BRIEFING PAPER Number 08397, 8 February 2019 What if there's no Brexit By Library subject specialists deal? Contents: 1. How could no deal happen? 2. Preparations for no deal 3. Constitutional implications in the UK 4. Governance 5. Economic impact 6. Trade 7. Customs 8. Northern Ireland and the Irish border 9. Free movement of people, healthcare, social security and pensions 10. Food and Farming 11. Fisheries 12. Energy 13. Transport 14. Higher education, science and research 15. Internal security 16. External relations www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 What if there's no Brexit deal? Contents Summary 6 1. How could no deal happen? 11 1.1 Timing is crucial 11 1.2 Scenarios for a no-deal Brexit 11 1.3 Are any scenarios more or less likely than others? 13 1.4 ‘Bare bones’, side- and mini-deals? 14 2. Preparations for no deal 18 2.1 UK Government preparations 18 Departmental preparations 19 The Government steps up ‘no deal’ preparations 24 ‘Technical notices’ on no deal preparations 26 ‘No deal’ preparations are accelerated 28 Brexit legislation 30 2.2 European Union preparations 33 European Parliament report 34 Commission Brexit Preparedness Group 34 Amending EU legislation to take account of Brexit 34 Brexit impact assessment 35 European Commission steps up no-deal planning 36 3. Constitutional implications in the UK 37 3.1 Parliament’s role in the absence of a deal 37 How did this statutory role play out? 37 A further role for Parliament? 38 3.2 What happens to EU law in the UK in the absence of a transition period? 38 4. Governance 40 4.1 Current governance of the UK-EU relationship 40 4.2 Governance if there is no Withdrawal Agreement 43 5. Economic impact 45 5.1 No deal WTO scenario over long term 45 5.2 Short-term impact of ‘no deal’ 47 Bank of England’s short-term economic analysis 49 Other studies 50 5.3 Factors that could influence the magnitude of the economic impact 51 5.4 The financial settlement 52 5.5 Funding from the EU 58 Structural Funds 58 Direct funding from the European Commission 59 Agricultural funding 59 6. Trade 61 6.1 Trading under WTO rules 61 6.2 Would WTO rules allow for continuation of current UK-EU trade arrangements? 62 6.3 UK trade with the EU 64 Trade in goods 64 Non-tariff barriers 65 Rules of origin 66 Trade in services 66 Financial Services 70 3 Commons Library Briefing, 8 February 2019 Public procurement 76 Consumer protection 77 6.4 Pursuing an independent trade policy 77 New UK legislation 77 Trading with third countries 78 ‘Rollover’ of existing EU trade agreements 79 New trade deals 89 7. Customs 91 7.1 Increased customs controls 91 7.2 The Taxation (Cross-Border Trade) Act 2018 92 7.3 Concerns about management of borders 92 7.4 HM Revenue and Customs preparedness 93 8. Northern Ireland and the Irish border 99 8.1 Customs checks 99 8.2 Regulatory checks 104 8.3 Impact on trade and the economy 110 8.4 Movement of people 112 8.5 Security concerns 113 8.6 Energy 115 8.7 Other areas 117 8.8 Proposal to mitigate ‘no deal’ 117 9. Free movement of people, healthcare, social security and pensions 119 9.1 Mutual recognition of professional qualifications 126 9.2 Reciprocal healthcare 127 Medicines regulation and supply 131 9.3 Workers’ Rights 136 Current state of UK and EU employment law 136 EU employment rights if there is no deal 136 9.4 Social security 138 9.5 Pensions 142 State Pensions 142 Private pensions 144 10. Food and Farming 145 10.1 Overview 145 10.2 Farm support schemes 145 10.3 Regulatory issues: technical notices 146 Organic food 147 Genetically Modified Organisms (GMOs) 147 Fertilisers 148 Food labelling 149 Animals and animal product imports and exports 149 Plant imports and exports 150 Geographical protections 151 Pesticides 151 10.4 Food supply 153 Supply chain disruption 153 Price impacts 154 10.5 Agri-food sector concerns 155 11. Fisheries 157 11.1 Priorities for fisheries 157 11.2 Fisheries and no deal 159 Quotas and access to fishing grounds 159 Tariffs and trade 160 4 What if there's no Brexit deal? EU Preparedness and contingency planning 161 Funding for fishing communities 162 11.3 UK Technical note on commercial fishing 162 11.4 EU contingency proposals to mitigate impact of ‘no deal’ 164 11.5 Longer term impacts 165 12. Energy 167 12.1 Internal Energy Market 167 12.2 Euratom 168 Chemicals (REACH) 175 13. Transport 180 13.1 Aviation 180 Air travel 180 Security 181 Safety 182 13.2 Rail 183 13.3 Roads and vehicles 185 13.4 Ports 187 13.5 Maritime 189 14. Higher education, science and research 191 Access to research funding and Erasmus+ 191 EU students 193 EU staff in UK universities 193 15. Internal security 195 15.1 Data protection and exchange 195 Possible impact of no deal 196 Data exchange in the event of no deal 196 15.2 Cooperation in law enforcement and criminal justice 197 Possible impact of ‘no deal’ 197 Operational impact 200 Strategic influence 206 Could the UK fall back on other mechanisms for international cooperation? 