Mind the gap: the key issue to watch in Brexit talks

A "transitional arrangement". Could it sound more dull. It has the ring of a bit of routine bureaucracy, something short-term and insignificant. But for Britain – and Ireland – this is going to be one of the key phrases of 2017.

Whether there is a transitional arrangement, and what it looks like, will be the bellwether for the Brexit talks that we all need to watch. It will be one of the most contentious phrases of the year.

Britain is due to start formal talks with the other EU states at the end of March on the terms under which it will leave the EU.

These are due to be wrapped up and approved in two years.

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However, by that time it is highly unlikely that Britain and the EU will have agreed on the terms of their relationships for the future.

The exit talks will focus on the terms under which Britain will leave – future arrangements for trade, immigration, security and so on are likely to take much longer to negotiate and approve.

This presents a problem. Britain is likely to leave the EU in March or April 2019, long before any future arrangements are sorted. So what happens in the meantime? How are relationships to be managed after Britain leaves the EU, but before a new arrangement is in place?

Framework

This is where our transitional arrangement comes in. It would put some framework in place under which things would work before the long-term issues were sorted.

It sounds like perfect common sense. Indeed, senior officials in Dublin have been talking about this transitional question since immediately after the vote.

It is a vital point, but symptomatic of the chaos in the British government that it is only starting to surface there now.

Entirely predictably, it is already building into a huge row, with the Brexit campaigners fearing that transition is a tactic to delay a real exit from the EU, and possibly even a device that could mean a “Hotel California” type Brexit, where Britain checks out of the EU, but never actually leaves.

Leave campaigners point to Norway, where EU membership was voted down twice in referendums, but the country has become a member of the European Free Trade Area giving it trade access to the EU, but obliging it to make financial contributions and accept many EU rules, including freedom of movement. This is anathema to the Farage wing of British politics, which has already condemned the idea of anything that might appear to be a "half-Brexit."

The trouble is that a “ full” Brexit could bring massive disruption – and quickly.

If Britain leaves the EU without a transitional deal early in 2019, there will be massive upheaval, with serious consequences for Ireland as barriers to trade appear and huge uncertainty takes hold about what comes next.

A transitional arrangement would avoid this, spelling out how trade in goods and services would continue until a long-term deal was worked out.

Freedom of movement

It would seem a sensible way to manage things. But in the world of Brexit politics, sensible doesn’t cut it.

If Britain wants favourable trading arrangements in a transitional phase, then Europe is likely to insist that it allows freedom of movement of people to continue, too.

And as immigration was seen as a key factor in the Brexit vote, this pushes the UK government into a corner.

Already the English language is being mangled to try to find a way out. With the idea of "transition" becoming toxic, Theresa May has talked about an "implementation phase", while the Confederation of British Industry has referred to it as an "interim arrangement".

To complicate things further, negotiators on the British and EU side have both said that a transitional arrangement might only be possible if it was clear what the final destination was going to be.

But even working out in two years what a final deal might potentially look like would be hugely politically, legally and administrative complex.

If there is no transitional deal, however, things could get messy very quickly. This is the “cliff-edge” that British business has been warning about – and walking off the edge of a cliff is never pretty.

The likelihood is that tariff barriers, special taxes on imports, would be imposed on goods moving between Britain and the EU.

Huge regulatory issues would immediately apply, with Britain subject to oversight by some 38 EU regulatory bodies and a need to put new regimes in place.

Potential disruption

British chancellor of the exchequer Philip Hammond has warned of potential financial disruption due to regulatory uncertainty in the City and financial services.

And Britain and the EU would need to impose a whole new range of customs checks at trading ports, potentially leading to long queues and delays.

For Ireland the potential cost could be significant, particularly in trade in sectors such as food and drink, which would be subject to heavy tariffs and other disruption.

And whatever Theresa May and Enda Kenny have said, it is hard to see how customs barriers at the Irish Border could be avoided.

No transitional deal would, in short, mean a hard Brexit, and the harder it is, the worse it will be for Ireland.

In a sensible world, this would all be negotiated and avoided.

However, on one side we have the toxic tensions in British politics, while on the other we have elections coming in the Netherlands, France and Germany.

Politics will rule, and economics will take second place.

This issue of what happens in the time after Britain leaves the EU and before a new deal is done will be central.

As they say as the train is pulling into the station, “ mind the gap”.