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What if there's no Brexit deal?

Published Friday, December 28, 2018

What could happen if the EU and UK negotiators don't agree a withdrawal agreement in time and the UK has to leave the EU on 29 March 2019 without one - and with no framework for future relations either? This paper looks at how such a situation might come about, the constitutional implications for the UK and the devolved administrations, and what the impact might be in a range of policy areas.

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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 published in July 2018 set out the UK Government’s model for future relations with the EU, in which the UK would follow a ‘common rulebook’ and maintain selected access rights to EU policies, bodies and programmes. The EU has consistently insisted 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 continue to be 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 aimed to reach agreement by October 2018 on the UK’s terms of withdrawal and on the framework for future relations. This deadline slipped to November. A way of avoiding a hard border between Ireland and Northern Ireland proved the most difficult to resolve. The negotiators reached political agreement and published the text of the negotiated Withdrawal Agreement on 14 November. The solution to the Irish border issue was a temporary ‘backstop’ arrangement that would enter into force only if a future relations agreement was not available. The November agreement was endorsed with one significant amendment on 25 November 2018. But the text has not received sufficient parliamentary support in the UK from either remain or leave MPs to pass the ‘meaningful vote’ and the Prime Minister therefore postponed the vote until January 2019. The EU has said it will not renegotiate the withdrawal agreement, so there is an impasse and a possibility of there being no deal.

If there is 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 the negotiated withdrawal agreement, there will be no ‘deal’ and the EU Treaties will no longer apply to the UK from 29 March 2019.

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.

Another point at which ‘no deal’ could occur is at the end of the 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.

EU preparations for no deal

In the absence of what the European Commission described as “functional solutions” to the Irish border issue, the EU stepped up preparations for a no-deal scenario in March 2019. These have continued, and 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. In December the EU adopted 14 preparedness acts to address a possible no-deal Brexit.

UK preparations for no deal

Chequers statement

The UK Government has insisted 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 2018 included a pledge to step up preparedness for all possible outcomes to the negotiations, including no deal, and the Prime Minister assured Parliament that it was preparing for ‘no deal’ as well as for 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 as domestic law (‘retained EU law’ or EU-based UK law). But there will be no reciprocity with EU Member States. The Commons European Statutory Instruments Committee and the Lords Secondary Legislation Scrutiny Committee sift proposed negative instruments and may recommend that a proposed negative should be upgraded to the affirmative procedure.

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 2018 the Department for Exiting the EU published 25 ‘technical notices’, the first of several subsequent sets of guidance on how to prepare for Brexit if there is no deal. After the postponement of the ‘meaningful vote’ on the negotiated withdrawal agreement, the Government said on 18 December that it would implement plans for a no-deal Brexit in full and tell businesses and citizens to prepare for the risk of leaving the EU without an agreement.

No deal in practice

What would ‘no deal’ look like in practice? ‘No deal’ 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.

The economy 

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 has been 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 work out how best to avoid checks and physical infrastructure at the border. Technology, ongoing regulatory alignment and a customs agreement were all suggested as possible solutions. The November agreement contains the ‘backstop’ arrangement, whereby if there is no workable solution to the hard border situation, Northern Ireland would stay in the customs union and much of the Single Market on a temporary basis, pending a suitable long-term solution.

Another proposed solution to avoid disruption at the border was for the UK to waive checks and tariffs on EU goods as they entered Northern Ireland. However, many trade experts thought 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 EU States 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 

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 intends to implement a ‘settled status’ regime for EU nationals in the UK, whether there is a withdrawal agreement or not and has said the EU Settlement Scheme will open fully by 30 March 2019. EU citizens with ‘settled status’ or ‘pre-settled status’ to stay in the UK will be able to access healthcare, pensions and other benefits and services in the UK. For UK nationals in the EU it is unclear whether they could continue to access UK social security benefits and healthcare 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. In this area much would depend on any negotiated arrangements between the UK and the EU and between the UK and individual EU27 States. The Government published its immigration White Paper, The UK’s future skills-based immigration system, on 19 December.

Food supply 

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. Former 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.  The chief executive of the food and drink federation told MPs on the Business, Energy and Industrial Strategy Committee that warehouses around the UK for frozen and chilled food were “for all practical purposes booked out at the moment”.

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 be 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.

Energy  

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 when it leaves the EU; the Government is open to leaving the IEM and has begun preparations for leaving, but the future relations White Paper suggested 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.  

Internal security  

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 said security should not be linked to the other aspects of the negotiations, and that the UK’s proposals are unconditional. 

Transport 

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. 

 

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