Everything you need to know about Theresa May's Article 50 nightmare in five minutes

Theresa May answers a question during a press briefing at the EU Summit in Brussels last October
Theresa May answers a question during a press briefing at the EU Summit in Brussels last October
Ian Dunt By

Right so this is actually happening now.

Yep. Theresa May isn't having any problems getting her Article 50 bill through parliament. She's on course to trigger sometime next month, probably in the second or third week to avoid coinciding with the 60th anniversary of the Treaty of Rome on the 25th.

And then it’s two years until we automatically drop out the EU?

Yep. And if things aren't sorted by then we're in for a world of hurt.


What are the chances of that?

Well that's why we're here. To figure it out we need to look at four things. First, what does May want? Second, what are her red lines? Third, what does Article 50 involve? And finally, what happens if she fails?

Well we know what she wants – to be out the EU, the single market and the customs union.

Half-in and half-out the customs union but basically yes, that's it. She also says she wants to maintain lots of the benefits of those arrangements, like tariff-free trade and zero bureaucracy on the border. So that's the goal: a smooth, fast Brexit where Britain keeps most of the benefits of being an EU member through a comprehensive trade agreement but gets rid of the bits it doesn't like.

Gotcha. So what are the red lines?

Freedom of movement, the European Court of Justice (ECJ) and budget contributions. She wants Britain out of all of them, but she has given herself a teeny bit of wriggle room in all three cases.

Really? She seems pretty hardcore.

Check the small print. May has conceded that the transition period between our current membership and the enactment of a new trade deal "might" involve negotiations over immigration controls. On the ECJ, the white paper says the UK will maintain "current frameworks" between the EU and UK after Brexit. This is basically to make a trade deal easier to negotiate – it's simpler to agree things between countries with identical legal requirements. What it means in practice is that British courts will recognise and reflect the rulings of the ECJ during transition. So we would not technically be under its jurisdiction, but the umbilical cord would remain intact. As for financial contributions, Brexit secretary David Davis told the Commons in December that the UK would consider maintaining some EU contributions "to get the best possible access".

So those red lines aren't worth the paper they're written on?

No, that's taking it way too far. May has set these red lines and clearly intends on keeping them. The whole direction of travel is clearly towards hard Brexit. But there is some wriggle room there. The success or failure of Article 50 will probably hinge on exactly how wriggly it proves to be when May sits down to hammer out the terms of the transition deal.

OK, so what does Article 50 involve?

There are three basic parts: the divorce, the transition deal and the final deal.

Why do you keep saying transition? I thought May was talking about some kind of "implementation" phase.

She is, but her 'implementation deal' has a slight problem: she won’t have anything to implement. Trade deals of the type Britain wants to sign take a good five years or so to negotiate, plus another couple of years to ratify. Article 50 gives her two years and she won't even get all of that. The first six months will be eaten up by French, German and Dutch elections and the last six months by votes on the deal in London and Brussels. Realistically, she has about one year of quality negotiating time.

So when she says "implementation" what she really means is "a lot more negotiation plus some preparatory work"?

Exactly. She's being political.

You mean she's lying.

Your words not mine.

Actually I am a fictional device designed to make this otherwise complicated piece more compelling to read, so they kind of are your words.

Let's crack on. In the best case scenario, May will be able to use Article 50 to agree the divorce, the terms of the transition deal and a broad one-side-of-A4 agreement on the kind of trade deal the UK and the EU ultimately want. She could then get that agreed in London and Brussels and fight a general election on delivering it. Then 2020 to 2025 would see the UK-EU free trade deal hammered out while we operate under the rules of the transitional deal, with the deal being ratified in time for the general election. In terms of Article 50, the broad future agreement is actually the easiest part. It’ll just say that both sides want tariff-free, frictionless trade and continued cooperation in things like security and intelligence. The real problems lie in the divorce and the terms of the transition, but we'll come to that in a bit.

What happens if there is no transition deal by March 2019? Or if she walks off in a huff from negotiations?

