30.Asked on the Floor of the House why the Government refused to give evidence to this inquiry, the Secretary of State for Exiting the EU said:
[ … ] we will provide as much information as we can. However, this is a question of a negotiation, and we do not know where the end game will be [ … ] There are so many different things to assess that it would be, frankly, nothing more than an exercise in guesswork at this stage.
31.In reality, however, the key issues that would be left outstanding if the UK and EU fail to agree a deal by the end of the Article 50 period are relatively clear, and have been delineated in the evidence we commissioned (see Appendices). Professor Derrick Wyatt, main author of the Bar Council’s evidence to this inquiry, said:
In our draft evidence on behalf of the Bar Council, we said that there is a speculative element in the exercise, but if there is no speculation, there is no planning. There have got to be some attempts to establish assumptions of possibilities, and that does seem to be ascertainable.
Professor Kenneth Armstrong of Cambridge University, whose evidence focused primarily on regulatory issues, went further. He told the Committee:
I don’t think it needs guesswork at all. I think we’ve very clearly tried to lay out the scenarios of what happens if there is no deal. Particularly in the area I have been looking at—the regulatory side of things and the non-tariff side of things—it becomes incredibly clear what happens. There is enormous uncertainty for economic undertakings in businesses located in this country and across the EU, as to what happens to their ability to do business and trade. A credit rating agency that is currently based in the UK and takes advantage of an EU-wide authorisation won’t have that advantage going forward. Those things are all very clear. They are not speculation in any way, shape or form.
32.The full potential implications of ‘no deal’ are explored in detail in the Appendices to this report. These include, but are not limited to:—
33.Some of these issues, such as a dispute over the exit bill, would flow from the failure to agree a withdrawal agreement and are therefore all but inevitable consequences of a ‘no deal’ scenario. Other potential consequences explored in the appended evidence, such as a sudden switch to trading on WTO-only terms, could occur even if an Article 50 deal is reached but there is no agreement on a transitional phase or the future relationship. Those matters are included here on the assumption that failure to agree a withdrawal deal would necessarily imply the absence of any deal on transitional arrangements or the future relationship.
34.If the UK and EU fail to agree an exit deal, any liabilities that the EU claims are owed by the UK will be left outstanding. It is probable that there would need to be ongoing debate over the precise formula used to calculate the bill, and over the final number. According to Professor Wyatt:
The European Court can’t determine what the UK owes. When the UK leaves the EU, the matter will have to be negotiated. If you ask what legal rules apply, public international law applies and EU law is relevant as a factual context to that. Is there any international court with compulsory jurisdiction? No. Could the UK and the EU set up an international arbitration? Yes, they could. They could set up an arbitration. Would they? Probably not. [ … ] If I had to formulate the relevant principle of international law, it would be along these lines: there is a duty for the UK and the EU to negotiate about the level of the UK’s share of EU liabilities; in the absence of negotiation, it is to be decided on equitable principles. Handing that over to an arbitration smacks a little bit of handing over to a third party what is essentially a negotiating political decision.
35.The House of Lords European Union Committee concluded that “Article 50 allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget and related financial instruments, unless a withdrawal agreement is concluded which resolves this issue”, adding that it was “questionable” whether any international court could have jurisdiction. The Lords Committee also concluded, however, that “the political and economic consequences of the UK leaving the EU without responding to claims under the EU budget are likely to be profound”. Asked whether the UK could simply refuse to pay any bill under these circumstances, and if this in turn would give the UK a strong hand in the negotiations, Professor Armstrong said:
It is strong in the sense of “We don’t care what the consequence is”. It is only strong in that sense. If we don’t care about having any kind of deal with the EU for the future and we don’t care about having a future relationship with the EU, of course we could do that, but how is that putting the UK in a strong position? I don’t know.
