Media  Global Economy  2019.05.07

What will happen with the Brexit delay? - Will a six-month extension avoid a "no-deal exit"? -

The article was originally posted on Webronza on April 12, 2019

The European Summit meeting on April 11 decided to extend the Brexit deadline of April 12 to October 31. This has allowed the UK to avoid a "no-deal Brexit" that could have happened on April 12. But the possibility of a "no-deal Brexit" has not disappeared. That possibility may be higher now.

To help predict where Brexit will go, let me review the recent developments at the European Summit meeting.

Weary EU leaders

Media coverage of Brexit has tended to focus on developments in the UK, but developments in the other party, the EU, as well as its wishes, are of no less importance. Whether an extension of the deadline can be approved and to what extent, are up to the EU to decide. All the UK can do is to express its wishes.

Prior to the European Summit meeting, EU leaders--including Donald Tusk, Permanent President of the European Council (tantamount to EU president), the EU's supreme decision-making body made up of the leaders of the member states; Jean-Claude Juncker, President of the European Commission, the executive branch of the EU; and Michel Barnier, European Chief Negotiator for Brexit--maintained that they would not approve an unconditional extension. They called on UK to be specific about the reasons for such an extension if it is to be approved, including what it wants to do (approving May's deal with the EU, revoking Brexit, etc.) and what it plans to do (dissolving Parliament and holding a general election, calling a second referendum, etc.).

The EU leaders made the sound case that it would be outrageous if London, which had complicated matters thus far, thought it should be given carte blanche.

British Prime Minister Theresa May requested that the withdrawal deadline be extended to June 30. However, it seemed that it would be impossible to pass May's deal through British Parliament--which had rejected it three times--and make the necessary legislative arrangements by this deadline. Tusk said there was "little reason to believe" that it was possible.

Negotiations with the opposition Labour Party had just begun. It seemed that the time was too short for the whole process--reflecting the negotiation outcomes in May's deal, negotiating such a compromise deal with the EU, and passing a deal that would have come out of such negotiations through UK Parliament.

Under these objective circumstances, it would be impossible to achieve a Brexit in agreement with the EU (as opposed to a no-deal Brexit) by the June 30 deadline as requested by May.

In that case, the EU would have to hold a summit meeting again to decide on yet another extension deadline. The original deadline of March 29 had been extended already. A third extension would never be acceptable.

President Tusk and other EU leaders must have thought, "we don't want to be at the mercy of the UK any longer. Enough is enough. We're fed up." These EU leaders thus intended to propose that Brexit would be extended by 12 months and put in place instantaneously if UK Parliament approved it before the deadline.

Macron was more fed up

French President Emmanuel Macron was fed up more than any of these EU leaders; I could almost hear him say "J'en ai assez."

Macron was angry that Brexit had deprived the EU of precious time for much needed EU reforms. He was originally opposed to the previous extension as well but coaxed by German Chancellor Angela Merkel into backing down.

Historically, France rejected the UK's accession to the EU twice when Charles de Gaulle was President. As an admirer of the charismatic leader, Mr. Macron must have thought, "If the UK wants to leave, then it should leave, with or without a deal. Don't trouble the EU anymore!"

For Ireland, a no-deal Brexit had to be avoided at any cost. The UK neighbor feared that consequent border controls could revive the Northern Ireland conflict.

Avoiding such a scenario required giving the UK enough time. That was why Ireland supported Tusk's proposal. If anything, it would be more accurate to say that Tusk made the proposal after taking Ireland's position into account.

Before the European Summit meeting, 17 out of the 27 EU members--excluding the UK, which has no voting right on this matter--were leaning toward admitting a long extension of about 12 months in line with Tusk's proposal. This proposal would have been rejected if one member had opposed, as the European Summit meeting requires a unanimous vote for its decision-making. Unless France's Macron had acquiesced, the UK would have been given only a short extension or, at worst, no extension at all. In either case, a no-deal Brexit could not have been avoided. It is worth adding here that Macron was not alone in opposing a long extension.

At the end of the day, Macron must have had no choice but to take account of Ireland's wishes. EU leaders finally agreed on an extension of six months (until October 31), not 12 months as Tusk proposed. The idea was to achieve Brexit by October 31--when the term of European Commissioners, which are tantamount to EU ministers, expires--and relaunch the European Commission without the UK. If the UK approves the Withdrawal Agreement before that date, Brexit will take place on the first day of the following month.

The extension comes with a number of conditions. One condition, summarized in the next paragraph, reflected two facts. First, Brexiteers such as Mrs. May took the position that the UK would not participate in the upcoming European Parliament elections, as the country would leave the EU in time. Second, if the UK remains in the EU until October 31, it has no choice but to take part in the elections under the EU law. The condition is summarized as follows:

If British Parliament ratifies the Withdrawal Agreement by May 22, the UK will not need to participate in European Parliament elections that start on May 23. If the UK fails to ratify the agreement by that date and take part in the elections from May 23, it will leave the EU without an agreement on June 1.

