The British strategy on Brexit is only emerging very slowly, to the extent that many commentators believe prime minister Theresa May’s government has no coherent negotiation position at all. Now markets are reacting to suggestions from May that Britain will not be part of the European Union single market after Brexit.
What does this mean for the negotiations to come – and for Ireland?
1. The EU single market is a central part of the EU, allowing the free movement of goods, services, capital and people. The key point for the EU – as May said on Sky News at the weekend – is that Britain wants to be able to control immigration from elsewhere in the EU. But if this is to happen, the EU will not allow Britain to retain the other "freedoms" of the single market.
So May is accepting the inevitable here. Ireland would prefer Britain to stay in the single market, as it would make retention of the free travel area between the two countries easier, lead to fewer complications in relation to the Border, and pose a much lower threat to trade between Britain and Ireland.
2. UK chancellor Philip Hammond has floated the idea that Britain could remain part of the customs union, the part of the single market that allows goods to flow freely and without tariffs between European countries. This would be helpful to Ireland, as it would lessen the threat of tariffs (special import taxes) on Irish exports to Britain and on imports from Britain to Ireland. However, the EU would be likely to demand a heavy price from Britain for custom union membership.
3. Britain is due to complete talks on leaving the EU two years after they formally commence, meaning it would leave by around April 2019. May has said that talks on new trading arrangements could be completed at the same time. But this looks unlikely – a leading Canadian negotiator said over the weekend that a new deal could take a decade. So a big question is what will happen after Britain leaves but before a new deal is signed.
There will be talk of a transitional arrangement, and the British business lobby will push for something like single market membership to be retained while a new deal is worked out. However, this may run into the same problem: the EU will demand free movement of people in the meantime, and Britain does not want to concede this. So a transitional deal will be difficult to negotiate, particularly as the UK's Leave lobby is on guard against what Nigel Farage has dubbed a "half-Brexit". For Ireland, a smooth transition deal would be advantageous.
4. If Britain does leave the EU in spring 2019 without a transitional arrangement, the likelihood is that tariffs would be imposed using rules set down by the World Trade Organisation (WTO). British negotiators may try to avoid this, seeking to retain some trading freedoms. But UK analysts are already examining how the extra revenue from tariffs on imports into Britain could be funnelled back to support British businesses.
The problem with tariffs and customs duties is that they can take a heavy toll on trade, particularly in sectors such as food and engineering where, under WTO rules, they tend to be higher. The imposition of tariffs and duties would hit Irish exports and make imports more expensive. They would also appear to make some kind of Border checks inevitable on the movement of goods.
The future of the free travel area – and the freedom of Irish people to work in the UK and visa versa – would then be caught up in talks on the new British policy on immigration, and on how the EU reacted to this. This type of “hard Brexit” would pose the greatest dangers to Ireland.