36.Along with the exit bill, the questions of the acquired rights and status of EU citizens in the UK, and vice versa, are likely to be among the first issues addressed in the Article 50 negotiations. The Bar Council’s report (see Appendix 1) states:
The status of EU migrants in the UK and UK migrants in the EU should be one of the less controversial aspects of a withdrawal agreement, and agreement in principle is likely to have been reached in negotiations even if a withdrawal agreement has not been concluded at the time of Brexit. In the event of unplanned Brexit, the right way forward for the UK and the EU would be to implement any such agreement, or recognise rights of residence on a provisional basis pending conclusion of a withdrawal agreement after Brexit.
37.Unlike some other aspects of the withdrawal agreement, the rights of EU citizens in the UK and UK citizens in the EU are not wholly dependent on a deal being struck under Article 50. In both cases, national governments could decide unilaterally to guarantee the rights of those individuals, and may even choose to do so before the Article 50 period is over. As the House of Lords European Union Committee noted:
In the event that the UK exits the EU without a withdrawal agreement, the most effective safeguard for maintaining the citizenship rights of EU nationals in the UK will be national law [ … ] The nature of the forthcoming negotiations is such that absolute reciprocity in all matters cannot be guaranteed. Nevertheless, we believe that absolute reciprocity should apply and be guaranteed in respect of citizenship rights.
We also note that the Committee on Exiting the European Union recently recommended that “the UK should now make a unilateral decision to safeguard the rights of EU nationals living in the UK”. At the date of publication, the House of Lords has voted to amend the European Union (Notification of Withdrawal) Bill to secure the residency rights of EU nationals in the UK.
38.If questions regarding acquired rights for EU citizens in the UK and UK citizens in the EU remained unresolved, however, those individuals would face considerable uncertainty around issues including their residency rights, access to employment, ability to claim pensions and other social security benefits, and access to healthcare. The evidence submitted by the Bar Council uses hypothetical examples to explore in detail the different issues that might affect EU nationals in the UK depending on the duration of their time in this country and their employment status. For UK nationals in the EU who do not yet qualify for permanent residence, meanwhile, the Bar Council concludes that the “worst case scenario” would be that they are treated differently in different countries, subject to different national rules. It concludes (see Appendix 1):
Urgent and informal negotiations between the UK and the EU countries concerned could be expected, to arrange either provisional or longer term arrangements, depending on the state of play of any continuing efforts between the UK and the EU to conclude a belated withdrawal agreement. If this sounds somewhat chaotic, that is how it might turn out to be. The position of EU migrants in the UK and UK migrants in the EU in the event of an unplanned Brexit is something the UK Government (and the Governments of other EU countries) should be planning for in advance.
39.In the event of ‘no deal’, tourists and short-term travellers would also face some confusion and uncertainty. As the commissioned evidence explains, for example, UK nationals visiting the EU would no longer be entitled to European Health Insurance Cards, which permit unplanned access to healthcare on the same basis as local residents. Roaming charges might also be imposed overnight. Professor Wyatt told us that although the default legal position would be that UK citizens travelling to Europe would not require visas, there might in practice be some confusion at borders:
Let us take first the visas and secondly the health card. The default position would be that UK tourists could travel without visas to other EU countries—we are on neither the “must have a visa” list, nor the “must be given a short-term visa” list. The effect of that is that there is no common visa policy rule for UK tourists the day after our hypothetical Brexit over the cliff.
That would mean, first, that there was some confusion. The tourist group going to France or Italy four or five days after Brexit might find puzzled officials looking at their British passports thinking, “We know what’s happened. What’s their position?” The formal legal position would be no visa requirements, unless individual member states impose them. Do I think they would impose them? No, unless the UK started imposing visa requirements on nationals of individual EU countries.
One reason why I think the UK would not want to do that is that it would complicate the border between Ireland and Northern Ireland. Another reason is that it would be interested in retrieving the position and doing as little as possible to take adverse action that would provoke retaliation against individuals who are trying to get on with their lives.
I think the European health card depends on the application in other European countries of European law. Unless immediate action was taken at the European level to extend UK rights outside the framework of the UK being a member of the EU, the cards would become worthless.
