Earlier today I Googled “No Deal Brexit”. It’s en vogue these days, what with the UK having to grow its own food and the enduring refrain that No Deal is better than a Bad Deal. The top result in Google is one from the BBC’s Chris Morris entitled “Brexit: What would ‘no deal’ look like?” The problem is (to repeat the word I used on Twitter to describe Morris’s piece) that the article is waffle. Morris didn’t like me describing his piece as such, and started playing the I’m a confident journo who are you line on me, so that leaves me rather little option than to subject his piece to a fisking.

So let’s get on with it. I’ve removed some text in a few places where it was repetitive.

 

There’s a lot of discussion at the moment about a ‘no deal’ Brexit. What does that actually mean?

It seems to mean slightly different things to different people. But in the current context it basically means that there would be no formal agreement reached during the negotiations between the UK and the EU, which are taking place under the terms of Article 50 of the Lisbon Treaty.

This is not what ‘no deal’ means. Because were the UK to not reach some sort of deal with the EU during the Article 50 period, and the UK were to then crash out of the EU on 29th March 2019, it is not as if the situation can be rescued the next day, or that some deal could be signed straight away. A breakdown of the Article 50 process will have led to major tension between the UK and the EU – a ‘no deal’ scenario is not something smooth and painless.

To adapt the words so appreciated by Theresa May, No Deal means No Deal – not signing a deal before 29th March 2019 would make signing any deal in the months thereafter highly unlikely. Think of the politics of this – would the EU really be ready to be more collaborative towards the UK after it had crashed out than it was during the Article 50 process?

 

Even if there is no deal under Article 50, there would still have to be some kind of formal relationship between the UK and the EU in the long term – for trade, security and every other aspect of bilateral ties. But if the Article 50 process fails there is very little time to work on alternative strategies before Brexit in March 2019.

Think about the nature of relations between the UK and the EU in the event of no deal having been agreed by the end of the Article 50 period. Yes, long term there would need to be some deal, but this is not something you can just push into the future. Even weeks without a deal (and even weeks or months of the prospect of no deal) are going to have a pretty major impact on both sides (more on this later). At the very least Morris’s text plays down the danger here.

When would we know if there was going to be a ‘no deal’ Brexit?

One scenario, being pushed by some Eurosceptic Conservative MPs, is that if the current negotiations make no progress – and the EU refuses to move on to talk about a future trade deal – the UK should announce that it will pursue a ‘no deal’ Brexit instead. Leave supporters believe that would free the UK from all EU structures in one fell swoop.

If such a decision were to be made in, say, March 2018 there would still be a year before the UK is due to leave the EU. That’s very little time to prepare for such a massive change, but it would be better than nothing.

I suppose that is true. But as Flip Chart Rick explains in this excellent post, there’s no way even the 18 months currently available is enough. Scenario planning for no deal ought to have started years ago – if that’s what Brexiteers actually wanted back before the referendum.

 

A more worrying scenario for many business leaders, and millions of citizens who are caught up in the Brexit process, is that something could go wrong at the very last minute – perhaps a deal that has been tentatively agreed but is subsequently rejected by one side or the other.

Then the UK could crash out of the EU with neither side fully prepared for the consequences. This is the ‘cliff edge’ that gives many people in business and politics sleepless nights – a chaotic Brexit that would benefit no one.

The emphasis here is all wrong. Any no deal scenario is a disaster – it is not just one that comes about at the last minute that would cause worry, it is also one that has some advance notice that does.

Plus if both sides negotiate in good faith (and after all both sides – the EU side too! – face major consequences in the event of no deal) this situation can be averted. At the very least the Article 50 process can be extended with the unanimous agreement of all EU Member States (text of the article here) and if negotiations had taken place in good faith and then there was a late glitch, that could be solved. If the UK unilaterally decided to go for no deal – the scenario Morris judges less dangerous – the EU would be much less likely to grant such an extension. A last-minute no deal can be averted, but the UK unilaterally and earlier going for no deal is actually harder to bring back from the brink. Morris gets the relative dangers wrong.

 

Are preparations for ‘no deal’ already taking place?

Yes they are – on both sides of the Channel.

The UK government has been careful to say that it is not seeking a ‘no deal’ outcome, but that it has to be prepared for all eventualities.

[… ]Contingency planning is also happening elsewhere in the EU, though – within both governments and the business community.

The Federation of German Industries (BDI) said last week that it was setting up a task force of major companies to make provisions for the “serious case of a very hard exit.” Anything else, it said, would be naïve.

“Yes they are” is stretching it. Trying to work out what no deal means, and how to prepare for it, is starting to happen. But actual preparations – to increase parking space at ports for customs checks, or development of new customs systems, or attempts to sign more than 50 civil aviation treaties with third countries are not happening. Hammond has been unwilling to commit cash to this.

 

What would ‘no deal’ mean in practice?