Because a ratification by May 22 is quite difficult, participating in the European Parliament elections is effectively unavoidable. This represents a major defeat for British Brexiteers. Another condition is that the UK shall refrain from any measure which could jeopardize the attainment of the EU's objectives, in particular when participating in the decision-making processes of the EU. Yet another condition is that there can be no renegotiation of the Withdrawal Agreement.

Delivering a smooth and orderly Brexit or remaining in the EU?

Given the developments described above, a further extension beyond the end of October should not be expected.

Macron would reject any further extension request from the UK. For Macron, it is far more important to bring order to a country disrupted by the yellow vests movement by stressing the importance of EU reforms, no matter what confusion a no-deal Brexit will bring to the UK and Ireland.

The strained relationship between Merkel and Macron over the latest extension needs to be fixed. As such, Merkel will unlikely serve as a mediator between Macron and May. For her, France, which has supported the EU jointly with Germany, far outweighs a leaving UK.

In other words, the extension is just a momentary sigh of relief for the UK. What options remain for the UK as long as it is dead set against a no-deal Brexit?

Available options can be identified by examining the specifics.

The EU's rejection of any renegotiation of the Withdrawal Agreement means that what May calls a "smooth and orderly Brexit" as opposed to a no-deal Brexit can be achieved only when British Parliament approves May's deal with the EU. This deal was rejected three times, however. For many, the deal seems to have little chance of ratification.

Yet May's deal is made up of two parts: the legally-binding Withdrawal Agreement and the non-legally binding Political Declaration on the future relationship between the UK and the EU. The Political Declaration provides only guidelines for the UK to negotiate with the EU in the transition period up to 2020. What the EU refuses to renegotiate is the Withdrawal Agreement, a point Tusk noted at a press conference following the summit meeting. This allows for flexibility on the part of the EU with regard to the Political Declaration. The EU can be all the more flexible if the request from the UK is convenient for the bloc.

In its negotiations with May, the opposition Labour Party is demanding that the UK remain in the EU customs union even after the withdrawal. This demand concerns the Political Declaration, which sets out the framework of the future relationship, not the Withdrawal Agreement.

On top of that, it is convenient for the EU if the UK remains in the customs union that allows for sharing external tariffs in the future as well, rather than just concluding a free trade agreement (FTA) with the EU. Remaining in the customs union will benefit both the UK and Ireland among other EU members, as that will lessen the need for strict border controls at least with regard to the movement of goods, as opposed to the movement of people. If Theresa May accepts the Labour Party's demand, a "smooth and orderly Brexit" will be more likely.

Another option is for the UK to revoke the withdrawal notification to remain in the EU. In fact, Tusk clearly suggested this scenario at the press conference.

Agreeing with Labour and passing a compromise deal, dissolving Parliament and holding a general election, calling another referendum...

Available options can be identified by examining the procedural aspect as well.

A compromise deal that accepts Labour's demand concerning the customs union is bound to invite a major backlash from Conservative Brexiteers. They have long maintained that an exit from common tariffs shared with the EU will allow the UK to gain independence from the bloc and establish tariffs on its own (in what they call "sovereignty recovery"), which in turn will allow the UK to conclude an FTA with non-EU members such as Japan and the US. In fact, this is part of the Tory manifesto on Brexit and a point May has been making assertively.

It is worth recalling here that May's EU deal was rejected due in large part to the opposition of Conservative Brexit hardliners who want an FTA with non-EU countries. In both the UK and the EU, May has been criticized for putting her party's interests before national interests. It has become apparent that she can no longer gain enough support from her own party. This is why May has embarked on negotiations with Labour, something unprecedented in British history. Her idea was that her EU deal could make it through Parliament with solid support from Labour, even if she discards Conservative Brexit hardliners.

This option--adjusting May's deal to reflect Labour's demand and come up with a compromise deal--calls for only a simple majority to be passed through the UK Parliament.

If May fails to make a compromise with Labour, she is left with another--albeit more difficult--option of dissolving Parliament, holding a general election, and passing May's deal or Brexit cancellation through a new parliament. This is an option that requires a two-third majority of MPs. It is unclear, however, how many Conservative MPs will agree to this option, even though the Labour Party will do so as it wants to change the power balance in Parliament. Taking this option may even run the risk of dividing the Conservative Party.

Yet another option is to hold another referendum that will ask the public to choose no-deal Brexit, May's deal, or Brexit cancellation.

The latest extension shows that the real deadline is October 31, after which a major pitfall lurks in the shadows. Until then, what conclusion the UK will come up with? This year's Halloween might not be so happy an occasion for the UK and other countries concerned.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on April 12, 2019.)