consent to this. So Britain now has to come up with an alternative—perhaps extending the current system, which uses technology to minimize border friction. The “backstop” is good for the EU state of the Republic of Ireland, but bad for the pro-U.K. Unionists in Northern Ireland. In the absence of a creative suggestion that satisfies the European Union, it will spell disaster for Theresa May, whose minority government is propped up from outside the Cabinet by the Democratic Unionist party of Northern Ireland.
Michel Barnier called Monday’s deal a “decisive step.” But he has also said that “nothing is agreed until everything is agreed.”_ So the breakthrough is a moment of clarity in a process that is still very confused. The negotiating path forward is clear, but the outcome is still unclear. Expect the clarity and confusion to really get going after the summer, when the negotiators start to run out of time.
