EU-UK trade talks: No-deal Brexit would cause a shock neither party needs
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A new round of UK-EU Brexit negotiations begins next week with talks on a knife-edge. While an agreement could still be reached, a no-deal exit remains a significant possibility, as no major progress has yet been made on two key issues: Future “level playing field” rules and fishing rights.
Fishing is not a huge macroeconomic concern for either side, but it is very politically charged across the coastal regions of the UK, as well as in 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.
UK and EU preparations for a no-deal scenario have, of course, been underway for several years now. In the first instance, in 2018 and 2019, there was concern that the UK could leave the bloc without a withdrawal agreement (this deal is technically separate to the trade agreement now being discussed, which will help define the future relationship between the two powers). The withdrawal deal was finally passed at the 11th hour, in late 2019, allowing the UK to leave the EU “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 any potential failure to agree a trade deal, which would be at the core of the future EU-UK relationship, if one can be brokered. The EU is, collectively, the UK’s biggest trade partner and a no-deal scenario would therefore be a shock to its polity and economy.
In an already febrile political climate, it would, for instance, again upend Westminster politics. This includes widening rifts within the governing Conservative Party, given that some of its MPs, including Caroline Nokes, Steve Brine, Greg Clark and Stephen Hammond, were steadfastly opposed to the country leaving the EU without a withdrawal deal, and now strongly favor a trade agreement. In part, this is because they know that leaving without a deal could hinder the economy’s recovery from the coronavirus crisis.
As in 2018 and 2019, both the EU and UK are ramping up their preparations for a no-deal scenario on Jan. 1. This includes publishing a series of “technical notices” on how public bodies, businesses and individuals need to prepare.
Given the massive amounts of time and capital the UK and EU have put into trying to reach a trade agreement, the failure to sign off on a deal would generate significant acrimony.
Andrew Hammond
There are some areas of UK and EU life that do not depend on a trade deal being agreed, such as the rights of EU citizens in the UK and British citizens in the EU. The withdrawal agreement means that these rights are protected under international law. However, in many other key areas, a failure to strike a trade agreement would have a major impact. For instance, the repercussions on transport would be the same as if no withdrawal agreement had been agreed last year.
Key impacts would include increased border checks at EU ports, which would be likely to cause significant traffic delays in southern England, while UK hauliers and coach companies would no longer be able to serve the EU market. Flights to Europe and many other countries outside the continent — including the US, Canada and Brazil — are also governed by EU agreements and the UK is therefore trying to renegotiate these for its citizens.
As this transport example highlights, it is not just UK-EU relations that would be impacted by no deal being agreed. There is a wide range of international agreements, from trade to nuclear cooperation, that currently allow for UK access, via EU agreements, to countries around the world.
To date, the UK 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. However, while Prime Minister Boris Johnson’s team wants to continue this rolling over of deals beyond Dec. 31, it is unclear in many cases what, if any, concessions it will have to make to secure such extensions in a no-deal scenario.
While much, therefore, remains uncertain about a no-deal outcome, the one sure thing is that it would result in a political and economic shock that neither the EU nor UK needs as they recover from the coronavirus crisis. Given the massive amounts of time and capital London and Brussels have put into trying to reach a trade agreement, the failure to sign off on a deal would 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 is an Associate at LSE IDEAS at the London School of Economics.