Why did Brexit negotiations almost unravel last week?
The first stage of the Brexit negotiations, focussed on Britain’s financial settlement with the EU, the rights of EU citizens in the UK after Brexit and an agreement on the border between the Republic of Ireland and Northern Ireland, started coming apart over the phrase regulatory alignment. The draft deal had proposed that the UK would consider keeping Northern Ireland in regulatory alignment with the EU internal market and customs union in order to avoid a hard border between Northern Ireland and the Republic of Ireland (which is part of the EU). The absence of a border has been integral to keeping the peace established by the Good Friday Agreement of 1998.
Days before this stage of the process was finalized, Arlene Foster, leader of Northern Ireland’s Democratic Unionist Party (DUP), which has propped up the Tory government with its 10 seats in the House of Commons, said Northern Ireland would not leave the EU on terms different from the rest of the UK.
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How were the talks salvaged?
After dramatic all-night negotiations last Friday, the UK said that in the absence of an agreement between the UK and EU, the UK would maintain “full alignment” with single market and customs union rules. At the same time, last week’s agreement said that no regulatory barriers would develop between Northern Ireland from the rest of the UK without the consent of Northern Ireland.
What next?
EU-27 leaders are meeting today and tomorrow and will likely confirm that the second phase of talks can begin, where a trade deal with the UK can be discussed. The British cabinet will also meet before Christmas to decide what the “end-state” of the UK’s relationship with the EU will be, after Brexit.
What risks exist?
First, how the UK handles regulatory alignment across the island of Ireland while at the same time not leaving the EU on different terms from Northern Ireland remains to be seen. Second, a prolonged lack of agreement within Ms May’s cabinet on the terms of Brexit is likely to negatively impact the process. The EU is unlikely to drive the process, with various member countries preoccupied with post-election coalition formation (The Netherlands and Germany), secession movements (Spain) and upcoming elections (Italy). Delays in finalizing a trade deal and the duration of the transition period to the post-Brexit regime after March 2019 will cause further uncertainty to companies with a UK presence, especially in the financial services sector. The UK’s Brexit Secretary, David Davis, and Prime Minister Theresa May, have already ruffled feathers in Brussels by indicating that the phase one agreement was not something that was necessarily binding. The European Parliament on Wednesday censured Mr Davis and reiterated that last week’s deal would have to be reflected in the withdrawal agreement.