Foreign affairs committee: implications of 'no deal'
The Foreign Affairs Committee have released a report titled “Article 50 negotiations: Implications of ‘no deal’”. The government’s position that “no deal is better than a bad deal” is being pushed as a negotiating tool rather than an honest position statement, and there seems to be a reluctance from government to give any information whatsoever about what ‘no deal’ actually entails. Naturally, the Foreign Affairs Committee twice wrote to the government in late 2016 asking for all work they have done to determine the ramifications of ‘no deal’. Both times the government refused to make a submission. Luckily the Committee did receive submissions from Cambridge University and the Bar Council, as well as collaborating with other committees who have received evidence on the same subject. Below is a short summary, the full report can be found here.
Why 'no deal' is a real possibility
The government has asserted repeatedly that it will walk away from the negotiations with no deal if it does not approve the terms of the final deal.
The negotiations will involve 27 remaining member states, each with international interests and domestic political concerns, and will be complicated further by changing political dynamics across Europe.
Members will have different priorities and interests concerning their relationship with the UK, the EU, and the future of the EU itself. Divisions over the substance of any deal, the negotiating tactics and the sequencing could disrupt proceedings.
The withdrawal settlement bill – called “the issue with the greatest risk attached” in a recent report for Politico – will be among the first issues on the table.
The possibility of error or miscalculation cannot be discounted. Either side may under or over-estimate the strength of their hand and miss-judge the reaction of the other side to any move at any point.
Time pressures in political negotiations evidently increase the risk of non-optimal outcomes.
The European Parliament must give its consent to the final deal, but no provision is made to include it in negotiations. The EP has made it clear however that it intends to play a significant role in talks and has already appointed the notoriously pro-European Guy Verhofstadt as its Brexit “co-ordinator”.
The final deal will be put to a vote in both Houses of Parliament, which if rejected will not leave time to return to negotiations. The possible outcomes of this result aside from exiting under ‘no deal’ are wholly unclear.
In reality, there is likely to be less than 18 months in which to secure unanimous agreement on the deal, political constraints could shorten this period.
key implications of 'no deal'
Under ‘no deal’ any liabilities that the EU claims are owed by the UK will be left outstanding and will be subject to further debate.
Even under ‘no deal’ the acquired rights of EU citizens in the UK and UK citizens in the EU could be unilaterally secured.
If this issue goes unresolved however, those individuals would face considerable uncertainty around issues including their residency rights, access to employment, ability to claim pensions and other social security benefits, and access to healthcare.
Tourists and short-term travellers would face uncertainty and there could be confusion at borders around issues such as European Health Insurance, roaming charges.
There would be no common visa policy rule for UK tourists, causing confusion at borders.
Individual states would not be likely to impose new visa rules in UK tourists unless the UK begins to do the same – possible under current immigration rhetoric.
Imposition of visa requirements from the UK would complicate the border arrangements between Ireland and Northern Ireland.
Trading on WTO Terms
WTO terms are the most basic level upon which trade operates - a minimum standard trade framework.
Most other countries who trade with the EU without a Free Trade Agreement (FTA) have other agreements that better the basic WTO terms.
This would almost certainly involve the immediate imposition of tariffs across a range of sectors, which would have differentiated impact as they are low on many products, such as automotive parts (5%), but high in sectors such as agriculture (30–40%).
As a third country, individual firms must be approved and individual consignments must be cleared before goods and services can become available in the EU market.
This is the legal order, and despite the argument that pre-existing arrangements could just be carried over or new ones drawn up, this would require a deal and so would specifically not be the case under ‘no deal’, we would be in a legal void.
No other major player trades with the EU solely on WTO terms. It is not true that the Americans, Australians, Canadians, Israelis or Swiss do.
Aside from preferential trade agreements, they have multiple minor equivalence agreements.
The EU has mutual conformity of assessment agreements with the US, Canada, Israel, Switzerland, Australia and New Zealand, and more.
A worst-case scenario trade deal would be better than WTO terms.
We would not tolerate WTO terms for long. There would be many detrimental impacts varying across sectors – services, manufacturing and agriculture likely to suffer most.
The imposition of WTO-only terms for trade would likely have such high costs for both sides that both would push for swift conclusion of an agreement.
However, despite there being increased barriers and thus lower profits, trade would not stop.
