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The Government’s Brexit deal leaves open the possibility of ‘No Deal’ after the transition period. Open Europe’s Dominic Walsh explains how this could come about, and points out that this would be a different type of ‘No Deal’ to one with no Withdrawal Agreement in place.
22 November 2019
The revised Withdrawal Agreement agreed by Boris Johnson’s Government replaced the UK-wide ‘backstop’ with a new Protocol that applies only to Northern Ireland. Unlike the previous deal, this Protocol does not provide a baseline for the wider UK-EU relationship in the event that a trade deal is not agreed by the end of the transition period. It is therefore possible that the new deal could lead to a form of ‘No Deal’ or WTO terms-Brexit scenario from December 2020 – as the Government’s own current Brexit guidance admits. Moreover, the Northern Ireland Protocol could also end if a majority in Stormont votes to end it – though the earliest this could happen by is 2026.
The Withdrawal Agreement allows for the UK and EU to agree, by July 2020, to extend the transition period once, for a period of up to two years. However, the Government has so far ruled this out. In theory, the time available for negotiating, ratifying and implementing a trade deal is therefore just 11 months – an unprecedented timetable in the context of other EU trade deals. If the transition is not extended in July 2020 and a deal is not in place by December, the default would be that the UK and EU move to trading with one another on WTO terms. This would also be the case after any extension to the transition period.
However, there may be other ways for the UK and the EU to buy more time and avoid this ‘No trade deal’ scenario – even if the July deadline for agreeing an extension is missed. If more time is needed for negotiations, the UK and EU could agree to a new bilateral “standstill” agreement replicating all or some of the transition period. Alternatively, if a deal has been negotiated but more time is needed for ratification, then those aspects of the deal which are considered an EU competence could be applied “provisionally.” And in any scenario, the transition period will probably need to be followed by a genuine “implementation period” to phase in an agreed deal – especially if the deal is based on a basic Free Trade Agreement (FTA), which would be a significant adjustment for businesses. In short, if there is political will on both sides to avoid ‘No trade deal’, then missing the deadline for transition extension need not be insurmountable.
It is also important to remember that the post-transition version of ‘No Deal’ would be different to a scenario where the UK left the EU without a Withdrawal Agreement. Recognition of these differences must inform both the public debate over a post-transition ‘No Deal’ and the Government’s preparations for such a scenario. The key differences are summarised in the table below.
For a more detailed analysis of the consequences of leaving the EU with no Withdrawal Agreement, see Open Europe’s October 2019 report, ‘Manageable but Material: the consequences of No Deal and how the Government should respond.’
The Withdrawal Agreement would remain in force even if the UK and EU moved onto trading on World Trade Organisation (WTO) terms in December 2020. In several areas, this would provide greater certainty than in a scenario where the UK left the EU without a Withdrawal Agreement:
As well as the substantive difference of having a Withdrawal Agreement in place, the additional time – with the UK moving onto WTO terms in January 2021, rather than late 2019 – may also soften the impact in some areas:
In some areas, particularly trade, the consequences of ‘No trade deal’ will be largely the same as in a ‘No Withdrawal Agreement’ scenario:
As well as the policy differences, the political backdrop to ‘No trade deal’ would be fundamentally different to ‘No Withdrawal Agreement.’ The latter outcome would likely have represented a significant rupture in UK-EU relations, with a ‘blame game’ likely to ensue over economic damage and Northern Ireland and a divisive fight over the status of the financial settlement. In this context, any joint or bilateral mitigation measures or ‘side deals’ were unlikely in the short-term.
In contrast, ‘no trade deal’, though not a harmonious outcome, would come about in a scenario where agreement on some of the most contentious issues, such as Northern Ireland and money, had already been reached by the two sides. The UK-EU institutional architecture established by the Withdrawal Agreement – such as the Joint Committee – will also remain in place, providing a platform for potential discussion of bilateral mitigation measures. In this context, the prospect of ‘side deals’ might be higher – though this will also depend on how acrimonious the failure to agree a deal is. It remains the case that, compared to an FTA outcome, a ‘No Deal’ in the second phase does carry wider geopolitical risks for UK-EU relations.