What Is Brexit Phase Two? Theresa May's Battles Are Just Beginning

Friday (December 15) was a pretty good day for Theresa May. After nine months of wrangling and some very hairy moments, EU27 leaders finally agreed to move on to phase two of Brexit talks.

But what does that mean? And what battles lie ahead? Here's what you need to know.

Good news for Theresa May? A first!

In a limited sense, yes. Heading to round two now is pretty much vital if the U.K. is going to have all the immediate issues wrapped up and work toward negotiating a future trade deal with the EU by Brexit day in March 2019.

Plus, at the European council, leaders took it upon themselves to shore up her position. Of course, it's in the EU's interest too for May's government to hold—many of them don't want to be talking to Boris Johnson or Jeremy Corbyn instead—but whatever their motive, it can't hurt May to have Juncker, scourge of Brexiters, call her a "tough" negotiator.

Theresa May Jean-Claude Juncker Brexit Deal
Britain's Prime Minister Theresa May is welcomed by European Commission President Jean-Claude Juncker at the EC headquarters in Brussels, Belgium December 8, 2017. REUTERS/Yves Herman

So it's plain sailing then?

Oh goodness no. The next phase is far more complex than the first ("more challenging," as European Council chief Donald Tusk put it in a prediction on Friday.)

That's partly because it includes two elements: first, haggling over the length and nature of a possible "transition period" in which the U.K. remains part-connected to the EU; and second, working out the pair's future partnership.

That includes trade talks, which can be nightmarishly difficult.

What are the big battles?

Initially, there's a disagreement over the ordering of the talks. Juncker wants to wait until March for the "real negotiations" on the future U.K.-EU relationship; this is when the EU's approved guidelines on phase two should be ready. The U.K., meanwhile, says that they should start right away.

Then there are bound to be quibbles about the nature of the transition period. In a document published on Friday about the talks, the European Council says that Britain will have to accept all EU law during transition, including new laws formed in that period, but have no voting rights to decide what that law involves. That may prove galling to Euroskeptics.

Beyond that, there's the nature of our future trading relationship. In theory, the British government believes a trade deal can be completed by 2019, but that is unlikely. So at some stage it will likely need to sell the reality: that we merely have the framework for a future relationship agreed.

And on the specifics, keep watching that question of the Irish border: it probably means very close alignment with the EU on goods, which in turn will seriously hamper our ability to strike trade deals elsewhere. That could prove intolerable for some of the Brexit headbangers.