Bad things. This is the 'cliff edge' people keep talking about. The trouble is that all the systems we have for trade with Europe would cease to function overnight without anything to replace them. The way things are now, British products can go to the continent without tariffs or paper work. They're not stopped at the border to check if they're up to European standards or if they satisfy very laborious country-of-origin checks. About half the goods we send overseas go to Europe, but the rules mean they can travel as easily as if they were going from London to Newcastle. If we leave the EU with no replacement system set up, none of that will apply. Lorries will be queuing from Dover to London trying to get into the EU. Companies will start moving to Europe to avoid tariffs. Others will be hurt – or in many cases killed off – by complex bureaucratic requirements. As for the goods coming in to the UK, we need to pass over new powers to our customs authorities. Then we need to hire thousands of new staff and train them to deal with all this extra work. The new customs rules need to be put into the system for lawyers and officers to refer to on the first day after Brexit. It's a lot of preparatory work.

Sounds expensive

Yep, and that's just the bit the state has to do. Companies also need to prepare. Shippers who have never had to think about country-of-origin checks because they only sold into the EU are suddenly going to have to take a crash course in an extremely complex bureaucratic requirement. Firms which make the products which those shippers export will have to do the same. Even those companies which already dealt with this stuff for their non-EU exports will now have to level-up their capacity, because they'll be doing it for products going to Europe too.

So our exports to Europe will be damaged.

It’s not just Europe. We are part of the EU's trade agreements with dozens of other countries. In some cases, like South Korea, it's a full-on trade deal. In others, like China or the US, it's a limited mutual recognition assurance which eases trade across borders. In others, like Australia, it's a fiddly little deal on wine. If we don't work out how to remain part of them, our goods going all over the world will suddenly face costly bureaucratic stoppages and prices will go up for consumers in the UK.

So it would damage trade.

It would damage a lot of things. Take airports. Every day airlines in Britain send off data on their passengers flying to the US, Canada and Australia to the authorities in those countries for crime and terror prevention. Once we're out the EU, we need to pass over that requirement to UK authorities or passengers can't board those flights. If that's not done, day one of Brexit would see chaos at Britain's airports.

That's surely pretty easy to sort out though. Someone just needs to sign a bit of paper saying Britain now has to do it independently.

Yep, it's relatively easy. But there are countless little bits and pieces like this all over society – tiny cogs in the machine which have always moved along nicely but now require some legal work to keep them going. In airports alone you need to worry about the support network for flights, air traffic control and air safety agencies, among others. We also need to get everything sorted for environmental agencies, financial watchdogs, competition authorities and countless other bodies most of us don't think about on a day-to-day basis. In some cases we need to set up new regulators. In others we need to transfer powers to existing regulators, which have been underused. But even here you need to write the law giving them the power, get it passed through parliament, and then hire and train the people in those organisations to be able to oversee and enforce it. We're basically creating a new regulatory landscape, covering everything from the sky, to the land, to the sea. This all takes a lot of time. It's like leaving the house when you're go on holiday. There are lots of little things to remember and if you forget one - like leaving your passport in the sock drawer - the consequences can be severe. Oh and then there's Ireland.

Ireland?

Yeah. Imagine suddenly throwing up a hard border for goods, with the sudden imposition of customs authorities and product checks, using an understaffed and underprepared border authority and two larger partners on either side of the line demanding officials get tough.

Sounds bad.

It does. And now imagine doing that on an island recovering from decades of violence, most of it based on the very notion of whether there should be a border there in the first place.

Yeah, I get the point. The talks collapsing would be bad. But wouldn't we at least be able to fall back onto the WTO?

Eventually, but not during Article 50. The WTO has things called schedules, which lay out your trading relationship with other countries. Britain's is currently under the EU umbrella and needs to be extracted. That's a really complex process, especially on something called 'tariff rate quotas'. If any country exporting to the UK and the EU feels it has been hard done by, it can trigger a trade dispute at the WTO. And that includes the EU itself. Britain needs to do lots of careful diplomatic work to get them to agree to our schedules before we rely on the WTO system, or else those opening days of border checks will also involve dozens of trade disputes. Most experts believe this will take at least two years and probably considerably longer. Put simply: there is no emergency exit from Article 50. We need these talks to work.

