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LONDON — One fifth of the Article 50 Brexit negotiation period has elapsed, and Britain has nothing concrete to show for its troubles.
As more time passes, it increases the likelihood that the UK will end up inside the EEA, at least on an interim basis — thus staying inside the Single Market. That is the opinion of both HSBC Senior Trade Economist Douglas Lippoldt and Former EU Commission Director General Sir Michael Leigh.
Nearly five months have gone since Britain triggered Article 50, setting in motion the two-year legal deadline before which the UK must reach a trade agreement with the EU. If the country can’t reach a deal by March 2019 it will drop out of Europe in a “hard Brexit,” with no formal trade access to the continent. That scenario would have huge negative implications for the British economy.
As the sand continues to run through the hourglass — 20%, so far — serious minds are starting to wonder what the real logistics of getting a deal will entail. Almost everyone agrees that it is impossible to negotiate a comprehensive trade deal with 28 countries in just two years. (The truncated time period is the reason Prime Minister Theresa May's decision to trigger Article 50 before negotiations started was a huge strategic error.)
What most have not yet realised, however, is that although the Article 50 period officially has 19 months left to run, Britain only has another 13 to 15 months to get its deal. That’s because it takes at least five months to ratify a deal. In other words, Britain has already lost 42% of its negotiating time.
Former EU Commission Director General Sir Michael Leigh told Business Insider’s Adam Payne a few days ago that there are only 13 usable months left inside Article 50. That means it is almost impossible for Britain to get the standalone deal it needs:
"I doubt whether that would work. It would require prior negotiation. It's not just automatic. The details would have to be agreed. Even though conceptually it's not a bad idea, in terms of the 13 months which would remain from September 2017 to October 2018, I doubt whether the details of that could be negotiated,” he said.
The most practical thing to do would be for the UK agree to remain part of the European Economic Area after Brexit, at least as part of its transition from the EU. The EEA is a member of the Single Market but its countries have more freedoms than EU members. The EEA would likely say yes to the UK, Leigh believes:
"They would be happy. In a way, it would breathe new life into the EEA and EFTA (the European Free Trade Association). Britain is a far larger partner than any of them. Even Norway is a small country, never mind Iceland and Lichenstein. This is their main framework for relations with the European Union. For Britain to join the EEA in its own right, I think the members would welcome that."
Leigh served as the European Commission's Director-General for enlargement from 2006 to 2011. During that time was the European Union's chief negotiator with countries seeking to join become member states. He is now based in Brussels and is a senior adviser to American public policy think tank the German Marshall Fund.
He is not alone with that theory.
HSBC’s Douglas Lippoldt sent a note to clients earlier this month that said the UK has “less than 15 months negotiating time” left:
“In March 2017, the UK started a two year clock to leave the EU when it triggered Article 50 of the Lisbon Treaties. The EU ratification process for any accord will require perhaps five months to complete. This leaves less than 15 months negotiating time. And, as agreed by the UK and EU, the agreement to leave the EU needs to be substantially concluded before future EU-UK trade arrangements are negotiated. The exit agreement covers big issues such as resolution of UK-EU financial obligations, the Irish border with Northern Ireland, and the residency rights of UK and EU citizens. So time is tight for trade talks. The EEA could help to expedite the process.”
The problem, of course, is that it is not likely that Britain will be able to get a comprehensive trade agreement in just 15 months. Thus the EEA increasingly looms as the solution, Lippoldt says:
“If nothing else is done, under Article 50, the UK exit from the EU in March 2019 is automatic. Any other scenario would require active decisions from UK. An expedited and strategic approach to Brexit based around an EEA scenario might be a viable option.”
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