40.If the UK leaves the EU with no deal in place—or with a very narrow withdrawal agreement that does not include transitional arrangements or a framework for future relations—it will trade with the EU on World Trade Organisation (WTO) terms. This would almost certainly involve the immediate imposition of tariffs across a range of sectors, which would have differentiated impact as they are low on many products, such as automotive parts (5%), but high in sectors such as agriculture (30–40%). As Sir Ivan Rogers has pointed out in evidence to the Committee on Exiting the EU, most of the other countries that trade with the EU but do not have Free Trade Agreements (FTAs) do have some agreements above the most basic level of WTO rules:
If you are a third country in EU jargon and doctrine, first of all you have to be on the list of countries permitted to export into the EU market. Secondly, individual firms then have to be approved, and thirdly individual consignments have to be cleared before the goods or services are allowed on the EU market. That applies to all nonmember states. That is my point in response to what I perceive to be the argument, “Why is not WTOonly fine? We have moved to a world outside, but they all know that we are the same beast the day after as we were the day before”.
They would say, “No, the world does not work like that and our legal order does not work like that. If there is no agreement with us, you move into a legal void. It is not that you are a oncemember state; you have become a third country, and unless and until you have a preferential agreement enabling you to trade on preferential terms, you cannot trade on preferential terms”. This is where I part company with some of what I am reading on WTO-only. No other major player trades with the EU on pure WTOonly terms. It is not true that the Americans, Australians, Canadians, Israelis or Swiss do.
They strike preferential trade deals where they can, but they also strike more minor equivalence agreements: financial services equivalence agreements, veterinary equivalence agreements, mutual conformity of assessment agreements. The EU has mutual conformity of assessment agreements with the US, Canada, Israel, Switzerland, Australia and New Zealand, and more.
41.This echoes the view advanced by Professor Wyatt, who told us that
If we look at what the difference is, at the end of the day, between a good trade deal and a bad trade deal, the worst-case scenario trade deal would actually be better than WTO terms, but I don’t think we would tolerate WTO terms for long. A worst-case scenario final trade deal would probably have tariff-free trade in manufactured goods. There is strong mutual interest in that. Agricultural products we could not guarantee—I could not say that with the same confidence as for manufactured goods. [ … ] It would be in services that we really see a detrimental impact.
For this reason, Professor Wyatt took the view that the imposition of WTO-only terms of trade between the UK and EU would be likely to push both sides toward the swift conclusion of an agreement, since the costs for both sides would be high.
42.Roderick Abbott, however, Senior Adviser on Trade Policy at the European Centre for International Political Economy, took a more optimistic view in evidence to the Committee on Exiting the EU:
Whether all of this would be destructive to business is an open question, as you said. My belief is that if you are out, under those conditions, and you are trading under WTO, it is perfectly feasible. Trade is not going to stop. There will be areas where you will face barriers that you did not face before. You perhaps will make less profit, but trade will flow.
43.In the event of a sudden or ‘no deal’ UK withdrawal from the EU, questions would also arise as to the applicability to the UK and legal status of the Free Trade Agreements (FTAs) that the EU currently has with third countries, such as South Korea and Canada. Before the referendum, we heard that the UK would lose access to those agreements upon leaving the EU. The Bar Council’s evidence (see Appendix 1) has qualified that view somewhat, arguing that “It might be that even in the case of an unplanned Brexit, the UK could in most cases continue to trade on the same basis with those countries, if it could secure simplified agreements to do so”, for example by agreeing an exchange of notes (in the international law sense).
44.In addition to the legal issues and examples set out in the evidence we commissioned (see Appendices), detailed analyses of the implications of trading under WTO terms can be found in evidence taken by several other Committees, including the Committee on Exiting the EU, the International Trade Committee, and the Treasury Committee. The House of Lords European Union Committee also published a report in December 2016 on the options for UK-EU trade after Brexit that included analysis of the implications of WTO-only terms of trade, both financial and procedural.