This sounds like absolute chaos. There's no way May would walk away from the talks and allow that. It would be like Black Wednesday but ten times worse.

It seems unthinkable, but May does seem to be flirting with the possibility. She has said repeatedly that 'no deal is better than a bad deal'. This could be bluster designed to improve her negotiating position. Or she might really mean it. Many experts, including people who are usually very calm and restrained, are increasingly convinced she would do this.

But why? Surely her reputation would never recover.

That all depends. Look at her incentives. In certain circumstances, she might be asked to make concession by the EU which would cause anger among right-wingers in her own party, Ukip and the eurosceptic press. They might demand that Britain keep free movement during transition, for instance. You can imagine the Daily Mail headlines which would follow. If that happens, she might prefer to wrap herself in the Union Jack and storm off, whatever the consequences, rather than play it safe. It helps that the opposition don't look like they'd win an election, even in this scenario.

OK, so what are the expected crunch points? What could bring us to the point that she'd storm off?

Well things are complex and they develop their own dynamics during negotiations, so probably the crunch point will be something we can’t even foresee now. But from this point in time, there are two obvious ones: over the budget and over the transitional deal.

I see. So whether it's in a marriage or a continent, divorce is always the same - it all comes down to money.

Exactly. Except that in this case they want about 60 billion euros.

That's a lot of money. Did they just pluck that number out the air or what?

They put it together from the seven-year financial framework liability and pensions.

Well that sounds gripping. Let me just sort out this whisky and inject it directly into my bloodstream and I'll be right with you.

The framework is basically how the EU organises its finances. They don't do an annual system, like we're used to in the UK. They use a seven year period. The current one was agreed in 2013 and lasts until 2020. The agreement meetings are famously bad tempered, but when they’re done shouting they decide what needs to be done and how much money they're allocating to it. It might include a bridge in Poland, nuclear power plant being decommissioned in France, budgets for academic research – the lot. Those are all called 'commitments'. Payments come later, when the work is actually carried out. But for now, Britain has commitments for, say, a road building project in Romania in November 2019, even though the payment hasn't happened yet.

And how much does all this add up to?

About 15 billion euros a year, although we get about six billion euros a year of it back in structural funds for the regions, research budgets for universities and farming subsidies. Everyone accepts we'd be paying that until March 2019, when we leave. But the EU is likely to argue that we are under contract to pay it until the end of the framework period – so that's another three quarters in 2019 and another four in 2020. This part gets us up to nearly half the expected 60 billion euro bill.

OK I'm with you so far.

The thing is, that seven-year period has a three-year add-on attached to it.

Of course, because nothing can be simple.

Imagine there's a British professor who gets an EU research grant lasting five years. It might be agreed in 2016, but the bill only arrives in 2021, a year after the funding period ends. So Britain might be liable for future payments for three years after 2020. At some point the Commission will present a gross figure and we'll be on the hook for our share, which is around 12% to 15%.

So in reality the current funding period lasts until 2023 and we're on the hook throughout.

That's pretty much the EU's opening position. But at least these demands go away relatively soon. The pensions aspect lasts forever. Or at least until a lot of EU employees pass away.

Charming. This is our pensions liability for the people working in the European Commission and Council and all that I take it?

Exactly. We have to contribute to the payments towards current and previous staff. The capitalised value of EU pensions commitments are currently around 62 billion euros, so we’d need to work out our share of it to establish our gross future liability.

How do you do that?

There'll probably be a disagreement there. Analysts estimate that about four per cent of current EU employees and eight per cent of its pensioners are Brits. The UK might argue that it should pay according to those figures. The EU argument is likely to be that once someone starts working for an EU institution they become a non-national and their precise citizenship is irrelevant. So Britain's liability should be the same as elsewhere: 12% to 15%. That gets us about another nine billion euros and into the ballpark area of the expected 60 billion euro figure.

They're going to have a massive barney about this aren't they?

