No-deal BREXIT

October 16, 2018 in Int'l Affairs, October 2018 Leave a comment

By: Mahnoor Awais

What it might mean for Britain
The United Kingdom is scheduled to leave the European Union at 11pm UK time on
Friday 29 March 2019. As both parties have, for long, failed to agree on terms of their
divorce, concerns have been rising that Britain may crash out of the bloc with a no-deal
Brexit. In August, Britain’s Foreign Secretary, Jeremy Hunt, said that the chances of a
“no deal” Brexit were “increasing by the day” whereas the governor of the Bank of
England, Mark Carney, terms them “uncomfortably high.”
The United Kingdom is due to leave the EU on 29 March next year – with the British
government insisting it is still confident of negotiating a deal on the divorce terms. But,
with fundamental differences remaining between the two sides as talks enter the crucial
phase, recent weeks have seen an increasing focus on the prospect of a “no-deal
Brexit”. Since the European Union’s negotiator has already rejected central elements of
Prime Minister Theresa May’s proposals for a new trade agreement, the chances of
Britain entering a no-deal Brexit are looking increasingly likely. In addition, PM May
believes Britain would negotiate a good agreement but that “no deal is better than a bad
deal”.
Following are some details on what a no-deal Brexit might mean.
A no-deal Brexit?
A no-deal British departure from the European Union currently can mean a number of
things. In the current climate, it would mean that during the negotiations under Article 50
of the Lisbon Treaty, no formal agreement had been reached between the UK and the
EU.
The two-year period outlined by Article 50 comes to an end on 29 March 2019 and
unless all 28 EU countries agree to extend that period, the withdrawal agreement will
have to be done and dusted well before then. And no withdrawal agreement would also
mean there would be no transition period. Instead, there would be an abrupt rupture in
UK–EU relations. Moreover, failure to reach a deal at talks with the other EU nations
could result in the overnight disappearance of rules underpinning Britain’s economic
and regulatory structure, without any replacements.
Consequences
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.
The ‘no deal’ WTO option
Recent debate about no deal has focused on the fact that the UK would automatically
fall back on World Trade Organization (WTO) trade rules. Those rules would apply
automatically to UK trade with the EU and other countries with which the EU has free-
trade deals.
The WTO is the place where countries negotiate the rules of international trade – 164
countries are members and, if they don’t have free trade agreements with each other,
they trade under “WTO rules”, which are:
1. Every WTO member has a list of tariffs (taxes on imports of goods) and quotas (limits
on the number of goods) that they apply to other countries. These are known as their
WTO schedules.
2. The average EU tariff is pretty low (about 2.6% for non-agricultural products) – but, in
some sectors, tariffs can be quite high.
3. Under WTO rules, cars and car parts, for example, would be taxed at 10% every time
they crossed the UK-EU border. And, agricultural tariffs are significantly higher, rising to
an average of over 35% for dairy products.
4. After Brexit, the UK could choose to lower tariffs or waive them altogether, in an
attempt to stimulate free trade. That could mean some cheaper products coming into
the country for consumers but it could also risk driving some UK producers out of
business.
5. It is important to remember that, under the WTO’s “most favoured nation” rules, the
UK couldn’t lower tariffs for the EU, or any specific country, alone. It would have to treat
every other WTO member around the world in the same way.
UK economy since the Brexit vote
David Cameron, his Chancellor George Osborne and many other senior figures who
wanted to stay in the EU predicted an immediate economic crisis if the UK voted to
leave and it is true that the pound slumped the day after the referendum, but it has now
regained its losses against the dollar, while remaining 15% down against the euro.
Predictions of immediate doom were wrong, with the UK economy estimated to have
grown 1.8% in 2016, second only to Germany’s 1.9% among the world’s G7 leading
industrialised nations.
The UK economy continued to grow at almost the same rate in 2017 although there was
slower growth, of 0.1% in the first three months of 2018. Inflation rose after June 2016
but has since eased to stand at 2.4%. Unemployment has continued to fall, to stand
near a 40-year low of 4.2%. Annual house price increases have steadily fallen from
9.4% in June 2016 but were still at an inflation-beating 4.2% in the year to March 2018,
according to official ONS figures.
What is Article 50?
Article 50 is a plan for any country that wishes to exit the EU to do so. It was created as
part of the Treaty of Lisbon – an agreement signed up to by all EU states – which
became law in 2009. Before that treaty, there was no formal mechanism for a country to
leave the EU.
It’s pretty short – just five paragraphs – which spell out that any EU member state may
decide to quit the EU, that it must notify the European Council and negotiate its
withdrawal with the EU, that there are two years to reach an agreement – unless
everyone agrees to extend it – and that the exiting state cannot take part in EU internal
discussions about its departure.