UK Constitutional Law Association

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Christina Lienen: Why the Implications of ‘No Deal’ Are No Mere ‘Exercise in Guesswork’

Theresa May is to trigger Article 50 on 29 March 2017, kicking off the two-year negotiation period during which the relationship between the UK and the EU will be redefined. On 12 March the House of Commons Foreign Affairs Committee published their ninth report of the current session: ‘Article 50 negotiations: Implications of ‘no deal’’. This is the first Select Committee publication focusing specifically on the implications faced by the UK in the event of a ‘no deal’ situation, with reference to a range of different sectors, policy areas and circumstances. Last week the concerns raised in the report as to the Government’s position or rather the apparent lack thereof regarding ‘no deal’ implications seemed to be confirmed when the Secretary of State for Exiting the European Union made headlines telling the Brexit Select Committee that the Government had done no economic assessment of the possible effects of a “no deal” scenario. On 24 January 2017, similar remarks were made when Davis said that there were so many different things to assess, considering implications of ‘no deal’ would be ‘nothing more than an exercise in guesswork at this stage’. In this post I will highlight the most interesting points raised in the report which go to show that, contrary to what the Government suggests, it is actually both possible and vital to assess what areas require particular attention and what challenges this would bring. Beyond the question of ‘no deal’ implications, there are various aspects that the report touches upon which would benefit from academic discussion.

Before going into the different sectors and policy areas raised, the report makes two observations that are important for its ensuing analysis. They are also vital to bear in mind during future discussions of the Article 50 negotiation process in general. First, regarding the number of deals to be made, it is said that:

‘Article 50 leaves considerable room for interpretation regarding the extent to which the ‘future framework’ for relations between a withdrawing state and the remaining EU should be included in the negotiations and the final agreement. Witnesses to this inquiry suggested that the negotiations would be likely to involve three separate but inter-related deals: a ‘divorce’ settlement, a transitional arrangement, and a deal on the long-term relationship.’

As the report points out, whether these will be negotiated in parallel or one by one depends of course not solely on the UK’s strategy; the European Commission seems to have suggested that it will only commence talks on any future relationship once the ‘divorce’ settlement has been reached. Also, once Article 50 has been triggered, the EU member states ‘will need to agree on the guidelines mandating the Commission to negotiate on their behalf’ [20].

Second, the report demonstrates that there is indeed a real possibility of there not being a deal at the end of the negotiation period. First of all, the Government has continuously said that it will walk away from the negotiations should the final deal not be considered appropriate [16-17]. Secondly, and very importantly, the report points to the fact that the UK Government will not just be dealing with the EU institutions (we are reminded also that the European Parliament has a veto power at the end of the process [24]), but that the process will be interrupted by numerous highly important national electoral events, such as the French presidential election and the German Bundestag elections this year, and other aspects of domestic politics [18] which may significantly delay negotiations. Thirdly, the ‘highly contentious question of the exit ‘bill’ – the UK’s claimed financial liabilities’ could derail negotiations in their early stages [21]. Finally, it is pointed out that either way two years is a very short timeframe [27] and that one needs to account for error or miscalculation along the way [22-23]. Whether or not it is reasonable to try to put a figure on it, Lord Kerr of Kinlochard who was involved in the drafting of Article 50  has suggested that the chance of a ‘no deal’ situation is at 30% [29].

Against this background, the report looks into six key areas that may be significantly affected by a ‘No Deal’ situation. These are:

  • Ongoing disputes over the exit “bill”;
  • Uncertainty and confusion for UK citizens in the EU and EU citizens in the UK;
  • Trading on World Trade Organisation (WTO) terms;
  • A ‘regulatory gap’ and legal uncertainty in areas not covered by the “Great Repeal Bill”;
  • Uncertainty over UK participation in the EU’s common foreign and security policy; and
  • The sudden return of a customs border between Northern Ireland and the Republic of Ireland [32].

