Thread by @pmdfoster

.@MichelBarnier : "no possibility" of a UK-EU trade being concluded by #Brexit in March 2019. This is not news, even to @DavidDavisMP

So what can UK realistically get next year?

And does that tell us about UK strategy?

1/thread

First. What is possible.

In January talks will resume and the UK will focus on transition. This is DexEU and Treasury focus.

They will strike an early agreement on this, even pushing to find a way to formalise it prior to the Withdrawal Agreement being ratified /2

The EU will likely reject the attempt to formalise transition deal in some early, focusing instead on the following:

- drafting withdrawal agreement
- creating dispute resolution mechanisms on Money etc
- drafting a "political declaration" on trade/future relationship /3

What will that legally non-binding "declaration" on trade/future amount to?

Well. EU side says it will be a framework declaration, covering trade, security, climate, foreign affairs and all other areas of co-operation. Say 20 pages? 50 pages? 100 pages? No more.

/4

Compared to a full-fledged trade deal (1000's of pages) it's a doodle on the back of a fag packet.

Davis/May say this is way short of what they want. At the very least, they want a much more detailed framework that can be set out stall for trade negotiation. Or do they? /5

Given fractious politics in UK, might a broad commitment to a "deep and special partnership" [EU source: "adjectives are free"] be tempting?

It would mask limitations "Canada Dry" deal. It would get May over the line - recall #Brexit has always been about Tory party management/6

At the heart of this question is whether "no Brexit worse than a bad Brexit" ?

Per HM Treasury forecast, Canada dry would knock 4.6%-7.8% of UK GDP by 2031. Or lower tax receipts of £36bn, equivalent to 8p on income tax.

Of course UK trade negotiators will hope to do better /7

This might be tough in a trade negotiation that opens on April 1 2019, after Article 50 deal is done - and UK has signed up to a binding deal on money etc.

The UK will have no leverage. The EU can take its time over a deal that favours goods over services /8

Davis/May know this - so their leverage is in Article 50 period, when they still have threat of with-holding money.

But EU doesn't believe UK will take stand - going by last week - the important thing will be to get over line. And the EU will help them. /9

Put another way, the British frog will be boiled slowly.

At the end of the two-year transition, with an FTA deal still in a rudimentary state, the UK will find itself over the same barrel as in phase 1 and phase 2.

The cliff-edge will look no more appetising then than now /10

The UK will either have to extend transition (more rule taking, more payments, more free movement)

Or perhaps, with fanfare, there will be a portion of the deal, a basic market access agreement, that can be implemented - and again spun as 'victory'. /11

By this time, as the negotiations progress, the EU will have more advanced deals (like Canada, South Korea..Japan, Australia, New Zealand etc) in place with water-tight MFN clauses that mean they can't offer services, or they'd have to offer it to others. /12

Even as a member, the UK struggled to force the EU cartel to open up its services markets. It is unlikely to have much success in a one-sided trade negotiation as a third country.

The UK will look to offset cost of new EU-UK frictions elsewhere /13

But a US deal, for example (per HMT forecast) would only create annual gains of 0.3% GDP, and - on agriculture for example - would require the UK to accept agricultural produce, for example, that would trigger fresh barriers to trade with the EU /14

Be in no doubt Mr Davis and Mrs May know all this, the question is whether they can do much about it.

If phase one is any guide, you'd have to say that in a world of unenviable choices, it is going to be difficult.

This is the UK risk now it seems to me. /15

Not a catastrophic no deal, since May sued for peace in phase 1, so why not in phase 2?

But a grinding exit, costly at the margins, that stirs up the same frustrations that led to Brexit in the first place.

This would be a bad outcome for EU too, if they could see it. 16/ENDS