No-deal Brexit Q&A: What happens if UK-EU trade talks fail?
Post-Brexit trade negotiations between the UK and EU have stalled after four rounds, leaving both sides just months to avoid a no-deal scenario.
Brussels’ EU negotiator Michel Barnier complained yesterday that the UK was trying to “cherry pick” benefits of EU membership without the responsibilities.
Chief UK negotiator David Frost and senior cabinet members have continually accused the EU of not treating Britain as a sovereign, independent state in negotiations.
The disagreemeents principally revolve around EU access to UK fishing waters and business competition regulations or the so-called level-playing field.
The UK’s transition period ends on 31 December, leaving little time left for a deal to be struck.
With the clock ticking, what will it mean for the UK if it leaves the Brexit transition period on a no-deal basis?
What is the Brexit transition period?
The UK officially left the EU on 31 January this year, after the Conservatives’ election landslide victory allowed Boris Johnson to pass his withdrawal agreement in the House of Commons.
However, the UK still remains in the EU’s single market and customs union in a transition period until 31 December.
During this period, the UK still retains freedom of movement with the EU and still trades without any tariffs, quotas or customs checks.
Johnson gave negotiators just one year to complete the trade agreement, which has been made even more complicated by the coronavirus pandemic.
UK officials have said they need to see a deal is possible before the end of summer, or else they will walk away from Brexit negotiations and prepare to leave the transition period on a no-deal basis.
What happens if the UK leaves the transition period without a trade deal?
If there is no free trade agreement struck, then barriers to trade will immediately be erected between the UK and EU.
EU member states and the UK will trade on World Trade Organisation (WTO) terms, meaning there will be tariffs implemented and new customs paperwork to fill out.
It would also lead to necessary border checks for goods.
The UK would trade with the EU on “most favoured nation” terms, which would see tariffs at an average of six per cent.
However, they would be much higher for some industries, such as the agricultural sector.
City of London firms would also no longer be able to access EU markets, which would be troublesome for the UK’s financial services industry and for businesses across Europe.
Almost half of all debt and equity issuance for non-financial Eurozone firms between 2012 and 2018 came from banks based in London.
Before the Open newsletter: Start your day with the City View podcast and key market data
A study from the United Nations’ trade body estimates the UK would lose out on up to $32bn (£25.5bn) of exports if there is a no-deal Brexit.
One difference between a no-deal scenario now and one year ago is that the withdrawal agreement settled the issue of Northern Ireland.
Northern Ireland will enter into a customs union with the EU to ensure there are no hard borders erected on the island, which would be in contravention of the Good Friday Peace Agreement.
As a result, there will need to be checks on some goods – such as agrifoods and live animals – crossing between Northern Ireland and Great Britain.
Why have trade negotiations stalled?
The two most contentious issues are fishing policy and level-playing field demands.
EU member states are pushing to retain the same access to UK fishing waters as they had when Britain was in the EU.
Frost has described this as a “non runner” and is asking for a “zonal attachment” agreement, which can be periodically reviewed.
Frost said the UK would be “an independent coastal nation” on 1 January next year in any case.
The EU is also asking for the UK to match regulations on things like labour laws, environmental protection and state aid provisions.
In return for this level-playing field, the EU has said it will allow zero-tariff trading with the UK.
UK negotiators have said they will not allow the EU to set British regulations on these issues.
Last month, a source close to Frost said: “We can’t accept arrangements which mean we need to have EU law prevailing in the UK or mechanically follow what the EU does without having a choice about it.
“That’s what there can’t be compromise about.”
Yesterday, Barnier said the UK was trying to “cherry pick” benefits of EU membership without the added responsibilities.
“The UK chose to become a third country – it cannot have the best of both worlds,” he said.
“This is simply not in the long term political or economic interest of the EU.”
A third flashpoint between the camps is the overall governance of the deal.
The EU wants disputes be governed by the European Court of Justice, which Downing Street says is anathema to the concept of Brexit.
Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen are set to meet for high-level meetings this month in an attempt to remove some of the blockages in negotiations.
Could there be an extension to the deadline?
The UK government has said time and again that it will not ask for an extension to the deadline and that if the EU asks it will say no.
Barnier and the EU negotiating team have said they are open to a deal, and that they would be happy to extend for up to two years.
Some have called an extension necessary due to the coronavirus crisis and the expected fallout.
International Monetary Fund chief Kristalina Georgieva has said an extension to the deadline is necessary to remove global economic uncertainty.
Frost has said he will not seek an extension as the UK needs to be free of EU rules while it tries to manage the economy post-Covid-19.