UK wins Brexit transition deal in return for Irish vow

BRUSSELS (Reuters) - Britain and the European Union agreed on Monday to a transition period to avoid a “cliff edge” Brexit next year — though only after London accepted a potential solution for the border with the Irish Republic that may face stiff opposition at home.

Britain's Secretary of State for Exiting the European Union David Davis and European Union's chief Brexit negotiator Michel Barnier address a joint news conference in Brussels, Belgium March 19, 2018. REUTERS/Francois Lenoir

The pound surged on the confirmation that Britain would remain as effectively a non-voting EU member for 21 months until the end of 2020. Some business leaders, however, echoed a warning from EU negotiator Michel Barnier that the deal will be legally binding only if London ratifies the whole withdrawal treaty by March 2019.

That means solving outstanding issues, notably how to avoid a “hard border” that could disrupt the peace in Northern Ireland. Britain says an EU-UK free trade deal to be sealed by 2021 can do that. But Dublin wants this year’s treaty to lock in a “backstop” or fallback arrangement in case that future agreement does not work.

Both sides are committed to keeping a free flow of people and goods over the intra-Irish border without returning to checkpoints, as during the three decades of violence in Northern Ireland. However, finding a practical solution for any customs checks needed post-Brexit has proved elusive so far.

The dispute with Ireland had threatened to derail May’s hopes of a formal political endorsement of the transition deal by EU leaders when they meet in Brussels on Friday. A weekend of intensive talks, however, has broken the deadlock — for now.

Prime Minister Theresa May, who relies on pro-British Northern Ireland members of parliament to pass her Brexit legislation, rejected a fallback proposed by Brussels three weeks ago. She said keeping Northern Ireland under EU trade rules would isolate the province from the mainland.

However, her Brexit Secretary David Davis, in Brussels, has now signed up to following the same principles as negotiators resume work to find an “operational” compromise — a situation Dublin said it was happy to accept as it bound London in to not “backsliding” on pledges May had made on the issue in December.

“We agree on the need to include legal text detailing the ‘backstop’ solution for the border,” Davis told a news conference with Barnier. “But it remains our intention to achieve a partnership that is so close as to not require specific measures in relation to Northern Ireland.”

The question will remain as to whether negotiations on the future trade partnership between Britain and the EU, which are expected to start only next month after EU leaders endorse Barnier’s negotiating guidelines on Friday, can produce results — and quickly enough to avoid having language in the withdrawal treaty that Britain, and May’s Belfast allies, cannot accept.

“DECISIVE DAY”

Davis agreed with Barnier that Monday’s agreement was “decisive” and increased the odds on finding an orderly deal to avoid Europe’s second biggest economy simply crashing out of the bloc in just over a year. He hailed the certainty that the deals on the transition and other issues, including rights for expatriate citizens, would offer businesses and individuals.

However, Barnier warned: “A decisive step remains a step; we are not at the end of the road and there still remains a lot of work to be done, including on Ireland and Northern Ireland.”

Britain's Secretary of State for Exiting the European Union David Davis addresses a joint news conference with European Union's chief Brexit negotiator Michel Barnier in Brussels, Belgium March 19, 2018. REUTERS/Francois Lenoir

Ireland has been anxiously making sure that the other 26 remaining EU states continue to back it over the border and did not give up the leverage over London that the transition deal offered without a clear new pledge from Britain on the backstop.

Foreign Minister Simon Coveney, who met Barnier in Brussels before the announcements on Monday, said he was satisfied: “Good progress today on Brexit,” he tweeted, thanking Barnier and Davis. “Still a lot of work to do but commitment to address Irish issues are clearer in documents published today.”

The two sides issued a new, 129-page draft withdrawal treaty that was awash with green highlighter denoting final agreement on large areas of the legal text. A protocol on Ireland remains in yellow and other areas, including the EU’s demand for its own courts to oversee enforcement of the pact, are not settled.

The pound rose as much as 1 percent against the dollar to $1.4088 GBP=D3, its strongest since Feb. 16.

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Versus the euro, sterling rose 0.8 percent to 87.46 pence per euro EURGBP=D3. British government bond prices fell and the yield on the two-year gilt hit 0.863 percent, the highest since Britain voted to leave the EU in June 2016.

James Stewart, head of Brexit for consultants KPMG, was cautious, however: “We should remember that this is a contract that’s been written but not signed.

“Until we have legal certainty, our clients will continue to take action to prepare themselves for a ‘no-deal’ scenario.”

TRADE BENEFITS

Davis, who unlike May campaigned for Brexit, said he was pleased with EU agreement to let Britain negotiate and sign trade deals with other countries while remaining covered by EU common trade policy during the transition. Those deals would then take effect once Britain was free to do so in 2021.

He also welcomed wording that gives Britain some say in EU policy during the transition, notably on fishing quotas, and an ability to refuse to implement things it did not agree with — some of his Conservative party allies have complained that the transition deal would leave Britain a “vassal state” of the EU.

The EU secured agreement that Britain would offer residence rights to EU citizens who arrive after Brexit before 2021.

More broadly, EU diplomats said they felt London had largely agreed to their terms on most issues because of May’s political imperative to get a transition deal that may calm the fears of businesses contemplating moving investments out of Britain.

One EU diplomat said: “The Brits have just given in on everything so big was their drive to get the transition.”

Additional reporting by Elizabeth Piper in London, Phillip Blenkinsop, Samantha Koester and Alissa de Carbonnel in Brussels, Conor Humphries in Dublin and Jan Strupczewski; Writing by Alastair Macdonald; editing by David Stamp

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