The Wider Picture: Is Britain heading for ‘no deal’?

23

August, 2018

 

  • The publication of the government’s July Brexit White Paper has led to increasing warnings that Britain is heading for no-deal.
  • A no-deal would mean that the UK would leave the EU without a divorce agreement and trade with the EU on WTO terms.
  • While no-deal may lead to some short-term disruption,  Britain could see long-term economic benefits from an independent trade policy.
  • It now appears that the most likely outcomes of Brexit are either a no-deal or a soft Brexit.

‘A no-deal Brexit would no doubt result in short-term turbulence, but it would be manageable and not catastrophic.’

 

Since Theresa May’s government presented the Chequers proposal on the future relationship between the UK and the EU in July, talk of Britain leaving the EU with no-deal has dominated the news agenda. The secretary of state for international trade, Liam Fox, said there is now a 60-40 chance of a no-deal Brexit, for which he blames the ‘intransigence’ of the European Commission. With time running out to reach an agreement, scheduled for 29 March 2019, the UK government and the EU are stepping up their preparations for a no- deal Brexit.

The backlash against Chequers and no-deal scenarios

Many Brexit voters and Conservative MPs find Theresa May’s EU divorce plan unacceptable. A recent YouGov poll found that 66% of Leave voters and 64% of Conservative voters believe the Chequers deal is too ‘soft’. They see it as a U-turn from the prime minister’s earlier commitments, such as no longer being subject to EU rules and regulations and ending the jurisdiction of the European Court of Justice (ECJ). Under the Chequers agreement, the UK would adhere to a common rulebook for goods and remain subject to the rulings of the ECJ.

The EU is likely to demand more concessions from the UK in autumn. The EU’s chief negotiator, Michel Barnier, has already rejected key elements of the Chequers proposal. Namely, the government’s proposal on goods (a partial single market) and on customs, which requires the UK to collect tariffs on the EU’s behalf as part of a “combined customs territory”). Leading Tory Brexiteers – such as David Davis, Boris Johnson and Jacob Rees-Mogg – believe the government has already made too many concessions and may draw the line at accepting more.

A no-deal exit could occur if Mrs May were to reject the EU’s demand for more concessions and walk out of the negotiations. While the probability of this is low, with Mrs May seeming to have committed herself to a soft Brexit, she may fear that a further retreat from her original “red lines” would foment a backbench rebellion. There is a higher probability that Mrs May will accept further concessions and face a leadership challenge. Alternatively, parliament could reject a watered-down Chequers agreement, which leaves no time for further negotiations and results in the UK exiting without a divorce agreement. It is possible that there could be a more amicable ‘agreed no-deal’, in which divorce talks would end with a limited agreement that plans for an orderly divorce.

What does a no-deal Brexit mean?

The UK would trade on  terms dictated by the World Trade Organisation (WTO), which govern 98% of global trade. The main concern of leaving without a deal is the impact it will have on the service sector, which makes up almost 80% of the UK economy. The WTO’s coverage of services is incomplete and it would not give UK firms the level of EU market access they enjoy under the single market. As a result, businesses could lose their passporting rights, making it harder to sell their services across Europe.

Leaving without a deal would mean no longer having frictionless trade with the EU. While tariffs on industrial goods between the EU and the UK would be low (averaging at 3%), tariffs on cars (10%) and agricultural products (20-40%) could be high. It is also unclear whether the UK would be able to roll over all of the EU’s 60 plus free trade deals with non-EU countries from which it currently benefits.

Opponents of Brexit argue that it would be difficult to reverse 45 years of integration with the EU. According to Full Fact UK, an estimated 62% of UK laws and regulations  are shaped by the EU. In the event of no-deal, the UK would cease to be a member of all the European regulatory agencies that govern everyday life. Some argue there would be no time to put new measures in place, regardless of whether planning took place beforehand. In theory, this could mean that planes be grounded temporarily and that drugs could not be imported.

However, it is likely that interim arrangements would be made to keep things working as normal. The EU Withdrawal Bill, passed by parliament in June, ensures legal continuity and conformity with EU regulations post-Brexit, at least in the short-term, which would minimise disruption.

There is likely to be some decline in trade with the EU, and the increase in trade with non-EU countries may not entirely compensate in the short term. However, over the long term, the UK would make economic gains from an independent trade policy. The UK would no longer be required to impose tariffs on products it does not produce, which would reduce prices for British consumers and give the UK an advantage when signing new trade deals. Leaving the customs union would allow the UK to increase trade with other, faster-growing regions of the world. The UK could sign trade deals faster than the EU, as such deals would not require the ratification of all 27 EU member states.

Many pro-Remain media outlets have carried stories warning of food and medicine shortages, chaos at airports, a breakdown of the Northern Irish peace process, and a recession. Many of these fears are misplaced and exaggerated. A no-deal Brexit would no doubt result in short-term turbulence, but it would be manageable and not catastrophic.

No-deal is not the only possible outcome. The alternative scenario is that Mrs May’s watered down chequers deal gets through parliament and the UK leaves the EU in name only. When it comes to the crunch, many Conservative MP’s may lack the gumption to rebel. They may not like Mrs May’s soft Brexit, but they might fear that challenging her leadership would tear the Conservative Party apart and lead to a Labour government led by Jeremy Corbyn. However, a Brexit in name only (BRINO) would also have negative political consequences for the Conservative Party, which would likely be punished politically at the polls by Leave voters.

When Britain voted to leave the EU two years ago a no deal scenario seemed unlikely, yet it is now one which the UK may have to face.

 

Written by Tanya Kekic. Edited by Abdi Buwe.

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