October 25, 2017
How to think about a Brexit baseline scenario
We don’t think we have ever come across a story as noisy as Brexit. There are still plenty of articles trying to explain why Brexit is a bad idea (or a good idea), and how it can still be stopped. Others, like the Telegraph, advocate that the UK governments walks out from the negotiations, and pursues a hard Brexit.
We cannot exclude accidents, but none of this resembles a reasonable baseline scenario - which is that Brexit will happen, followed by a transition and an association and trade agreement.
In this context we noted a very good contribution by Andrew Duff, who is one of the most reliable commentators on Brexit. He makes two important points. The first is that the outlines of a future association and trade agreement (but not the actual trade deal itself) must be included in the Article 50 deal. This is so because Article 50 says it explicitly. Duff says this will have to include a reference on the extent of single market access, the customs arrangements, and collaboration on internal and external security. It will need to set out the arrangement for the governance of this co-operation. In other words, phase two of the Brexit negotiations will focus on the really important issues. Duff’s list is very similar to that of the German foreign ministry. We expect the two sides to agree on a free trade deal for goods, and on co-ordination of foreign and security policy. We are more pessimistic about single-market access for various services industries.
Duff also makes an important point about the domestic UK debate. Pro-Remain Labour MPs seem to be under the illusion that the UK can remain in the single market after Brexit. This is not so because the EU insists that the transition period must be time-limited, and because the EU will always tie single-market membership to freedom of movement. Duff estimates that the rebellion against the government’s repeal bill - an essential piece of legislation that translate current EU into national law on Brexit - will pass because the pro-Remain rebels in the Labour and Conservative Parties are more than outweighed by the europhobes in the Labour Party.
There is one important amendment, however, where the government might face defeat - on the issue of the "meaningful vote" on the repeal bill. The concept makes no sense, however:
"No Article 50 treaty means no deal. There is certainly no Commons majority for no deal. The EU 27 will not concede that rejection of an Article 50 treaty means an automatic return to the status quo ante referendum, as if nothing had happened. There will be no second offer of Article 50 talks on a more lenient basis and no indefinite extension of the prescribed two-year timetable."
Duff’s political calculation is that the show-down in UK politics will happen after the Brexit treaty is in force. Labour will then try to table a no-confidence vote and trigger a general election. It could then fall to Jeremy Corbyn to negotiate the association agreement.