45.The Government’s White Paper on exiting the EU portrays the proposed “Great Repeal Bill” as a way to create certainty for businesses and individuals, regardless of the outcome of the Article 50 negotiations. The White Paper says:
1.1 To provide legal certainty over our exit from the EU, we will introduce the Great Repeal Bill to remove the European Communities Act 1972 from the statute book and convert the ‘acquis’—the body of existing EU law—into domestic law. This means that, wherever practical and appropriate, the same rules and laws will apply on the day after we leave the EU as they did before.
1.2 This approach will preserve the rights and obligations that already exist in the UK under EU law and provide a secure basis for future changes to our domestic law. This allows businesses to continue trading in the knowledge that the rules will not change significantly overnight and provides fairness to individuals whose rights and obligations will not be subject to sudden change. It will also be important for business in both the UK and the EU to have as much certainty as possible as early as possible.
1.3 Once we have left the EU, Parliament (and, where appropriate, the devolved legislatures) will then be able to decide which elements of that law to keep, amend or repeal.
1.4 We will bring forward a White Paper on the Great Repeal Bill that provides more detail about our approach.
1.5 Domestic legislation will also need to reflect the content of the agreement we intend to negotiate with the EU.
46.However, it is clear that the Great Repeal Bill alone cannot compensate for the uncertainty for both the UK and EU that would be caused by failing to agree a withdrawal agreement under Article 50. Professor Kenneth Armstrong told us that
The great repeal Bill is supposed to leave all this EU legislation behind in the UK, but that legislation only works if you have people who can administer it and civil servants who can co-operate with one another. For industry, when things go wrong—when they have an authorisation for a product in the UK which at the moment is authorised in another member state, but that state’s authorities suddenly decide that they will no longer recognise that product—what is the mechanism for resolving the dispute outside the structures of co-operation that have grown up over the years? In terms of disruption, there is potentially massive disruption in the ordinary, day-to-day boring business of administering legal frameworks. It is the iceberg below the top level of the legislation that we see in the great repeal Bill. We know that that will be a difficult task, to put in place the legal framework to deal with the legislation, but I think it will look like a sixth-form project compared with the task of putting in place the structures of co-operation between administrators outside the structures of the European Union.
Later, he added:
What we are then going to have to work out, if we do not have any overarching framework or any other agreement, is what happens to all those national authorisations that are currently in place and which benefit automatically as a matter of EU law from mutual recognition, and whether that will be maintained going forward. I do not think that is something the great repeal Bill itself can touch.
47.Similarly, Sir Ivan Rogers told the Committee on Exiting the EU that, on the day after a sudden UK exit from the EU with no withdrawal agreement:
We are saying [ … ] “Come on guys. You know the day before you used to take our accreditation and inspection regimes. They were perfectly fine the day before; why the hell are they not the day after? Do not be ridiculous”. The EU is perfectly capable of saying, “It is not a matter of being ridiculous; it is a matter of the law. In the absence of any law, given that you have now left the Union and left the single market, there is nothing. You have not signed any other agreement with us, and unless there is a legal agreement between the two of us, we no longer recognise your accreditation, conformity assessment bodies, abattoirs or slaughterhouses. We do not recognise any of it”.
You may think this is ludicrous. Of course, there is an element of me that thinks, “This is a ludicrous state of affairs. What has changed from 31 March to 1 April?” But they will say, “The law has changed. You have left the European Union. You have left the single market. You are now a third country officially, and that is your status. We do not have to give you anything”.
48.As the evidence we received from Professor Kenneth Armstrong demonstrates (see Appendix 2), there are currently some 33 EU regulatory and other bodies covering sectors as varied as aviation, fisheries, food safety, medicines, law enforcement and financial services. Before withdrawing from the EU, the UK will need to be prepared to expand the capacity of UK regulatory bodies in these fields and to establish new UK-only regulatory bodies in some cases. These might then look for equivalence or mutual recognition agreements with EU and other counterparts, or to seek to remain under the EU regulatory umbrella in some way if agreement can be reached. Hugo Leith of the Bar Council told us that
[ … ] in the field of civil aviation, all air operators based in the UK are granted an air operators certificate by the UK Civil Aviation Authority. That is recognised throughout the European Aviation Safety Agency remit, which is the member states plus three other states. That status will change if the UK leaves in the event of an unplanned Brexit. The UK would effectively become a third state outside that system. Its air operators, such as British Airways and other airlines located in the UK, would have to obtain approval from the European body responsible for granting those authorisations to third states. One way that could be streamlined is if the UK enters into an agreement with the EU itself. There is provision for that to occur, but that would require some ongoing monitoring by the aviation safety authority of the UK’s monitoring systems, so there would still be some interlinks at that level.
