What if there's no Brexit deal?Date: 27.09.2018
How no deal might happen
Article 50 of the Treaty on European Union provides for an EU Member State to leave the EU with or without a withdrawal agreement or ‘deal’.
The UK White Paper on future UK-EU relations sets out a model for future relations in which the UK follows a ‘common rulebook’ and maintains selected access rights to EU policies, bodies and programmes. The EU insists it will not allow the UK to ‘cherry-pick’ in order to be in a better position outside the EU than in it. These two positions, if they are resistant to compromise and flexibility, could result in no agreement being in place by 29 March 2019 and no agreement to carry on negotiating.
The EU and UK aim to reach agreement by October 2018 on the UK’s terms of withdrawal and on the framework for future relations, although this deadline is now likely to slip to November. A way of avoiding a hard border between Ireland and Northern Ireland is proving particularly difficult for the negotiators.
If there is no withdrawal agreement, and no UK request or no EU agreement to extend the negotiations, or if either the UK Parliament or the European Parliament or the other 27 EU Member States do not endorse a withdrawal agreement, there will be no deal and the EU Treaties will no longer apply to the UK from 29 March 2019.
Another point at which ‘no deal’ could occur is at the end of the proposed 21-month transition (implementation) period if there is no detailed agreement on the future EU-UK relationship or if such an agreement is not in force.
Both sides in the negotiations agree that ‘no deal’ is not what they want, but some Brexit supporters would prefer it to a ‘soft’ Brexit which does not end free movement, payments to the EU, membership of the Single Market and customs union, continued adherence to EU rules and the jurisdiction of the Court of Justice of the EU.
EU preparations for no deal
In the absence of what the European Commission describes as “functional solutions” to the Irish border issue, the EU has stepped up preparations for a no-deal scenario in March 2019. The Commission has been drafting amendments to EU legislation to take account of the UK’s exit in areas such as shipping, tariff obligations, energy, customs, aviation, health and safety, transport and citizenship. The Commission is identifying the legal acts that will have to be adapted in the context of Brexit by “preparedness acts” that will fill legislative gaps and “contingency measures to remedy negative impacts in the cliff-edge situation”, which would take effect in the event of a no-deal scenario.
UK preparations for no deal
The UK Government insists that preparations for no deal are part of its overall Brexit preparation strategy. The Prime Minister’s Statement on the Cabinet away day at Chequers in July included a pledge to step up preparedness for all possible outcomes to the negotiations, including no deal, and the Prime Minister has assured Parliament that it is preparing for ‘no deal’ as well as other scenarios.
European Union (Withdrawal) Act
Secondary legislation is being laid under the European Union (Withdrawal) Act 2018 that will preserve EU law in domestic law or convert it into UK law on exit day. If the UK leaves the EU without a deal, most EU law will still apply in the UK but as domestic law (‘retained EU law’ or EU-based UK law). But there will be no reciprocity with EU Member States.
Government guidance on preparing for no deal
The Government believes a no-deal scenario could be managed in an “orderly” fashion (although this view is not necessarily shared by other stakeholders). On 23 August the Department for Exiting the EU published 25 ‘technical notices’, the first of three sets of ‘ guidance on how to prepare for Brexit if there's no deal’.
Some contributions to this paper were written before the publication of the Government’s no-deal planning guidance. Sections in which the technical notices have not been taken into account will be updated in due course.
No deal in various policy areas
What would no deal look like in practice? No deal on a withdrawal agreement would mean no transition (implementation) period and no framework for future relations – let alone a full future relations agreement. The impact is still unknown overall, but in some areas it is easier to estimate the practical consequences and costs than in others.
It is difficult to pinpoint the economic impact of ‘no deal’ with certainty. Many economists expect the pound to fall in value in the event of ‘no deal’. This would mean the price of imports would rise, pushing up inflation. However, UK exports would become cheaper internationally, potentially mitigating some of the disruptive effects on trading with the EU. There might also by an opportunity for improved UK growth prospects from trade deals with other non-EU countries.
But most economic modelling in this area shows that the potential benefits of leaving the EU with no deal over the longer term do not make up for the higher trade barriers with the EU, given its importance to the UK.
Trade and customs
With no withdrawal agreement or framework for future relations, trade between the two economies would be conducted under the terms of the World Trade Organisation. Tariffs on UK exports to the EU and vice versa are expected (assuming the UK would not change its Most Favoured Nation tariffs under WTO rules). Tariffs would be low, averaging around 3%, but for some goods they would be higher. Potentially more disruptive would be non-tariff barriers, where additional paperwork, customs checks, technical requirements and regulatory standards could slow things down.
At the moment of leaving the EU customs union without a deal, the border between the UK and the EU would become a customs border. This is likely to mean more customs controls and probably increased costs and delays for business. It is estimated, for example, that delays caused by customs checks of trucks from the EU could cause a 17-mile queue at the port of Dover.
