Brexit Transition Deal Vital to Save Trade, U.K. Lawmakers Say

  • New trade agreement not possible in two years, panels warn
  • May must make ‘early decision’ on EU customs-union membership

Prime Minister Theresa May must strike a temporary transition deal with the European Union, British lawmakers warned, as they raised fears that a post-Brexit free-trade agreement will be impossible in the “extremely tight” timetable for talks.

May needs a “game plan” for a transition accord before she triggers the formal start of Brexit negotiations under Article 50 of the Lisbon Treaty, two committees on the EU in the upper, unelected House of Lords said in a joint report on Tuesday.

“It is unlikely that a bespoke EU trade agreement can be agreed within Article 50’s two-year period, so a transitional deal is vital for protecting U.K. trade, and jobs that rely on trade,” Sandip Verma, who heads one of the panels, said in a statement. “The complexity of the issues and the tight timetable require a significant scale-up in capacity in government departments and clear leadership.”

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May intends to begin the Article 50 process by the end of March, starting the clock on talks that are due to end within two years. After this time, the U.K. will leave the EU, even if no new trade accord has been reached.

The committee’s report will increase the pressure on the premier to seek a transitional arrangement to soften the landing when Britain leaves the EU, giving more time for negotiators to reach a long-term deal. While May has refused to discuss openly whether she wants such a temporary arrangement, business leaders fear that a so-called hard Brexit, in which all ties with the bloc end abruptly, would badly damage commerce.

Testifying to a committee of the House of Commons Monday, Chancellor of the Exchequer Philip Hammond said there’s an “emerging view among businesses, among regulators and among thoughtful politicians” on the need for a transition deal, and that’s it’s quite likely agreement will be reached on one.

‘Uncharted Waters’

The Lords report spells out the scale of the task the government faces in securing the kind of deal May says she wants from the EU, balancing free trade with “sovereignty” for Britain.

“The U.K. is entering uncharted waters,” the lawmakers said. “While there is an interest on both sides in reaching an amicable agreement, the U.K.’s withdrawal is an existential challenge to the EU.” The negotiating stance of the 27 members remaining in the bloc will be affected by elections coming up elsewhere in Europe “and is unlikely to be easy or accommodating,” the panels said.

The committees considered the main models for Britain’s future trading relationship with the EU. Membership of the European Economic Area would be the least disruptive option but wouldn’t give the U.K. control over migration or voting rights on European laws, they said.

Staying in the EU’s customs union would mean no border checks on goods but would prevent Britain doing trade deals on its own, the lawmakers said. Reverting to World Trade Organization rules, with no EU-U.K. deal, would have the greatest disruptive impact on trade, adding significant tariffs for goods and hampering trade in services, they said.

Bespoke Best

The shortcomings of these three models mean a “bespoke” free-trade agreement between the U.K. and the EU is likely to be May’s best option, the committees concluded, though there is “no evidence” that such a deal would give British-based companies the same access to the single market that they enjoy now.

The report suggested a temporary extension of membership of the customs union “could be one important element of a transitional arrangement” that would be needed to bridge the gap between the end of the two-year Article 50 process and the signing of a new free-trade deal. It called on May to make an early decision on customs-union membership in order to make progress on new deals with the EU and the WTO.

“Trade-offs will need to be made in whatever trading framework we eventually agree,” said Larry Whitty, another of the report’s authors. “The government is committed to curbing the free movement of people and the reach of the European Court of Justice. This is incompatible with full single-market membership.”

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