[…]The consequences of ‘no deal’ would affect almost every aspect of life, and it is impossible to say exactly how events would unfold. But here are a few examples:

Money: With no agreement in place, according to a House of Lords report there would be no legal obligation for the UK to make any payment as part of a financial settlement.

That’s the first impact listed. In terms of the scale of the impact – compared to an estimated 18% hit to the UK’s GDP and a recession, and up to a million job losses on the UK side – the UK not resolving its financial commitments is small fry!

 

That would leave a huge hole in the EU budget. It would save the UK money in this instance, but it would antagonise the rest of the EU and further sour relations. Legal action, possibly via the International Court of Justice in The Hague, could not be ruled out.

Big. Sodding. Deal. NOT. The very last thing leaders of the rest of the EU are going to be caring about in the case of no deal is the next round of financial perspectives and the EU budget. They’ll instead be dealing with the political and economic fall out of no deal – and this is pretty severe on the EU side too. That the BBC lists the UK’s budget contributions as the first concern in the case of no deal is illustrative and astounding.

 

Citizens: Without a deal or other residency rights, the entitlement of EU nationals to reside in the UK, or of UK nationals to reside elsewhere in the EU, could technically disappear overnight.

In theory, they could become third country nationals, subject to domestic immigration rules. Given the fact that this would affect more than three million EU citizens in the UK, and nearly a million UK citizens in the EU, it could well be that individual EU countries would try to strike deals with the UK to guarantee citizens’ rights. Common sense should prevail, but that cannot be guaranteed.

Again this is off. First of all the rest of the EU will still have its law on permanent right to remain – this is generally granted after 5 years. So a Brit in France or Spain for 5 years is not going to get thrown out. Even for those Brits in the rest of the EU, the countries in which they reside (or indeed the EU) may well step in to grant them some sort of temporary rights, and the EU side has been more attentive to these rights issues all along. On the UK side the reaction might be harsher, but with an economy in recession due to crashing out of the EU even there I’d be surprised if the Home Office made these issues a priority.

 

Trade: With no new trade agreement with the EU, the rules of the World Trade Organisation would apply. Tariffs would be imposed on goods that the UK sends to the EU, and on goods the EU sends to the UK.

It would not be the frictionless trade – certainly to begin with – that the government hopes to promote. Tariffs on many industrial products would be 2-3%, but on cars they would be 10% and on many agricultural products between 20% and 40%.

“certainly to begin with”? How long would that be? And here once more this assumes that there would be some post ‘no deal’ deal – this all gets far too meta. And what consequences would this all have, economically? Also this would mean that supply chains would adjust, causing lasting damage to trade between the UK and the EU. Plus while the UK and the EU have worked out how WTO quotas for the UK, other WTO members are resisting these currently. Sorting all this out is a minefield. Plus to even export meat to the EU, phytosanitary checks are needed at borders, and French ports do not have enough of those checking stations. Wave goodbye to a good part of the UK’s agricultural exports, especially beef.

 

The trade in services would also suffer if nothing was agreed in advance. Under a pure ‘no deal’ scenario, businesses would lose their passporting rights, which allow them to sell their services across the EU without having to obtain licences in each individual country.

Passporting applies to financial services. Not all services.

 

The financial services industry would be particularly vulnerable, and it accounts for a significant slice of the UK economy. Again it is worth emphasising that all these restrictions would apply to EU businesses wanting to trade in the UK as well. ‘No deal’ is not a one-way street.

Do we even know that? EU law on financial services or safety of drugs or limit values of pesticides would still apply in the EU. But what law on that would actually apply in the UK, as most of those rules come from EU law anyway? Perhaps the UK might have a Repeal Act by then. But the UK might choose to unilaterally allow some things to happen, simply as it had no other option.

To put it another way, we know how countries trade with the EU, and under what terms, as all of the rest of the world does already. But we would have little idea how the rest of the world would trade with the UK in all sorts of areas, because we do not know how the UK would behave outside the EU.

No deal is not a one way street, but nor are the problems it causes symmetrical either.

 

Without any deal, and with no transition period negotiated, the UK would be free to sign trade agreements around the world as soon as it could finalise them. How might it try to go about this?

With a lot of difficulty one might argue. The UK would have just crashed out of the EU, the most developed trade bloc there is. Not only would that have been a betrayal of trust towards the EU, but what other country would want to sign a trade deal with the UK under those circumstances? Also the UK would be negoitiating from a position of weakness, with an urgency to sign quick deals – that is unlikely to result in good deals for the UK.

 

[…]A customs bill will make provision for the UK to establish a stand-alone customs regime from day one, applying the same duties to every country with which it has no special deal.

Traders would need to present goods to HM Revenue and Customs “inland as much as possible” to avoid congestion at ports, and consignments would need to be pre-notified to customs authorities, to try to ensure that trade continues to flow as seamlessly as possible.

