There’s talk of chaos and the need to stockpile food and medicines – but what would really happen if Britain crashes out of the EU without a trade deal? Simon Wilson reports.
What is the legal situation?
The UK gave notice in March 2017 that it was leaving the EU, under the now-famous Article 50 of the Lisbon treaty. Under its terms the two parties are required to negotiate a withdrawal treaty and a framework agreement for future trade. The deadline, unless both sides (including all 27 other member states) agree to extend it, is the end of March 2019. If no deal is concluded by then – and no temporary “agree to disagree” bridging agreement were secured – the UK would “crash out” of the EU with no deal and no transition period. Moreover there is a possibility, too, that there may be no majority in the UK parliament for whatever deal is concluded – again leading to Britain “crashing out”. It would immediately become a “third party” country in the EU jargon – out of the single market and customs union and with no trade agreement to replace them.
What would this mean in practice?
The government, which has long been accused of not doing enough to prepare for the possibility of no deal, is due to publish a series of advice papers to businesses and households on how to cope with a no-deal Brexit. The first batch of papers is due later this month. But almost all observers agree that if there were really a rupture of this kind (which is still an outside possibility, although Liam Fox purports, for negotiating purposes, to assess the chances at 60%), the immediate result would be chaos. Hardline “clean” Brexiteers insist that trading on basic World Trade Organisation (WTO) terms would be no disaster, and would allow the UK to get on with making its own trade deals. In the short term, though, a no-deal Brexit would be disorderly and its longer-term consequences unpredictable.
Because the UK’s businesses, supply chains and regulatory frameworks are so closely interwoven with the EU’s. Britain’s whole negotiating position has always been based on the idea that the moment of Brexit itself would be scarcely noticeable, and that it would have (almost) two years of transition/“implementation” to agree a comprehensive free-trade deal with its friendly ex-EU partners. But with no deal, all that is gone. Without a withdrawal agreement, there’d be no agreement on the £40bn exit bill, no guarantees on citizens rights, no agreement on averting a hard border in Ireland – and in their place much bitterness and recrimination. Such a scenario would be high-risk for Britain, to put it mildly.
What would happen?
Some hardline Brexiteers argue that the UK should just keep its borders open, without customs controls or tariffs. But that’s a non-starter, because the WTO’s “most favoured nation” rule – ie, the rule that WTO members must treat all other members equally – means that the EU would not legally be able to reciprocate. Britain would rapidly discover that “unilateral” free trade is a fast way of destroying its farming and manufacturing sectors. Yet even a brief period in which Britain’s borders were closed to imports would rapidly become a national crisis. That’s because imports and exports account for more than 60% of GDP (twice the level of the US, for example) and we get half our food from abroad – the bulk of it via EU ports. Meanwhile, the UK would fall out of pan-EU regulatory bodies on air safety, medicines, nuclear materials, vehicle safety and food – with no time to create regulations of its own that other countries would recognise.
This isn’t “Project Fear Mark II” – it’s a real prospect that must be avoided
How quickly would problems start?
Within hours. Take food – a sector where safety standards are vital (because dodgy meat, say, can kill you). The UK imports about 10,000 containers of food from the EU every day. If we left the EU with no deal, frictionless trade based on common regulatory standards would immediately be replaced by a regime of inspections and certification that we are currently not equipped to carry out. But the whole system of delivering “just in time” is built on frictionless trade. An Imperial College traffic-modelling study earlier this year found that if the current average paperwork clearance at Dover were increased by just four minutes, there would be a 20-mile tailback on the UK side within the first 24 hours – and it would get longer from there. At the same time, without recognised regulation, British food exports would shrivel up.
So should we be stockpiling food?
The sheer scale of the challenge makes it obvious that such a scenario needs to be avoided, rather than planned for. As The Economist points out, Britain spends about £50bn a year on medicine and non-perishable food from the EU. So stocking up with enough to last just a month would cost £4bn – more than the government’s entire no-deal planning budget of £3bn.
Could all this really happen?
Crashing out of the EU remains highly unlikely, since it’s not in the interest of either the EU or the UK, and there’s no majority for it in the UK parliament. Even a “moderate” form of no deal, in which the UK and EU “amicably” agree that no deal is possible, and the UK leaves anyway with some minimal pledges on neighbourly co-operation – a so-called “blind Brexit” – would be massively risky. It would raise customs checks and tariffs overnight, potentially lead to capital flight and a run on the pound, and risk trashing the UK’s vital reputation as a stable nation that meets its obligations. Even among many Tory Brexiteers (reportedly including Michael Gove), there is a recognition that this kind of scenario isn’t “Project Fear Mark II” – it’s a real prospect that must be avoided. Perhaps that might even be via membership of the EEA (in the single market but out of ever-closer union) that was for so long the mainstream favoured option of business-friendly Tory eurosceptics.