207 Government contingency planning 210 Are there any potential advantages to ‘no deal’? 211 15.3 Civil justice cooperation 213 Extent of existing cooperation 213 Key measures 213 UK Government guidance 215 Civil and commercial judicial cooperation 215 European Commission Notice 216 Family law 217 Effect on ongoing civil and family cases 221 16. External relations 222 16.1 EFTA separation agreements 222 16.2 Open Skies agreement with the US 223 16.3 The EU’s international agreements 224 Government update on international agreements signed and nearly ready 225 FCO funding 226 Overseas aid spending 226 16.4 External security 227 Foreign and defence policy 227 Sanctions 229 Appendix 231 5 Commons Library Briefing, 8 February 2019 Brexit no-deal planning in the EU27 231 Contributing Authors: Elena Ares, Philip Brien, Sarah Barber, Sarah Coe, Graeme Cowie, John Curtis, Joanna Dawson, Stefano Fella, Daniel Ferguson, Daniel Harari, Andrew Haylen, Suzanna Hinson, Sue Hubble, Georgina Hutton, Tim Jarrett, Ilze Jozepa, Matthew Keep, Steven Kennedy, Sylvia de Mars, Vaughne Miller, Claire Mills, Federico Mor, Lizzie Parkin, Sara Priestley, Chris Rhodes, Ben Smith, Louise Smith, Djuna Thurley, Dominic Webb, Wendy Wilson, John Woodhouse Cover page image copyright Image brexit-3575383 by Tumisi – Pixabay. Licensed by CC0 Creative Commons. 6 What if there's no Brexit deal? Summary Article 50 of the Treaty on European Union provides for an EU Member State to leave the EU with or without a withdrawal agreement or ‘deal’. The EU and UK aimed to reach agreement by October 2018 on the UK’s terms of withdrawal and on the framework for future relations. Avoiding a hard border between Ireland and Northern Ireland proved the most difficult issue to resolve. The negotiators reached political agreement and published the text of the negotiated Withdrawal Agreement on 14 November. The solution to the Irish border issue was a temporary ‘backstop’ arrangement that would enter into force only if a future relations agreement was not available at the end of the transition/implementation period. The November agreement was endorsed by all EU Member States on 25 November 2018. The November 2018 text of the Withdrawal Agreement and the Political Declaration on the framework for future EU-UK relations did not appear to have sufficient UK parliamentary support from MPs to pass the ‘meaningful vote’ in December 2018, and the Prime Minister therefore postponed the vote until January 2019. The EU insisted it would not renegotiate the Withdrawal Agreement, creating an impasse and a greater possibility of there being no deal. On 14 January 2019 the Prime Minister sought and received assurances from the EU on the intention of the negotiators that the backstop, if implemented, should be temporary and a solution of last resort. But these assurances did not sway enough MPs, and in the re-scheduled ‘meaningful vote’ on 15 January 2019, the Government was defeated by a majority of 230, with MPs voting 432 to 202 against the negotiated deal. The Prime Minister made a statement in accordance with the European Union (Withdrawal) Act on how the Government would proceed and survived a motion of no confidence in the Government. Theresa May called on MPs across Parliament to talk to the Government about how to resolve the impasse. She continued to rule out extending Article 50 or holding another referendum. The EU continued to refuse to amend the provisions on the backstop. After a vote on 29 January in which an amendment tabled by Sir Graham Brady was passed, the Prime Minister returned to the EU to seek negotiations on legally-binding alternatives to the backstop. To date there has been no agreement on any alternatives. If there is no UK request or no EU agreement to extend the negotiations, or if either the UK Parliament or the European Parliament or the other 27 EU Member States do not endorse the negotiated Withdrawal Agreement or any negotiated amendments to it, the EU Treaties will cease to apply to the UK from 30 March 2019. Both sides in the negotiations agree that ‘no deal’ is not what they want, but some Brexit supporters would prefer it to a ‘soft’ Brexit which does not end free movement, payments to the EU, membership of the Single Market and customs union, continued adherence to EU rules and the jurisdiction of the Court of Justice of the EU.