A bill might make provision for it, but the system would actually have to be in place to handle a 7 fold increase in customs transactions (when the system is currently designed to cope with a doubling of declarations). HMRC is going to get that all in place in the 18 months between now and the UK leaving? With the UK’s record of IT procurement? When the idea to even construct a modest truck park for customs checks has already failed? One suspects that Mr Morris has swallowed the UK government’s line here without subjecting it to due scrutiny.

 

The White Paper promises to minimise disruption for business and travellers – but to give some idea of the scale of the challenge, HMRC estimates that about 130,000 businesses that export to the EU would be dealing with customs for the first time.

Indeed. Good luck with that everyone! Oh, who’s going to foot the cost?

 

‘No deal’ is not the government’s preferred option; and the detail in the customs paper hints at how disruptive it could be. The border between Northern Ireland and the Republic of Ireland would, in particular, be a huge concern, with serious ramifications for the Northern Ireland peace process.

Oh, “serious ramifications”. Serious indeed. Crashing out of the EU means the inevitable return of a hard border between Northern Ireland and the Republic of Ireland. That border – for trade in goods across the border at the very least – would be something akin to that between Poland and Belarus. And also with EU law on ID controls no longer applying to the UK, the EU could reasonably argue that the UK were a back door into the EU by crossing into the Republic, and so people crossing would have to be checked too. Morris pointed out that the CTA dates back to 1923. It’d still exist on paper, but not in practice.

No deal means a hard border in Ireland. Can the BBC not be honest enough to state that?

 

Regulations: With no deal of any kind in place, the UK would suddenly cease to be a member of dozens of regulatory agencies that govern many aspects of daily life.

In time, it would need to replace all of them with agencies of its own. Thousands of new employees would need to be recruited and trained – a process which should have already started if there were to be any chance of it being completed before Brexit.

Oh, I thought we learned earlier that preparation for no deal Brexit was ongoing? No?

 

EU bodies that regulate the aviation industry and the pharmaceutical industry are often cited as prime examples. One of the main concerns associated with a ‘cliff edge’ Brexit is that there would be no time to put new measures in place, even if plenty of contingency planning had been done.

In theory – under a worst case scenario – that could mean that planes would be grounded temporarily, and drugs could not be imported.

Under a worst case scenario? If no deal means no deal, then planes are going to grounded, as there would be no legal framework for them to fly to the EU. This is the standard case, not the worst case. This highlights the absurdity of no deal.

 

But again, the hope would be that common sense would prevail, and that some kind of interim arrangements would be made to keep things moving.

“Common sense would prevail” – well, yes, one would hope so. One would hope journalists’ common sense would mean pieces about Brexit were a bit better researched than this one from Mr Morris.

As for common sense and the aviation industry – no airline is going to fly to the UK unless the legal situation were watertight. To make it watertight, an aviation deal between the EU and the UK would be needed, but a deal is a deal and so that is not a no deal scenario, if you see where I am going. Plus if the UK resorted to the general international rules of aviation then an airline like Ryanair (Irish registered) would not be able to fly from London to Glasgow.

 

It would be in the interests of neither the UK nor the EU for chaos to ensue.

Correct. And the only way to ensure that is to make sure a deal is struck, and to point out the chaos of a no deal scenario. A proper analysis of no deal would be a good place to start, rather than this waffle, Mr Morris.

5 Comments

  1. Anonymous

    When people say no deal, I think they usually mean minimal deal. That way, they can reject some of the peculiarities with a true “no deal” and that’s probably a more realistic scenario. For example, there’s no way the flights between the UK and the EU will stop; that would create very bad publicity, so there’s definitely going to be an aviation deal of some kind.

    • Possibly right. BUT that leads to two questions: why not then call it a minimal deal? And could we then please have some scoping out of what a minimal deal would look like, and what it ought to contain?

      • Depends on who’s talking and to whom the person is talking, I’m afraid. Today, “this” might sound good. Tomorrow, “that” might sound better.

  2. Alan Terry

    Morris also said something I can’t see that you’ve covered:

    “It is also important to emphasise that these are largely uncharted legal waters and some kind of legal challenge at an international level would probably be made. The EU itself could not bring a case against the UK at the International Court of Justice (ICJ) in The Hague, because it is not a sovereign state.

    But the remaining 27 member states – acting either individually or collectively – could in theory appeal to the ICJ, or to another relevant international tribunal. They would want their money back.”

    Do you agree that we hold some of “their money”? If not, why have you avoided correcting this?

    You give an appearance of wanting accuracy, but are you really just cherry-picking the elements that suit your views?

    Alan …..

    • I didn’t reply to that becase – as with any of the budgetary issues – I don’t think they are central or relevant in the No Deal scenario, as everyone will be focusing on solving the much more major economic and political problems.

      As I see it yes, the UK does have some legal commitments to the EU, and yes, there might be a case for the other Member States of the EU trying to get it back through the ICJ. But I do not think it’s central to No Deal – that’s why I didn’t cover it – it’s not because I just wanted to skip it.

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