What does a 'no deal' Brexit mean and how bad could it get?
Brexiters are counting on the EU's economic self-interest but any breakdown in negotiations could be hard to contain
Calls are growing among Conservative politicians for Britain to walk away from the deadlocked Brexit talks and prepare for the consequences of leaving Europe without a diplomatic agreement in place. From grounded airlines to soaring unemployment and empty shops, the implications could be dramatic.
What does 'no deal' mean?
Just as there are a variety of different deals that could be struck between Britain and the EU, there are many ways in which Brexit talks might break down. Most assume a failure to agree the terms of divorce – the size of the financial settlement, or the role of the European court of justice – followed by a walkout by negotiators and no discussion at all on future trade arrangements. This would mean relying instead on non-EU treaties, such as shared commitments to the World Trade Organization and the Hague convention, to govern ongoing cross-border affairs. It is possible, however, to imagine a more amicable "agreed no deal", in which divorce talks end with a limited settlement that plans for an orderly exit but is not sufficient for the EU to allow full-scale trade negotiations at this stage.
How bad could it get?
The worry is that any breakdown among negotiators will be hard to contain. The chancellor, Philip Hammond, has warned of a "bad-tempered scenario" in which neither side acts in their own best economic interests. Many Europeans regard the dispute over money not as an early round of bargaining but as a matter of good faith. If the Brits cannot be trusted to settle their past promises, why bother striking future deals? Walking out could therefore be treated as a legal default, with litigation in the international courts and even asset confiscation. Never mind free trade talks, such an atmosphere could make it impossible to agree a replacement for all manner of existing arrangements governing travel, immigration and customs.
What might this mean in practice?
The extreme scenario raised by Hammond would be one in which even basic infrastructure arrangements such as airline treaties are not replaced, preventing UK carriers from landing at EU27 airports. Some in the aviation industry say this is not so far-fetched and could begin to bite as soon as this March when they will be unable to guarantee the validity of tickets issued a year in advance. Ports and land crossings could be just as chaotic, with long queues of lorries waiting to clear customs and a politically explosive hard border returning to Northern Ireland. It is even possible that progress in negotiations on citizens rights could be reversed, forcing EU citizens to leave the UK and imposing visa requirements on Britons travelling to Europe.
Is there a rosier scenario?
For many Brexiters, such talk is little but remoaner scaremongering. They believe the benefits of a "clean Brexit" easily outweigh the risks of being forced to take whatever deal the EU chooses to force upon Britain. Much of their confidence comes from the assumption that economic self-interest would force the EU to agree some basic measures to keep borders open and trade flowing. In the meantime, they point out that both China and the US rely on little more than WTO rules to trade perfectly successfully with Europe, as does Britain when trading with them. Though WTO tariffs are high for food and cars, most manufactured goods would see little change in export duties. Over time, the hope is that Britain could return to the negotiating table to agree rules that would facilitate EU trade in services and find other ways to compensate for lost agricultural markets by looking to faster-growing markets abroad.
Is WTO that simple?
The trouble is that even the WTO option no longer looks so simple. The US has just rejected joint efforts by the UK and the EU to extend existing quota arrangements post-Brexit and may instead require extensive negotiations just to return Britain to the status quo. Inheriting other existing bilateral trade deals may also prove trickier than Britain imagines, let alone striking new ones with countries that seem more interested in accessing the larger EU market first. Under a no-deal scenario, the high cost of inflicting WTO terms on British farmers and carmakers would come alongside onerous new customs procedures that could make the export of fresh produce and just-in-time supply chains all but impossible. Unemployment would soar and supermarkets warn of empty shelves and rising prices if the continental umbilical cord is cut in such a way.
Can Britain prepare for this?
The scale of the challenge partially explains Treasury reticence to spend money preparing for this eventuality. But Brexiters fears that unless Britain shows it is ready for a no-deal outcome, it will inevitably be forced to accept the worst deal instead. This might mean buying land near cross-channel ports that can be used to hold lorries awaiting customs clearance and investing in new IT solutions. But as sceptics have pointed out, even the most streamlined customs process is useless if it is met with indifference or even outright hostility from disgruntled trade partners on the other side of the border.
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