In the first of three pieces for LSE Brexit setting out the scale of the challenge ahead as Britain considers how to trade post-Brexit, Michael Johnson looks at the timetable and why using the terms ‘soft’ and ‘hard’ Brexit is misleading. He explains that the Single Market and the customs union are not the same thing.

Two years to reach initial agreement

Article 50 of the Treaty on European Union provides that a member state may give formal notice of withdrawal to the European Council at a time of its own choosing.  There is then a period of two years from that date to agree withdrawal terms.  This can be extended, but only by unanimous agreement between the withdrawing state and all the remaining members.

When an agreement is reached with the withdrawing member it is concluded on behalf of the EU by the Council of Ministers acting by qualified majority.  The European Parliament has to give its consent first.

If at the end of the two-year (or extended) period no agreement has been reached, the withdrawing state leaves with no agreement in place and accordingly no arrangements for special treatment in future.

Article 50 states that negotiations for a withdrawal agreement must take into account the “framework” of future relations between the withdrawing state and the Union, but there is no guidance as to what this means.  Until now it has been unclear whether the 2-year period is restricted to the essential “housekeeping” aspects of withdrawal, or whether the reference to a future framework means that it can also accommodate substantive negotiations on future relations. Some EU governments have insisted that negotiations with the UK for a future comprehensive agreement cannot begin until after Brexit has actually happened.  On the other hand the European Commission’s chief Brexit negotiator Michel Barnier said on December 6 that if the UK gave notice of withdrawal by the end of March 2017, negotiations for the withdrawal agreement would have to be completed by October 2018, to allow for ratification by the end of the 2-year period.  He implied that this process could cover negotiation on future relations, and not just housekeeping matters.

What sort of Brexit?

The debate about the UK’s future trading position both with the European Union and in the wider world is bedevilled by confusion of terms.  Talking in simplified language about “soft” or “hard” Brexit, as though these were the only two available options, is particularly unhelpful:

• “Soft Brexit” is used loosely to describe any of a wide range of possible options under which the UK might seek to secure from the EU some degree of continued preferential access to the Single Market, for example reciprocal tariff-free treatment for some or all of bilateral UK/EU trade in goods, together with arrangements for UK service providers to continue operating in the remaining EU member states (EU27) under EU regulatory regimes. Use of the word “soft” suggests that such an arrangement might be achieved relatively easily, but that is unlikely.

• “Hard Brexit” describes a situation where the UK would arrive at Brexit day without having concluded any special agreement on future Single Market access terms. UK goods exports to the EU would then be subject to the appropriate duty rates under the EU Common Customs Tariff (CCT), while UK service suppliers would potentially be excluded from automatic approval under some (but as yet unspecified) areas of EU regulation.  Use of the adjective “hard” implies that the EU might somehow punish the UK for leaving, but that is not necessarily the case.  Under this scenario the UK would be on a par with other major economies that do not have special or preferential trade agreements with the EU, currently including the United States, Australia, New Zealand, Russia, China and Japan.  Like them, it would trade with the EU post-Brexit on the basis of the rules and disciplines of the World Trade Organisation (WTO).

The EU customs union and Single Market

There is also confusion between the terms “customs union” and “Single Market”.  These are not the same thing:

• The customs union was established by the 1957 Rome Treaty as the basis of the then European Economic Community. It set up the CCT and a common regime for the treatment of imports which is binding on all member states.  It also covers a wider range of technical matters concerning trade in goods, reflecting the provisions of the WTO Agreements on such issues as industrial standards, technical barriers to trade, anti-dumping and anti-subsidy investigations and emergency safeguard action in the event of disruptive import surges.

• The Single Market is a much broader concept. Starting in 1986, and principally on the initiative of  Margaret Thatcher and the UK’s then European Commissioner Lord Cockfield, it set out to remove many internal trade barriers that remained within the EU, particularly in services.  It embraces the original customs union, but also takes in areas of EU-level regulation in matters such as (but not restricted to) industrial standards, health standards, regulation of services sectors, recognition of professional qualifications, justice and home affairs, transport and environment.

In the second piece in this series, Michael Johnson will look at the Single Market and the implications of the government’s ‘red lines’ on freedom of movement, the EU budget, an end to the ECJ’s jurisdiction over the UK and an unrestricted trade policy.

This post represents the views of the author and not those of the Brexit blog, nor the LSE.

Michael Johnson is a former trade negotiator for the UK government and advises on international trade policy.