So What If Theresa May Has Got Her Brexit Deal?

(Bloomberg Opinion) -- The U.K. and the European Union have reached agreement on the terms of their divorce. If the text is approved by Prime Minister Theresa May’s cabinet today — or at least doesn’t spark a wave of resignations — it might make it through to a parliamentary vote. It even has a chance of becoming The Deal we have all been waiting for.

Many “ifs” remain — not just in London, but when EU member states and the European Parliament weigh in. Still, let’s assume the agreement survives. British businesses, financial markets and consumers might well wonder: So what?

The withdrawal agreement may resolve, for now, the tricky question of the Irish border, almost the sole focus of attention in recent months. But none of the reportedly 500-page agreement is likely to say anything meaningful about the future U.K.-EU trade relationship. It’s hard to overstate the significance of this uncertainty.

The future relationship, remember, was the subject of May’s controversial Chequers plan that sparked two major cabinet resignations. Both Leave campaigners and the prime minister had promised that the U.K. would secure advantageous access to the EU’s markets after Brexit, and that this would be set out alongside the divorce terms.

May tried to stick by her plan, proposing a common rulebook for trade in goods and agricultural products, but the EU rejected it as an attempt to cherry-pick from its single market. For the EU, the free movement of goods, services, capital and labor come as a package; you accept them all or you accept some barriers to trade.

Ever since, the question of the future relationship — the core economic question of Brexit — has taken a back seat to the central political question of the Irish border. The Withdrawal Agreement will come with a political declaration that outlines the terms of the future relationship. But that declaration won’t be legally binding. The many pages of densely worded, technical text are likely to contain many different possible outcomes and little certainty.

The reason for that obscurantism is that it’s impossible to conceive of an agreement that would pass both the U.K. parliament and meet with the EU’s approval.

May has ruled out staying in the customs union and the single market, something which would provide maximum certainty and minimum disruption for businesses. She has also ruled out a bare-bones free trade agreement (another kind of certainty) as leaving the Irish border issue unresolved. As former EU trade commissioner Peter Mandelson put it in the Financial Times this week: “The very event that was intended to give Britain greater control outside the EU can only be implemented by ceding even greater control to it. No wonder the cabinet is struggling to agree a position.”

For anyone making investment decisions in the next few years, what they really want to know is: How long have I got? Only one part of the deal speaks to that.

In March, the EU and the U.K. agreed that the divorce would include a period of transition until Dec. 2020. During this time, businesses and citizens would have effectively the same rights as they do today. The big difference is that Britain would have no say over EU rules.

That still is nowhere near enough time to reach a full agreement on the future of U.K.-EU trade. Such an accord would need to be vastly more detailed and complete than the trade deal the EU and Canada reached in 2017 after seven years of negotiations. That agreement’s thousands of pages have very little to say about services, which comprise some 80 percent of the U.K. economy. The sheer amount of time the U.K. and Europe have spent discussing the status of protected goods such as champagne, Scotch whisky and Parmesan cheese is a clue to how long the broader trade deal will take.

The transition period is, of course, politicized too. Hardline Brexiters such as lawmaker Jacob Rees-Mogg said the transition would leave Britain a vassal state — subject to EU law but unable to influence it. That isn’t entirely true. Under draft terms, fishing quotas, for example, would be set with U.K. input. But that’s not the same as Britain enjoying the veto it currently holds over many decisions.

At the Brussels summit in October, both sides began to talk about an extension to the 21-month transition period. British negotiators had reportedly pressed for a longer transition during earlier negotiations, but the EU, knowing it was too short, held the concession for a later moment.

Any withdrawal deal that includes a transition is better than no deal and no time to adjust. But an extension to the period is an imperative for businesses. It’s the one clause they will be looking for while Westminster obsesses over the Irish border.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.

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