No-deal Brexit raises head again

By Andrew Hammond

A new week-long round of U.K.-EU Brexit negotiations begin Tuesday with talks on a knife edge. While an agreement could be reached this month, a no-deal Brexit remains a significant possibility as little progress has yet been made on two key issues: future “level playing field” rules and fishing rights.

Take the example of future fishing rules. This is not a huge macroeconomic issue for either side, but it is very politically charged across coastal regions of the United Kingdom and certain key EU states like France. Getting to a political compromise on this issue is therefore very tricky, and this topic alone could yet sink the trade talks.

U.K. and EU preparations for no-deal scenarios have, of course, been underway now for several years. In the first instance, in 2018 and 2019, there was concern that the United Kingdom could leave the EU without a withdrawal agreement (this withdrawal or divorce settlement is technically separate to the trade agreement now being discussed which would help define the future relationship between the two powers).

The withdrawal deal was finally passed at the eleventh hour, in late 2019, however, allowing the United Kingdom to leave the Brussels-based club “cleanly” on Jan. 31 this year. With that hurdle out of the way, the first no-deal scenario was avoided.

The second scenario, which has been in play since February, centers on potential failure to agree the trade deal which would be at the core of the EU-U.K. future relationship, if it can be brokered. The EU is, collectively, the U.K.'s biggest trade partner, and no deal would therefore be a shock to its polity and economy.

In an already febrile political climate, it would for instance upend Westminster politics again. This includes widening rifts within the governing Conservatives given that some of their MPs, including Caroline Noakes, Steve Brine, Greg Clark, and Stephen Hammond, were steadfastly opposed to the United Kingdom leaving the EU without a withdrawal deal, and now strongly favor a trade agreement. In part, this is because these MPs know that failure to reach a deal could tip the economy into recession again as it recovers from the coronavirus crisis.

As in 2018 and 2019, both the EU and United Kingdom are therefore ramping up preparations for this scenario from Jan. 1. This includes publishing a series of “technical notices” on how public bodies, businesses and individuals need to prepare.

To be sure, there are some areas of future U.K. and EU life that do not depend on a trade deal being reached. Take the example of rights of EU citizens in the United Kingdom, and conversely U.K. citizens in the EU, from 2021. The withdrawal agreement means these rights of EU citizens in the United Kingdom at the time the transition period ends on Dec. 31 (and vice versa) are protected under international law.

However, in many other key areas, failure to agree an EU-U.K. trade agreement would have a major impact. For instance, the repercussions of no trade deal for transport would be the same as it would have been if no withdrawal agreement had been made last year.

Key impacts would include increased border checks at EU ports which is likely to cause significant traffic delays in southern England, while U.K. haulers and coach companies will no longer be able to serve the EU market. Flights to Europe, and many other countries outside the continent ― including the United States, Canada and Brazil ― are also governed by EU agreements and the United Kingdom is therefore trying to renegotiate these for its citizens.

As this transport example highlights, it is not just U.K.-EU relations which would be impacted by failure to reach a deal. There is a wide swathe of international agreements, from trade to nuclear cooperation, which currently allow for U.K. access, via the EU's agreements, with countries around the world.

To date, the U.K. government has “rolled over” EU trade agreements with a number of countries, including Switzerland, Chile and Israel, and nuclear agreements with partners including Australia and Canada. Yet, while the Johnson team wants to continue this “roll over” beyond Dec. 31, it is still unclear in many cases what, if any, concessions it will have to make to these other states to secure such extensions in a no-deal scenario.

Taken together, while much therefore remains uncertain about a no trade deal outcome, the one sure thing is that it would result in a political and economic shock which neither the EU nor United Kingdom needs as they recover from the COVID-19 pandemic. Given the massive time and capital put in by London and Brussels into trying to reach a trade agreement, no deal will generate significant acrimony and lead to a damaging breakdown in trust between the two former partners, intensifying the current global landscape of geopolitical flux.

Andrew Hammond (andrewkorea@outlook.com) is an associate at LSE IDEAS at the London School of Economics.