Alternatives to a no-deal outcome in negotiations with the EU

What would ‘no deal’ mean?

The UK can leave the EU with or without a withdrawal agreement, but the Government has said it wants a smooth and orderly Brexit. Leaving the EU without an agreement would not be smooth or orderly.

If for whatever reason there is no withdrawal agreement by 29 March 2019, and no unanimous agreement to extend the two-year period, the EU Treaties will automatically cease to apply to the UK.

‘No deal’ would result in UK-EU trade being subject to general WTO rules, meaning increased barriers to trade in goods, with no preferential tariff agreement and possibly preventing some trade in services.

There would be no transitional period and possibly no other agreements with the EU on matters such as data sharing, aviation or customs co-operation. It would also mean significant uncertainty about all the other issues in the negotiations, such as citizens’ rights.

Leaving with no withdrawal agreement would not necessarily prevent the two sides from reaching future bilateral agreements on any or all of these matters. But on Brexit day the UK and the EU would not have concluded such agreements.

Both sides have said they want to avoid this, but it is still a possibility.

Alternatives to no deal

The Institute for Government has published a graphic showing various possible scenarios for the UK’s future relations with the EU, including two no deal scenarios: “bad-tempered no deal” and “amicable no deal”. It also lists “delayed deal” and “deal”.

“Bad-tempered no deal” would mean the UK leaving the EU, probably on bad terms with the other Member States, with no withdrawal agreement and no framework for a free trade agreement (FTA) or any other agreements. One possibility would be to seek more time to negotiate Brexit – unlikely to be granted by the EU27 if good will has been lost - while other options are various forms of a ’softer’ Brexit. The Times commented on 10 November that somewhere between ‘no deal’ and the comprehensive free trade agreement with the EU that the Government would like “is an agreed no deal – where both sides recognise they are not going to secure a full agreement but there is enough goodwill left to lock in those things they have already reached agreement on as part of a minimal deal”.

Possible ways of dealing with ‘no deal’ in March 2019 are summarised below.

Keep negotiating under Article 50 TEU

If the negotiating parties fail to agree or are likely to fail to agree an acceptable withdrawal agreement, or if the European Parliament or the UK Parliament vote against the draft withdrawal agreement, the UK Government could ask the other 27 EU Member States to extend the negotiating period and continue negotiating in the hope of reaching agreement. This would require the unanimous agreement of the EU27.

The UK Government has already ruled this out, opting instead for a roughly two-year implementation (transition) period in which the UK would not be a Member State but would continue to apply the EU acquis and would transition out of the EU by the end of 2020.

Revoke the withdrawal notification and maintain the status quo

Some have suggested the UK could revoke Article 50 TEU and stay in the EU on current terms of membership. There is a debate as to whether Article 50 can be revoked, and if so, how (i.e unilaterally by the UK Government, or only with the agreement of the EU27). The Government could seek an answer to the question of the revocability of Article 50 from the Court of Justice of the EU. But revoking the Article 50 notification of withdrawal would contradict the June 2016 referendum result and the Government’s insistence that “Brexit means Brexit”.

The Government has ruled out both revoking Article 50 and a second referendum on the outcome of the negotiations.

‘Softer’ Brexits

Staying in the Single Market and Customs Union

The Government intends that the UK should leave both the Single Market and the Customs Union, but seek a customs agreement or arrangement, and a “deep and special” trading relationship with the EU that gives access to the Single Market. Some on the remain side have called for the UK to stay in both. But for the EU, the Single Market is indivisible and the UK cannot ‘cherry pick’ aspects of EU membership which it likes.

Membership of and access to the Single Market are explained on pp7-8 of Library Briefing Paper 7694, Brexit: trade aspects, 9 October 2017. There is also a discussion of this issue in a blog by the Trade Policy Observatory at Sussex University.

Comprehensive free trade agreement

The Government would like a “comprehensive” partnership with the EU, which would include trading on favourable terms, UK participation in several European agencies (especially in science and research), UK control over EU immigration and the ability to strike new trade deals elsewhere. Security cooperation would continue as at present.

The free trade agreement option such as that agreed in the EU-Canada Comprehensive Economic and Trade Agreement, falls between the two extremes of WTO and EEA membership. But while the European Commission has described CETA as “the most ambitious trade agreement that the EU has ever concluded”, the UK Government has said CETA is not enough; it would like a “CETA plus plus plus”.

Agreed no deal

If no deal is reached by 29 March 2019 and there is little prospect of the “comprehensive, bold and ambitious” new relationship the Government wants to have agreed at least in framework, both sides would seek to make the best of the lack agreement and try to salvage, from the areas they did reach agreement on, something that would prevent the most damaging aspects (for both the UK and the EU) of the UK crashing out of the EU. This might involve, for example, many elements of citizens’ rights being implemented and compromise solutions in aviation, customs and possibly WTO terms in trade.

Norway model (EEA)

The Norwegian model is closest to EU membership. Norway is a member of the European Free Trade Association (EFTA) and is in the European Economic Area (EEA). This is covered in section 3.4 of Briefing Paper 7694.

The aim of the EEA is to extend the EU Single Market to the three participating EFTA States, Iceland, Liechtenstein and Norway. The EEA Council takes political decisions leading to the amendment of the EEA Agreement, including the possible enlargement of the EEA. Decisions by the EEA Council are taken by consensus between the EU on the one hand and the three EEA EFTA States on the other (see EFTA FAQs). But there is limited scope for EEA-EU states to influence EU decision-making.

Under Article 126 of the EEA Agreement, it is impossible to be a party to the EEA Agreement without being a member of either the EU or EFTA. So the UK would probably have to seek membership of EFTA first.

EFTA

If the UK were to seek to re-join EFTA, it would become part of the free trade area between the four EFTA states - Norway, Switzerland, Liechtenstein and Iceland - which covers trade in most goods and services, and eliminates tariff barriers. EFTA is economically motivated. It does not issue legislation or establish a customs union, and decisions are made by unanimity.

The UK would be able to sign up to the free trade agreements EFTA states have with third countries (27 free trade agreements covering 38 countries), but participation in these agreements would probably not be automatic.

Professor Carl Baudenbacher, President of the EFTA Court since 2003, outlined issues for the UK in written evidence to the Exiting the EU Committee on 30 January. Section 4 of Library Briefing Paper 7214 Brexit: some legal and constitutional issues and alternatives to EU membership, 28 July 2016, looked at alternatives to EU membership, including EFTA. EFTA was also discussed in the International Trade Committee’s report on UK trade options after 2019 (see page 53).