The hard part has just begun, and British business needs clarity

Companies are relieved that trade talks between the UK and EU will start next year, but time is running out.

THE European Council announced on Friday that “sufficient progress” had been made on the three Brexit divorce issues — the exit bill, citizens’ rights and Northern Ireland — for negotiations about a transition period and the future of the trading relationship between Britain and the EU to begin in the new year. The sighs of relief emanating from the UK’s business leaders could probably be heard in Brussels. A failure to move on to the next stage would have resulted in a so-called “hard Brexit,” which would have been a worst-case scenario for the British economy.

The road to Friday’s announcement was fraught with difficulties and suspense. The two chief negotiators, Michel Barnier for the EU and David Davis for the UK, could initially not see eye to eye on any issue. Their most fundamental difference was that Davis refused to accept the European Council’s roadmap, which stipulated that a future trade relationship and a transition period could be negotiated only when agreement had been reached on those three divorce issues. The EU did not budge — nor could it. When you negotiate on behalf of 27 countries, the European Parliament and the Commission, you need a clearly delineated process or things risk unraveling. In each and every negotiating session Barnier asked for specificity and Davis for flexibility. This dissonance is as much cultural as it is about negotiating tactics. The British generally feel more comfortable with ambiguity than continental Europeans do; the Germans especially, and to a certain degree the French, cringe at the thought of lacking specificity.

There were many cliff-hangers. The expectation was that the two sides would be given the green light for trade negotiations in October. The drama intensified when May’s initial last-ditch attempt to resolve the issues in early December was thwarted by the Democratic Unionist Party (DUP) leader Arlene Foster, who could not agree on the compromise reached on Northern Ireland. The Prime Minister had to return to London empty handed.

May’s minority government is propped up by 10 votes from the DUP. Northern Ireland proved to be a bigger sticking point than the exit bill or citizens’ rights. The DUP insists that Northern Ireland’s relationship with the EU must be the same as the rest of the UK’s relationship with the EU, out of fear that any special treatment could pave the way for Northern Ireland to leave the UK. The difficulty is that provisions need to be agreed that will enable the border between Northern Ireland and the Irish Republic — the only land border between the UK and the EU — to remain open without controls and tariffs. And there is more at stake than just trade. The Good Friday agreement in 1998 ended 30 years of sectarian violence in Northern Ireland, ushering in a period of relative peace and prosperity, and an open border is implicit in its provisions. A few days after her return, the Prime Minister went back to Brussels in the middle of the night and an accord was finally struck — but the wording on Northern Ireland remains vague.

As if there had not been enough drama, cabinet members aired their dissenting views in the following Sunday’s newspapers and on talk shows. Davis incurred the rage of EU leaders when he suggested that paying the exit bill was contingent on a final trade deal and that all concessions made by the Prime Minister were non-binding. It seemed impossible, but the suspense grew last Thursday when the government lost a crucial vote on its EU Withdrawal Bill in Parliament. With the help of 11 Conservative Party “rebels,” MPs supported an amendment allowing Parliament to vote on the final Brexit deal after it has been negotiated — a blow for the Prime Minister.

One might be tempted to say all is well that ends well. Sadly that is not so, because the hard part of the negotiations has only just begun. Again, the EU and the UK disagree on process, with the former insisting that a trade agreement should be negotiated and agreed upon during the transition period and the latter wanting to negotiate both in tandem. The EU’s vision seems more realistic, because trade negotiations are time consuming and detail driven, and agreements run into the thousands of pages.

The aforementioned cultural differences regarding ambiguity and specificity will invariably remain. The EU leaders told May on Friday she had to come up with a specific vision of what she wanted the future UK-EU economic relationship to look like, because what they had heard so far was too vague. They gave her until March. The smart money is on the UK not being able to deliver by then.

It is in Britain’s interest to knuckle down and convey to the EU, and especially the business community, a clear and above all realistic vision of a future UK-EU relationship. The business community needs first and foremost to understand the parameters and duration of a transition agreement, because it creates time, space and some flexibility. Time is pressing: Business needs to make investment and staffing decisions, and they are in full swing drawing up their 20182019 business plans. The future of the relationship will inform when staff can remain in Britain and where they need to be moved to the EU. It will also be key to determining when it is wise to invest in the UK and when another EU base may be preferable. Business will make these decisions whether the UK is ready or not. They will want to see more than vague assurances.

QCornelia Meyer is a business consultant, macro-economist and energy expert. Twitter: @MeyerResources