A hard border between Ireland and Northern Ireland
The EU and the UK Government share a commitment to avoiding a hard border between Ireland and Northern Ireland, but they have yet to reach an agreement on how best to avoid checks and infrastructure at the border. Technology, a degree of ongoing regulatory alignment and some sort of customs agreement have all been suggested as possible solutions, but it is unlikely that any of these would be in place in a no-deal scenario.
One proposed solution to avoid disruption at the border is for the UK to waive checks and tariffs on EU goods as they enter NI. However, many trade experts believe this would trigger the Most Favoured Nation principle that applies to all WTO agreements, which would require the UK to waive its tariffs and checks on goods coming in from all other countries. The EU has said they would impose checks on goods entering Ireland regardless. This would cause delays and probably reduce trade, particularly in agri-foods, which make up a large proportion of cross-border trade.
There are concerns, shared by the UK government, that if there is infrastructure on the border to enable checks on goods, it would become a target for dissident republicans. However, some commentators believe that border checks would not inspire a new wave of dissident activity, and that any infrastructure and checks can be done away from the border, which would lessen their impact. The majority of people in Northern Ireland are opposed to any form of North-South border checks.
Free movement of people rights, whereby any EU national can work in, live in or provide services in any EU Member State providing they meet certain conditions, is a key citizens’ right that will be affected by a no-deal Brexit.
The Government wants to implement a ‘settled status’ regime for EU nationals in the UK, whether there is a withdrawal agreement or not. Those with settled status should have full access to UK social security benefits. The position of those who on exit day have not yet been resident in the UK for five years – those with ‘pre-settled status’ – is less clear.
For UK nationals in the EU it is unclear whether they could continue to access UK social security benefits in the EU27 Member State they reside in at the time. The existing reciprocal healthcare arrangements for UK citizens in the EU and EU citizens in the UK would probably end.
Half of the UK’s food and drink supply comes from within the UK, with 30% from the EU and 20% from the rest of the world. Potential disruption to food supplies immediately after a no-deal Brexit has been given regular media coverage. Exiting the EU Secretary Dominic Raab told the Exiting the EU Committee that the Government would “look at this issue in the round and make sure that there is adequate food supply…”. The retail sector is concerned about the practicalities of stockpiling food.
Agriculture and fisheries
Trading arrangements - tariffs and standards – would be the main issue. With no alternative arrangement, the UK as a third country would be subject to tariffs, checks, registrations, certifications etc for commodities, food and feed, plant and animal-based products. Agriculture could also impacted by the ‘no deal’ effects of other policies such as immigration (for seasonal, agri-food workers and vets).
Brexit means the UK will become an independent coastal state with responsibility for managing fisheries in the UK’s Exclusive Economic Zone of 200 miles. It will not be bound by the Common Fisheries Policy and could deny access to EU Member States’ vessels (and vice versa). But under international law States are required to minimise economic dislocation to other States whose nationals have habitually fished in a zone.
The UK and EU energy sectors are integrated through trade, legislation and inter-connection of energy supply, although EU Member States are ultimately responsible for their domestic energy supply to citizens. Aspects of the UK energy sector, such as Euratom and the Internal Energy Market (IEM), will probably be affected similarly by a deal or no-deal Brexit. The UK will leave Euratom along with the EU, the Government is open to leaving the IEM and has begun preparations for leaving, but the future relations White Paper suggests a preference for future energy integration. ‘No deal’ could mean a less integrated relationship than the UK would like and not enough time to prepare for alternatives.
The UK currently participates in around 40 EU measures that support and enhance internal security and police and judicial cooperation in criminal matters. According to police organisations, leaving the EU without a deal could result in a loss of operational capacity and strategic influence and an increased demand on resources because of the need to compensate for these losses. They say this could have a significant impact on public safety. Both the UK and the EU have emphasised the importance of maintaining cooperation in the field of security, law enforcement and criminal justice, but the Home Secretary has said security should not be linked to the other aspects of the negotiations, and that the UK’s proposals are unconditional.
For the International Air Transport Association (IATA), the aviation deadline is earlier than the Brexit deadline of 29 March 2019. But would planes actually stop flying between the UK and the EU27 in the event of no deal? The Government believes it might be possible to agree a ‘bare bones’ aviation agreement in the event of a no-deal scenario.
Research and higher education
The UK currently does disproportionately well in securing EU research funding and UK Universities are the top performers in receiving EU funds based on scientific excellence. The higher education sector and research bodies are concerned about the impact of a no-deal Brexit on access to EU research funding and collaboration in EU projects, recruitment and retention of EU staff, access to the Erasmus+ programme and the possible consequences for EU students coming to study in the UK.