To take the medicines example [ … ] the Europe-wide authorisations that can be given for medicines and which are compulsory for some kinds of medicines—those for the treatment of diabetes, cancer, AIDS, rare conditions and so on—have to be held by an undertaking that is established in the EU. So if UK companies wanted to hold on to their authorisations, they would have to move or establish a place of business in another member state. That would impose some costs and challenges to their business.
Similar considerations would apply with the regulation of chemicals—an undertaking that a chemical registered has to have a representative in the EU. Either whoever is manufacturing the chemical has to be in the EU or they have to appoint another firm to do so and to carry out the responsibilities imposed by chemicals regulation on their behalf. On both levels, there are challenges for businesses at the moment that either have national or centralised authorisation.
These issues can all be resolved—in some cases, relatively easily—but a sudden withdrawal with no exit deal in place would leave the UK playing catch-up in order to close gaps in the legal or regulatory frameworks governing a wide range of sectors.
49.The Government has stated that it wishes to “continue to play a leading role along EU partners in buttressing and promoting European security and influence around the world”. This could be achieved through agreement on close co-operation with the EU on its Common Foreign and Security Policy (CSFP) and Common Security and Defence Policy (CSDP). The Committee has taken evidence on this issue and intends to explore it further in future.
50.In the event of no agreement at the end of the Article 50 period, however, legal and political uncertainty could be cast over the status of UK assets deployed as part of ongoing EU CSDP missions. These include HMS Enterprise, which is currently deployed in the Mediterranean, rescuing migrants as part of the EU’s Operation Sophia. The absence of any withdrawal deal or separate agreement on CSDP would also be likely to make it impossible for the EU to continue basing the Operational Headquarters of its anti-piracy mission off the Horn of Africa, Naval Force ATLANTA, at its current location in Northwood. Non-EU states can and do participate in CSDP missions, but only under appropriate legal framework agreements, and there is no precedent for an Operational Headquarters for a CSDP mission to be outside the EU.
51.Leaving the EU without any withdrawal deal would also mean immediately leaving the European Defence Agency (EDA), which was established in 1994 to foster co-operation in capabilities-building, procurement and the defence industry across the Member States. The UK would drop out of the many projects in which it is currently participating through the EDA, such as building air-to-air refuelling capabilities and improving the commercial satellite communications market across Europe. The UK could participate in EDA projects after leaving the EU as a third party country, as Norway does. However, this would require a legal agreement to be in place.
52.The Government has said that it is committed to the preservation of the UK-Ireland Common Travel Area after the UK’s withdrawal from the EU, including the maintenance of “as seamless and frictionless a border as possible between Northern Ireland and Ireland”. However, if the UK leaves the EU with no deal in place, it will also exit the EU’s customs union. This means that even if the UK and Ireland were to maintain complete free movement of people within the UK/Ireland Common Travel Area, there would have to be some form of customs checking arrangement put into place immediately.
53.The sudden imposition of a customs border would be difficult, if not impossible, to reconcile with the desire to maintain a “seamless and frictionless” border with Ireland. As the House of Lords European Union Committee noted:
Retaining customs-free trade between the UK and Ireland will be essential if the current soft border arrangements are to be maintained. The experience at other EU borders shows that, where a customs border exists, while the burden and visibility of customs checks can be minimised, they cannot be eliminated entirely. Nor, while electronic solutions and cross-border co-operation are helpful as far as they go, is the technology currently available to maintain an accurate record of cross-border movement of goods without physical checks at the border.