Under ‘no deal’ questions would arise around the applicability to the UK and legal status of existing EU FTAs with third countries such as South Korea and Canada. Legally ‘no deal’ would ensure loss of access to these agreements, but the UK would possibly be able to agree simplified agreements to trade on the same basis with those countries.
The ‘regulatory gap’ and limitations of the Great Repeal Bill
The Great Repeal Bill alone cannot compensate for the uncertainty for both the UK and the EU that would be caused by failing to agree a deal under Article 50.
Legislation only works if you have people who can effectively administer it and civil servants who can co-operate with one another. For many pieces of EU legislation this will not be the case.
There is potential for massive amounts of dispute as products and services recognised by authorities in other member states and by EU institutions suddenly fall outside the existing legal framework. There will be no precedent for dealing with this situation.
Furthermore, falling out of the structures of co-operation currently in place would leave no obvious mechanism for such disputes to be resolved.
Potential for massive disruption in day-to-day administering of legal frameworks – the iceberg below the top level of legislation we see in the Great Repeal Bill.
We will have to figure out what happens to all national authorisations which benefit as a matter of EU law from mutual recognition, something which will fall outside of the Great Repeal Bill.
Whilst it will feel like nothing has changed, under ‘no deal’ the law will have changed, and there will be no legal precedent by which the EU is obligated to recognise any accreditation or conformity assessment. In terms of the law, there would be nothing.
There are 33 EU regulatory bodies covering sectors such as aviation, fisheries, food safety, medicines, law enforcement and financial services. Before withdrawing, the UK will need to be prepared to expand the capacity of UK regulatory bodies in these fields and to establish new UK-only regulatory bodies in some cases. These might then look for equivalence or mutual recognition agreements with EU and other counterparts, or to seek to remain under the EU regulatory umbrella in some way if agreement can be reached.
None of this would be sorted out in a ‘no deal’ situation, we would be playing catch-up and there would be a regulatory and legal void in the interim.
Uncertainty for UK participation in EU common foreign and security policy
Under ‘no deal’, legal and political uncertainty over UK assets deployed as part of ongoing EU Common Security and Defence Policy (CSDP) missions, including HMS Enterprise.
Third countries do participate in CSDP missions, but require a legal framework agreement to do so, and there is no precedent for an Operational Headquarters outside of the EU.
‘No deal’ would mean immediate withdrawal from the European Defence Agency (EDA) which fosters co-operation in capabilities-building, procurement and the defence industry across the Member States. The UK would drop out of many projects in which it is currently participating.
The sudden return of a ‘hard’ customs border between Northern Ireland and the Republic of Ireland
Under ‘no deal’ the UK will exit the customs union, meaning some form of customs checking arrangement will need to be put in place immediately, even if free movement of people within the UK/Ireland Common Travel Area is maintained.
The sudden imposition of a customs border would be difficult, if not impossible, to reconcile with the desire for a “seamless and frictionless” border with Ireland.
It would be difficult to maintain an open border even in the event of “a planned and orderly Brexit”.
Technology does not currently exist that could maintain accurate records of cross-border movement of goods without physical checks at the border.
Under ‘no deal’, WTO tariffs of up to 40% would be placed on items travelling in both directions, which along with physical checks could bring cross-border trade to a standstill and create massive incentives for smuggling.
conclusions and recommendations
Despite goodwill and the desire for a successful outcome from all sides, there are many reasons why negotiations might fail.
The consequences of such a failure are, in scope if not in detail, largely predictable.
Whilst it is technically possible to envisage scenarios in which ‘no deal’ is better than a bad deal, such a deal is unlikely to be offered, and any complete breakdown of negotiations would represent a destructive outcome leading to mutually assured damage to both the UK and the EU. Both sides would suffer economic losses and damage to international reputations. Individuals and businesses would face considerable personal uncertainty and legal confusion. It is a key national and European Union interest that such a situation is avoided.
The immediate consequences of ‘no deal’ could force both sides into resurrecting some kind of deal, but a favourable outcome for the UK would be far from certain.
The possibility of ‘no deal’ is more than enough to justify planning for it, which the government is not adequately doing. If this doesn’t change, in the event of ‘no deal’ the government will be liable to face claims of gross negligence, constituting a serious dereliction of duty by the present administration.
The Government should require each Department to produce a ‘no deal’ plan, outlining the likely consequences in their areas of remit and setting out proposals to mitigate potential risks. Such preparation would strengthen the Government’s negotiating hand by providing credibility to its position that it would be prepared to walk away from a bad deal.