After British Prime Minister Theresa May notified the European Council on March 29 of the U.K.’s intention to withdraw from the European Union, the council, which consists of the heads of state of government of the member states, adopted guidelines that separated the negotiation into two phases — the first to identify and address its obligations and commitments to the EU, the second to identify an overall understanding of the framework for the U.K.’s future relationship with the EU. While an agreement about that future relationship can be concluded only after the U.K. has left the EU, it said the EU would engage in preliminary and preparatory discussions about it as soon as “sufficient progress” had been made in the first phase of the negotiation.

Article 50 of the Treaty on European Union stipulates that the EU treaties cease to apply to a withdrawing state from the date of entry into force of the withdrawal agreement or, failing that, two years after notification of its intention to withdraw. Mindful of the ticking clock and the need to give the member states and the European Parliament sufficient time to review the agreement prior to March 2019, the European Council agreed at its Dec. 15 meeting that the EU and U.K. negotiators had made “sufficient progress” in the first phase of the negotiation and could move on to the second phase, concerning the framework of its future relationship with the EU.

Much of the discussion during the first phase focused on three issues — the continuing rights under EU law of EU citizens living in the U.K. and U.K. citizens living in the EU after Brexit, the U.K.’s settlement of the financial commitments and obligations it has undertaken as a member of the EU, and its continued support for the 1998 Good Friday Agreement and peace process and avoidance of a hard border between Northern Ireland and the Republic of Ireland.

Although legally complicated, the rights issue turned out to be the least difficult of the three, and the negotiators made good progress on it over last summer and fall. The financial issue was more difficult, largely because of disagreement over the methodology to be used in calculating what the U.K. owes. While a precise figure has not been agreed on, the two sides agree that, taking into account all of its financial commitments, including not only its commitments under the 2014–20 budget but also its share of development and infrastructure investments, pension obligations, loan guarantees and contingent liabilities, the U.K. will probably owe the EU €40 billion to €45 billion.

The most difficult issue concerned the border, and more generally the relationship, between Northern Ireland and Ireland. The Irish government insists that the land border remain frictionless and that the rules and regulations concerning trade between Northern Ireland and the republic, which is of course a member of the EU’s Single Market and Customs Union, remain aligned. The Northern Irish Democratic Unionist Party, whose 10 members of the U.K. Parliament provide the Conservative government its narrow majority after last June’s election, insists the U.K. not agree to a regulatory divergence in the rules pertaining to trade between Northern Ireland and the rest of the U.K. In the end, the U.K. agreed to maintain full alignment with the rules of the Internal Market and Customs Union which support North–South cooperation, the all-island economy and the protection of the 1998 agreement.

The negotiation now turns to the second phase — specifically, to the U.K.’s proposal for a post-Brexit transition period of roughly two years, during which it would remain in the Single Market and Customs Union, and, most importantly, to the framework of its future relationship with the EU. The leaders, frustrated with the U.K.’s continuing vagueness in regard to its preferences, called once again for the U.K. to provide further clarity on its position.

Perhaps the most telling moment at the Dec. 15 meeting came when Michel Barnier, the EU’s chief negotiator, presented a slide illustrating the several possible relationships for the U.K. — membership in the Single Market via the European Economic Area (e.g., Norway), in the European Customs Union (e.g., Turkey), in the European Free Trade Association (e.g., Switzerland), or a Deep and Comprehensive Free Trade Agreement (e.g., Ukraine). Unfortunately, he said, the U.K.’s red lines — its rejection of European Court of Justice jurisdiction and free movement and its desire to pursue an independent trade policy — rule out all of those.

So what’s left? From Barnier’s perspective, only a comprehensive free trade agreement along the lines of those concluded with South Korea in 2009 and Canada in 2014. That would no doubt be much better than no deal at all. But it would clearly be less advantageous, especially for an economy that sends more than 40 per cent of its exports to the EU and in which services constitute 80 percent of GDP, than continued membership in the EU’s Single Market and Customs Union.

David R. Cameron is a professor of political science and director of the MacMillan Center’s Program in European Union Studies. Contact him at .