They are. Both sides are already testing the legal waters to see if that gives them any leverage. But realistically, where would that end up? The ECJ? That doesn't sound tenable. Maybe the International Criminal Court? Ultimately, it doesn't really matter. By the time it came to that, Britain would have stormed out. The talks would have fallen apart before they even got to trade negotiations.

Could it really come to that?

It's possible. The Europeans are making some seriously hardline noises about the budget and it's not just posturing - there is real anger there.  Britain is a net contributor to the EU budget. Brexit means there's a really quite significant chunk of missing funding to deal with. To put it in crude terms: either countries like Poland get less or countries like Germany pay more. Or probably a bit of both.

Not good.

It gets worse. The way European negotiations work is that everyone has a massive barney and then at the eleventh hour they kiss and make up and sign something. Well the first skirmishes for the next funding period usually start a couple of years before a new deal is signed. And that’s…

Oh God.

Next year. 2018. Just after the German elections. Right when we're getting into the meat of the negotiation. That's when the anger over the funding consequences of Brexit will be most acute. Whether you're a German paying more in or a Pole taking less out, you're going to blame the Brits. That means they may refuse to budge on the budget. And back home, May might find that the hardcore Brexit coalition of backbench Tory MPs, Ukip and the tabloids makes it politically impossible for her to accept the EU bill.

It is a big number, to be fair.

Sure, but look at it in context. In 2014, the government relieved Royal Mail of £38 billion of pensions liabilities plus a £10 billion deficit in preparation for privatisation and barely anyone even remembers that happened anymore. The difference here is that Brexit is an ideological battlefield which everyone feels personally invested in. But yes, there is an incentive for May to walk away here, say 'to hell with them', and present herself to the eurosceptic press like some sort of Boudica fighting valiantly against a foreign tyrant. It’s unlikely, but it is possible. There are many in her party, like John Redwood and other die-hard Brexiters, who would encourage her to do this. Or, more likely, it's possible that the budget issue is sorted, but that the anger over it goes on to poison the other parts of the negotiation.

Why, what else is on the divorce agenda?

The rights of EU citizens in the UK and UK citizens in the EU.

There's no danger there though, is there? Both sides want that sorted amicably.

It is the easier bit, but it is not necessarily open-and-shut. May says she wants to guarantee EU citizens' rights, but that might just mean their residency rights. The EU actually offers all sorts of rights to European workers in other member states, like on welfare entitlement or NHS use. Will those rights also be guaranteed? She also needs to be clear about when this rule comes into force.

What do you mean?

When is the cut-off point? From the date of the referendum? Or the day Article 50 is triggered? Or the day of Brexit? Or at the end of the transition phase?

What, in 2025? Don't be silly.

It's a possible EU demand. Britain wants to secure existing EU rights but it will be wary of setting up a future date for the cut-off point. The concern is that we could see a sudden wave of people coming over to secure lifelong British residency and health care rights just before the deadline. That would be a nightmare for a government intent on reducing numbers and the tabloids would obviously have a field day.

Do we know which way May will go on this?

A lot depends on where the immigration numbers are. If they start to reduce over the Article 50 period some of the intensity might be sucked out of the issue. If not, it could turn into a crunch point.

OK, so that's the divorce. Once that's done they'll talk about the transition phase, right?

Exactly, and here a whole load of new problems present themselves.

Oh good. I really felt there weren't enough problems before.

Yes it was all so light-hearted and care-free. The problem May has in negotiating the transition is that the dynamics of negotiation are against her. Let's say it takes a few months to sort the budget. She now only has about six months to agree a broad trade agreement before it needs to be voted on in Europe. Without a transition deal, Britain is up against the wall and Europe knows it. The longer the talks on budgets carry on, the more urgent the requirement becomes.

Surely the cliff edge would hurt Europe too?

Absolutely, but it would hurt it less. About half our trade goes to the EU, while only around 12% of their trade comes to us. They have an obvious upper hand in terms of size.

So the transition is more valuable to the UK than the EU?

