Parliamentary Report December 7, 2017: Brexit ‘No Deal’

The starting position for this paper, laid before Parliament today (December 7, 2017), is that both UK and EU would prefer to have a deal in place.  However, the time available to negotiate, achieve consensus, and then implement a settlement is getting tight.

Representatives from both the UK and EU have said that it would be prudent for all sides to do some contingency plannning - just in case - beginning with a definition of ‘no deal’ as: “a failure by the European Union and the UK to negotiate and conclude an agreement setting out the arrangements for the UK’s withdrawal before the Treaties cease to apply to the UK on 29 March 2019, two years after Article 50 was triggered, without any extension to that period having been agreed.”

The Parliamentary Committee took evidence from: UK and European politicians; industry leaders representing many sectors of UK trade and commerce; and Civil Servants representing some of the key Government Departments that will have to cope with the consequences of Brexit. They also examined case studies and scenarios.

There are no tangible positives identified arising from a ‘no deal’ scenario.

The paper concludes that: “a complete ‘no deal’ outcome would be deeply damaging for the UK. It would bring UK-EU cooperation on matters vital to the national interest, such as counter-terrorism, police, justice and security matters, nuclear safeguards, data exchange and aviation, to a sudden halt.  It would place the status of UK nationals in the EU, and EU nationals in the UK, in jeopardy, and would necessarily lead to the imposition of controls at the Irish land border.

“The wider economic impact of an abrupt departure from the EU single market and customs union, and the adoption of WTO conditions for trade, would be felt across a range of sectors, including financial services, the agri-food sector, and aviation.  It would have a particularly disruptive impact on cross-border supply chains.  The short-term impact on trade in goods would also be grave: the UK’s ports would be overwhelmed by the requirement for customs and other checks.  There is simply not enough time to provide the necessary capacity, IT systems, human resource and expertise to deal with such an outcome.

“While the evidence received focused on the impact on the UK, a no deal would also have a damaging impact on the EU.  It too would feel the negative effects of a loss of trade with a major trading partner, and restrictions on the movement of goods and services, new customs checks and the breakdown of aviation arrangements would be mirrored on the EU side.  In addition, the EU would feel the loss of police and security cooperation, scientific and research collaboration, and of access to the City of London as a motor of the EU’s financial services industry, and to the City’s capital markets.”

Is no deal better than a bad deal?  Not according to this paper.  Given “the overwhelming evidence of the destructive effect of ‘no deal’, the Government’s assertion that ‘no deal' is better than a bad deal’ is not helpful.  If the two sides were negotiating a free trade agreement from scratch, failure to reach agreement would simply mean a continuation of the status quo but that is not an option in the case of Brexit.  ‘No deal’ would mean the abrupt cessation of over 40 years of economic, political and legal partnership.  It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom.”

The key risk factor for a ‘no deal’ is the lack of time.  Michel Barnier said:  “the clock is ticking”.  The Article 50 deadline of 29 March 2019 could be extended, by unanimous agreement of the European Council. However, the paper concludes that it would  not be in the national interest were: “the Government to compound the rigidity of Article 50 by enshrining the deadline in domestic law.”

Extract from Article 50 of the Treaty of the European Union:

‘A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.’
John ShuttleworthComment