139.It has been suggested that the UK could leave the EU without a deal and rely on Article XXIV of the GATT to maintain tariff-free trade with the EU in the absence of a negotiated agreement. Article XXIV is the GATT provision that allows for an interim agreement between two parties in anticipation of a free trade agreement or customs union. It requires an agreement between the two parties, a plan as to how the end state will be reached, and for this agreement to be notified to all parties to the WTO. By definition, leaving without a deal means there is no agreement. Article XXIV does not provide a means to mitigate the risks to EU-UK trade in the event of a no deal exit.
140.It is clear from the evidence that we have received in preparation of this report that the economies of the UK and the EU27 are closely entwined through highly integrated supply chains operating in the car industry, other areas of manufacturing and the agri-food sector. UK exports of goods and services to its largest and closest market also operate on the basis of frameworks of regulatory provision applicable to transport of food produce, pharmaceuticals, chemicals, automotive parts and the flow of data. The UK’s exports of services and its higher education system rely on agreed provisions on recognition of qualifications and frameworks for collaboration in research and student exchanges. A no deal exit would represent a sudden rupture for all of these sectors. A no deal, non-cooperative relationship cannot be the desired end state for UK-EU economic relations. The closeness of the economic relationship is most evident in the agri-food sector on the island of Ireland. Those businesses that have not prepared for no deal will clearly be more affected than those that have.
141.The EU has consistently maintained that the Withdrawal Agreement, including provisions for the settlement of the UK’s financial obligations, guarantees for citizens’ rights and provisions to ensure that there is no hard border on the island of Ireland, will not be re-opened and that, in a no deal scenario, discussion of future cooperation would require settlement of these three issues as a pre-cursor to any further negotiation. The UK would also risk a great deal of goodwill by pursuing a no deal exit.
142.Some have argued that a no deal exit would bring the EU “back to the table” and that the UK would secure a better deal as a result. This is, at best, a gamble. At worst, it could lead to severe disruption of the economy, pose a fundamental risk to the competitiveness of key sectors of the UK economy, and put many jobs and livelihoods at risk.
Published: 19 July 2019