Exactly, which means that the EU is likely to hold a hard line on what kind of transition it wants.

Surely everyone wants the same type.

Not quite. Britain wants the transition arrangements to be bespoke. May is prepared to compromise on immigration systems and the ECJ, but she's probably not prepared to abide by all the EU rules during this period. The EU will feel differently. They will say that if Britain is getting the advantages of single market membership during the transition, it will have to abide by the responsibilities applied to the other countries which enjoy them.

Basically Britain is defined by wanting bespoke arrangements and Europe by wanting a one-size-fits-all approach.

Exactly. Europe isn't keen to dedicate a lot of negotiating time to hammering out its details. It will probably be willing to extend the tariff and customs arrangements during the transition, but in exchange it is likely to ask Britain to similarly extend the conditions of EU membership, including free movement and ECJ jurisdiction.

No way will May accept that.

Probably not and the Tory-Ukip-tabloid Brexit coalition won't either. There is a fundamental disconnect between what is political palatable in Britain and what is politically palatable in Europe. And that could bring us to the cliff edge.

Are there any plans to tackle this?

Yes. The British team will be hoping to de-sequence and multi-layer the talks.

Dear God what are you talking about?

They will want to talk about everything all together – divorce, transition and final deal. Europe will likely say that they must be done in order: divorce, then transition, then final deal.

Why?

It gives them more leverage. As we saw earlier, the later it gets, the more strength they have. As for the multi-layering, Britain will probably want to hold high-level political talks, with all the likely bust-ups that would involve, while customs and standard recognition bodies simultaneously hold talks at a lower level. Those guys need to get along and work closely together to make sure their systems are in-sync for any future deal. The thing is, Europe doesn't have to agree on that. Like so much else, it requires some goodwill.

I get the sense there isn't much of that about.

Nope, not right now. But that may change. Or something might happen to weaken one side's stance. If Marine Le Pen wins in France or Trump really turns his fire on Brussels, the EU might become more afraid of the cliff edge and go the extra mile in trying to make Brexit work. Or perhaps it will feel that it is in a fight for its very existence, meaning Britain must be shown to have a hard time to set an example. There are a lot of known unknowns.

None of these options sound fantastic.

No, and there are other big variables too. British consumer spending has been surprisingly robust since Brexit, but there are signs of an over-reliance on private borrowing. Meanwhile, the value of sterling seems reliant on the impression of certainty about Brexit – just when we're about to enter a highly uncertain period. It could crash further. If talks go really badly and we crash out, some analysts believe it could even reach parity with the dollar. That will obviously lead to much higher prices. All these factors may turn the public against Brexit back home or even lead to demands that we reverse Article 50.

I thought that was impossible.

There's a court case on this right now, but most legal experts think it can be reversed. And anyway, Europe would likely be open to Britain changing its mind and could pull a few legal strings if required. But an economic chill wind and disastrous negotiations won't necessarily encourage people to reverse course. They could be used by hard Brexiters to convince the public that the dastardly Europeans are trying to punish Britain and push us towards a more extreme policy. Or they could lead to a reduction in immigration, which might relax people's concerns and make them more open to a transition which involved free movement. Who knows? Two years is a long time.

So uncertainty is basically the most optimistic thing you've got to say.

When things look bad, uncertainty offers hope.

Thanks. Did you get that from a little book of wisdom?

Yep. I'm planning to barter it for canned goods in the post-Brexit wasteland.

This article is based on conversations with Catherine Barnard, professor of EU Law at the University of Cambridge, Anand Menon, professor of European Politics and Foreign Affairs at King's College London and director of UK in a Changing Europe, Steve Peers, professor of EU, Human Rights and World Trade Law at the University of Essex, Amy Porges, adviser and government representative on WTO negotiations and litigation and free trade agreements, John Springford, director of Research at the Centre for European Reform and other politicians, trade negotiators, civil servants and officials in London, Washington and Brussels who asked not to be named.

Ian Dunt is the editor of Politics.co.uk. His book - Brexit: What The Hell Happens Now? - is available now from Canbury Press.

The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.

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