The only way to retain the current open border in its entirety would be either for the UK to remain in the customs union, or for EU partners to agree to a bilateral UK-Irish agreement on trade and customs. Yet given the EU’s exclusive competence to negotiate trade agreements with third countries, the latter option is not currently available.
54.The Bar Council’s evidence concludes that it would be difficult to maintain an open border even in the event of “a planned and orderly Brexit”, because of the need to check imports of products in both directions and the need to check people moving in either direction. The evidence notes (see Appendix 1):
In the event of a FTA between the UK and the EU of either an EEA type (with harmonised standards for food safety and plant safety, etc.,) or a Canada-type (tariff-free trade for originating products but no harmonisation of standards), it is possible that a lighter touch than that applied at the Norway/Sweden border could be applied to the Ireland/UK land border, with reliance on automatic number-plate recognition, designation of most road crossings as “green lanes”, and spot checks in the vicinity of the border but not at the border. Commercial vehicles could be required to make declarations at customs depots but these depots could be located away from the border. Such a system would not be watertight, but no system at the Ireland/UK land border could be.
A system along the above lines would be severely stretched if, in the wake of an unplanned Brexit, trade between Ireland and Northern Ireland were conducted on WTO terms, with tariffs of up to 40% on products regularly traded in both directions. Tariff levels as high as this might in some cases bring lawful cross-border trade to a standstill, and provide huge incentives for smuggling. There is no doubt the UK would make every effort to maintain the status quo and avoid any semblance of a “hard” border, as would Ireland, but Ireland would not be a free agent, having to account to the EU for its collection of tariffs on UK exports to Ireland, 80% of which would amount to “own resources” of the EU.
55.We note that the Northern Ireland Affairs Committee is currently conducting an inquiry into the future of the land border between the UK and the Republic of Ireland. They have taken a great deal of evidence on potential future scenarios for the border and we look forward with interest to their report on this critical issue.
41 HC Deb, 24 January 2017,
43 Q365 [Professor Kenneth Armstrong]
44 For a detailed description of what the bill is likely to involve, see, for example, Alex Barker, “The €60 billion Brexit bill: How to disentangle Britain from the EU budget”, Centre for European Reform, February 2017
45 Q343 [Professor Derrick Wyatt]
47 European Union Committee, 15th Report of Session 2016–17, , HL Paper 125, para 137
50 Appendix 1, para 37
52 Committee on Exiting the European Union, Second Report of Session 2016–17, , HC 1071, para 45
53 Appendix 1, para 40
55 Q331 [Professor Derrick Wyatt]
56 Oral evidence taken on 22 February 2017, HC (2016–17) 1072,
57 Q341 [Professor Derrick Wyatt]
59 Oral evidence taken before the Exiting the European Union Committee on 21 February 2017, HC (2016–17) 1072,
60 Foreign Affairs Committee, Fifth Report of Session 2015–16, Implications of the referendum on EU membership for the UK’s role in the world, HC 545, para 20
61 Oral evidence taken before the Exiting the European Union Committee on 21 February 2017, HC (2016–17) ; Oral evidence taken before the International Trade Committee on 7 February 2017, HC (2016–17) ; Treasury Committee, UK’s future economic relationship with the EU inquiry, accessed 8 March 2017
63 HM Government, The United Kingdom’s exit from and new partnership with the European Union, , February 2017, p 9
64 Q341 [Professor Kenneth Armstrong]
66 Oral evidence taken before the Exiting the European Union Committee on 22 February 2017, HC (2016–17) 1072,
67 Q360 [Hugo Leith]
68 HM Government, The United Kingdom’s exit from and new partnership with the European Union, , February 2017, p 63
72 Sophia Besch, “EU defence, Brexit and Trump: the good, the bad and the ugly”, Centre for European Reform, December 2016, p 9
73 HM Government, The United Kingdom’s exit from and new partnership with the European Union, , February 2017, p 21
75 Appendix 1, paras 124–125
76 Northern Ireland Affairs Committee, Future of the land border with the Republic of Ireland inquiry, accessed 8 March 2017
10 March 2017