In case it’s been a while since Brexit has been on your radar, here’s a quick recap about where things stood before the COVID-19 pandemic.
The United Kingdom only officially left the European Union in January this year and entered an 11-month “transition” period in which, for all intents and purposes, nothing really changed: freedom of movement and tariff-free trade remained in place, whilst the UK continued to follow EU rules.
The transition period was implemented to provide time to agree on the terms of the new relationship between the UK and the EU. This was to allow breathing space to resolve significant points of contention, such as fishing rights, to provide time for ratification and to give ample opportunity for firms on both sides of the border to prepare for the new arrangement. All of these things will have to happen before the (legally binding) deadline at midnight on the 31st December 2020. If no deal is made before then, the UK will simply drop out of the EU, and the two will have no official trading relationship, defaulting to the terms of the World Trade Organisation (WTO).
As a result, the UK Government imposed its own (non-legally binding) deadline of the 15th October for negotiations to end in good time. When this date passed, and it seemed that sufficient progress had not been made, Boris Johnson made a statement saying that talks between the UK and the EU are “over” and that the UK should “get ready” for an Australian-style trading situation at the turn of the year, implicitly saying that the UK is heading towards a no-deal scenario. He also indicated that the UK Government would be unwilling to make any further concessions, effectively placing the onus on the EU to make the next move if there is to be any hope of a trading deal. It, therefore, feels appropriate to try and ascertain the realistic best and worst-case scenarios, as things stand.
It’s worth pointing out that UK-EU talks have still not yet formally ended and that a deal is still technically possible. On the 16th October, President of the European Commission Ursula von der Leyen commented that “the EU continues to work for a deal, but not at any price,” and that the EU’s chief negotiator Michel Barnier would be travelling to London in the coming week to “intensify” negotiations (although David Frost, the UK’s chief negotiator, has told him not to come). In this sense, with a deal still possible, the absolute best-case scenario for the United Kingdom could be the ‘Canada-style’ deal it had been pushing for since the start of this year. This may therefore be considered the best-case scenario, at least for the UK.
The EU’s trade deal with Canada, the Comprehensive Economic and Trade Agreement (CETA), abolishes most tariffs on goods between the EU and Canada and increases quotas on trade between the two, which is how much of a product can be exported before extra charges are imposed. Additionally, there is further cooperation between them on safety and quality standards, recognition of qualifications and geographical indications, all of which ease trade.
However, a deal like this is quite unlikely in the case of the United Kingdom because the trading relationship is quite different; especially if you consider that the UK and the EU are neighbours, whereas Canada is thousands of miles away, and that neighbours tend to do far more trade with each other; the UK’s trade with the EU comprised 45% of all its exports in 2018, compared to a mere 7.9% of Canadian exports in 2017. As a result, the EU argues that its arrangement with the UK would have to be far more detailed and aligned with EU standards to guarantee any type of free trade agreement.
Some of the most significant sticking points that make a Canada-style deal unrealistic include fishing rights and the level playing field. While fishing is a minuscule component of the UK’s and the EU’s economies, the UK wanted to retain access to the EU market to sell fish. Still, in return, the EU requested access to UK waters for its boats to fish, which is a deal-breaker for the UK, which wants to become fully independent in this regard. Additionally, and perhaps most significantly, is the level playing field; which the EU wants to establish so that businesses on one side of the border to not have an unfair advantage over the other, especially when you consider how intertwined the UK-EU trading relationship is. Therefore, the EU wants the UK to continue to follow its policies on workers’ rights and state aid, among others. However, the UK is vehemently opposed to this, arguing that leaving these common rules in place would defeat the purpose of doing Brexit at all.
Finally, what is the potential worst-case scenario for Brexit? The UK has already taken a considerable financial hit as a result of the Coronavirus pandemic and subsequent lockdown, and its economic recovery has been a lot slower than many analysts expected. Additionally, COVID-19 cases have increased in recent weeks, and there are fears that the transmission and death rates will increase dramatically as the climate gets colder. As a result, there are some concerns that a no-deal Brexit on the 31 st December might create a situation in which these pre-existing problems are compounded with the further economic hit of no-deal, as well as the potential of food or medicine shortages should the imposition of tariffs greatly affect imports from the EU.
It’s known that the Government have prepared for a similar situation in 2019, in the case of Britain leaving the EU without a withdrawal deal (which in the end, was not the case), known as Operation Yellowhammer. Additionally, a document leaked by the Sun in August suggested that the Government is currently preparing for a similar worst-case (no-deal) scenario in the event of a lousy Coronavirus situation, the impact on an already-weakened economy and goods shortages caused by delays during border checks; even accounting for the potential of civil unrest. It’s worth pointing out, however, that a Government spokesperson stated that this was “not a forecast or prediction … rather a stretching scenario,” indicating that this is not a likelihood, just the Government accounting for an absolute worst-case scenario.
Overall, time is running short for a free trade deal between the UK and the EU to be struck and every day that passes makes it seem increasingly unlikely, considering that there has been little-to-no progress on critical points like the level playing field since the start of this year.
Featured Image via Reuters