Pressed for space, I will focus on the third (WTO) and the fourth (regulatory gap) here, as they strike me as having particularly severe consequences. Regarding the third point, the Economist put it nicely when it said that ‘there are few widely agreed truths in the Brexit debate, but one of them is this: if Britain fails to reach a trade deal with the European Union after Brexit, it will have to fall back on the “WTO option”.’ A comprehensive summary as to what that would entail has been published in the form of a Briefing Paper by the University of Sussex. The report points out that trading with the EU on WTO terms would ‘almost certainly involve the immediate imposition of tariffs across a range of sectors, which would have differentiated impact as they are low on many products, such as automotive parts (5%), but high in sectors such as agriculture (30–40%)’ [40]. Further, there are concerns as to what trading under the WTO Rules would mean in terms of administrative efforts and regulation – as Sir Ivan Rogers, former Permanent Representative of the United Kingdom to the European Union, pointed out to the Committee:

‘If you are a third country in EU jargon and doctrine, first of all you have to be on the list of countries permitted to export into the EU market. Secondly, individual firms then have to be approved, and thirdly individual consignments have to be cleared before the goods or services are allowed on the EU market. That applies to all nonmember states. That is my point in response to what I perceive to be the argument, “Why is not WTO only fine? We have moved to a world outside, but they all know that we are the same beast the day after as we were the day before”.’[40]

Arguably, the UK would not necessarily find itself in this position for long. The EU has special arrangements with other big trading nations, such as Australia and Canada, and a similar deal could be struck with the UK. In other words, it does not all have to be doom and gloom, however it is important to realise that any arrangement other than the default position under the WTO rules would have to be negotiated separately, and effectuated through positive steps.

Regarding the fourth point, this links with concerns raised about what the Great Repeal Bill can achieve (see Mark Elliott and Stephen Tierney, Sionaidh Douglas-Scott and Thomas Horsley, see also this House of Commons Briefing Paper). Professor Armstrong told the Committee in evidence that:

‘There is potentially massive disruption in the ordinary, day-to-day boring business of administering legal frameworks. It is the iceberg below the top level of the legislation that we see in the Great Repeal Bill. We know that that will be a difficult task, to put in place the legal framework to deal with the legislation, but I think it will look like a sixth-form project compared with the task of putting in place the structures of co-operation between administrators outside the structures of the European Union’. [46]

Crucially, there are estimated to be more than thirty EU regulatory bodies, ‘covering sectors as varied as aviation, fisheries, food safety, medicines, law enforcement and financial service’ [48]. A clear example of the challenges this may pose in practice is provided by Hugo Leith of the Bar Council in relation to what this means for authorising certain types of medicine.

‘To take the medicines example [ … ] the Europe-wide authorisations that can be given for medicines and which are compulsory for some kinds of medicines—those for the treatment of diabetes, cancer, AIDS, rare conditions and so on—have to be held by an undertaking that is established in the EU. So if UK companies wanted to hold on to their authorisations, they would have to move or establish a place of business in another member state. That would impose some costs and challenges to their business’. [48].

To summarise the other four points raised, there is some focus on the resort to ordinary public international law and potentially arbitration should the dispute over the exit bill not be resolved during the two-year period [34], the possibility of unilateral action in relation to guaranteeing EU citizenship rights post Brexit [37], the status of UK assets deployed as part of ongoing EU missions [50], and the necessity of some form of customs checking arrangements [52].

In conclusion, this report rightly suggests that the consequences of a ‘no deal’ scenario are largely predictable, and the potential risks associated with it should be assessed and a contingency plan developed, otherwise private individuals as well as public institutions might face considerable uncertainty and hardship post Brexit. Such an evaluation is particularly pertinent in light of the fact that the possibility of the UK finding itself in a ‘no deal’ situation is not as remote as one may be inclined to think.

Christina Lienen is a PhD Candidate and Teaching Fellow at University College London and a Legal Assistant at 6 Pump Court. 

(Suggested citation: C. Lienen, ‘Why the Implications of “No Deal” Are No Mere “Exercise in Guesswork”‘, U.K. Const. L. Blog (24th Mar 2017) (available at https://ukconstitutionallaw.org/))

One comment on “Christina Lienen: Why the Implications of ‘No Deal’ Are No Mere ‘Exercise in Guesswork’

  1. Paul W
    March 24, 2017

    Just to slightly demur on this article: Mr Davis didn’t say the Government had done no economic assessment of a ‘no deal’ scenario.

    He said that the UK government had not assessed the economic impact of such an outcome “to my satisfaction” since last year’s referendum. So two points: there was an economic assessment before the referendum and it was roundly criticised for the way it had been prepared, and secondly the Treasury still hasn’t produced a revised model that is less conceptually flawed, hence his remark ‘to my satisfaction’. See
    https://www.ft.com/content/923aa44c-0a72-11e7-ac5a-903b21361b43

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