There is a new form of climate change about. A “toxic climate” has been developing in the UK, affecting both parliamentary and public debate about Brexit, which is scheduled for October 31 2019. Much unhappiness centres around the spectre of No-Deal Brexit, which is variously regarded as being catastrophic, undesirable, or even entirely desirable. Many pro-Brexiters fervently believe that the UK will benefit by leaving the protectionist wall of the EU Customs Union and by negotiating independent free trade agreements with the rest of the world.
So, what is a No-Deal Brexit? It means that the UK abruptly leaves the European Union (EU) on October 31, without any agreed period of transition allowing for interim arrangements. Overnight, the UK will leave the single market and the customs union, and cease to be a member of all other EU institutions. EU environmental, consumer protection, workers’ and citizens’ rights, data privacy and other decisions, directives, laws, regulations, and standards will no longer automatically apply to the UK. The sharing of information. such as counterintelligence related to terrorism, may be compromised.
Leaving the single market will lead to the re-imposition of fiscal barriers (tariffs) and physical and technical barriers (borders and divergent product standards) with the rest of the EU. The UK will, on the other hand, no longer have to contribute to the EU budget to the tune of £9 billion per annum. Post-Brexit, the UK will be subject to the trading rules of the 164-member World Trade Organisation (WTO), the terms of which have yet to be negotiated. This entire scenario has been described by some as “crashing out” or as “going over the cliff-top.”
The four freedoms of the EU, as set out by the Treaty of Rome of 1957, are the free movement of goods, services, capital and persons within the EU. Naturally, on leaving the EU, all the above freedoms will automatically cease to exist in the absence of any deal. The uncompensated effects of the losses of these freedoms are what define the No-Brexit situation.
The movement of goods is of particular importance, as tariffs (taxes) and quotas (limits) will potentially apply to all goods moving across the UK-EU border. In 2018, 46% of all UK exports went to the EU, with which trade is currently frictionless. With a No-Deal Brexit scenario, the UK will gain “third country” status, leading to the imposition of additional legal, regulatory and administrative barriers to trade. Bureaucracy, paperwork and the need for checks will inevitably increase. For example. UK exporters will be required to obtain a 12-digit EORI (Economic Operator Registration and Identification) number, starting with GB. At the same time, all imports from the EU will require an EU EORI number.
Goods from the EU are mostly transported by road hauliers in lorries through the main Channel port of Dover, and to a lesser extent via other ports, including the Humber ports. Vehicle operator licenses and permits and newer proofs of driver competency will be required. It has been predicted that bottlenecks in the port of Dover may lead to long queues of lorries, converting the M20 motorway into a vast lorry park. Brexit may also cause delays from customs checks on goods in the Dutch ports such as Rotterdam, which act as a conduit for some British imports from outside the EU, such as from East Asia.
Tariffs on agricultural products from the EU will lead to higher food prices, with wide implications. The EU is currently the main importer of UK dairy products and the almost exclusive supplier of UK dairy imports. The UK imports 70% of fish eaten and exports 80% of the catch of British fishermen. Tariffs on cars imported from the EU will inevitably add to the costs of purchase. However, the UK government’s temporary tariff regime will make 82% imports from the EU free of tariffs, down from the current 100% tariff-free trade. Restrictions on the movement of medicines, medical devices and equipment, and medical isotopes may cause problems for the NHS, mandating the stockpiling of vital medicines. Of the 12,300 medicines licensed for use in the UK, around 7,000 arrive from or through the EU. Animals and animal products will need export health certificates. Trade with non-EU members may compromise current animal welfare, environmental stewardship and food hygiene standards.
The means of regulation of trade in goods between the Republic of Ireland and Northern Ireland has yet to be agreed upon. In the absence of physical border controls, a variety of alternative technological solutions have been suggested. These include the issue of authorised economic operator status for large businesses, the tracking of motor vehicles crossing the border, and monitoring of the border using mobile units, closed-circuit television and automatic number plate recognition (ANPR). Whether these solutions are likely to be acceptable to the EU remains to be seen. Technology-based solutions have yet to prove effectiveness and actually have been abandoned at the Norway-Sweden border.
Restrictions on the movement of services may have implication for financial services, as some banks and other financial institutions may choose to leave the City of London and move back to the EU, taking with them their assets, funds and staff. On the other hand, less financial regulation and lower taxes may lead to the UK becoming the “Singapore” of the North Sea, attracting other financial services to the City.
Capital outflow (capital flight) may result from disinvestment and withdrawal from the UK of foreign capital, and EU investors may find it less attractive to invest in a new No-Deal UK. The move by many manufacturers to the rest of the EU and beyond, particularly Asia, may have resulted from uncertainties about the implications of the Brexit process.
The free movement of people across the borders of the UK has always been a contentious issue, and the need to control immigration is undoubtedly one of the reasons behind the vote in favour of Brexit. However, the movement of both skilled and unskilled labour between the EU and the UK is likely to hit certain sectors of the economy, such as health and social care services and the agricultural , construction, and restaurant sectors. The Royal Society has raised concerns about impedance to the free movement of scientists between the EU and the UK. The status of the three million EU citizens currently living and working in the UK and of 1.3 million UK citizens domiciled in EU countries remains uncertain.
Preparation for a No-Deal scenario appears to be patchy and incomplete. The complexity of the situation does not appear to match up to the apparent readiness of the UK government to deal with the consequences. The UK government website has produced guidance for businesses and travellers, but some of the guidance has not been updated since March 2019. A “worst-case scenario” has been outlined in the government’s Operation Yellowhammer document. Despite this, many people remain unclear about what will actually happen after a No-Deal Brexit, nor is it possible with the information available to make any useful predictions. The British public will have to await the machinations of their politicians and allow the passage of time before things become clearer on October 31.
Ashis Banerjee (bewildered, but neutral, observer of Brexit)