This report explores the consequences of ‘no deal’—the failure of the UK and the EU to reach agreement on either withdrawal or future relations. The overwhelming view of witnesses was that ‘no deal’ would be deeply damaging for the UK. It would not just be economically disruptive, but would bring UK-EU cooperation on issues such as counter-terrorism, nuclear safeguards, data exchange and aviation to a sudden halt. It would necessitate the imposition of controls on the Irish land border, and would also leave open the critical question of citizens’ rights.
The potential mitigations proposed by the Secretary of State for Exiting the EU, such as ‘stopping the clock’ at the last moment in order to prolong negotiations, need further explanation. He also envisaged, in the event that a comprehensive agreement is not achieved, a ‘bare-bones’ deal covering critical issues such as counter-terrorism, justice cooperation or aviation. It is unclear how a ‘bare-bones’ deal would relate to the Article 50 withdrawal agreement, or what issues it would address. Nor can it be guaranteed that agreement even on a bare-bones deal will be possible, if wider negotiations have failed to reach agreement. The Government needs to clarify its approach as a matter of urgency.
The UK is leaving the EU, so a substantial change in UK-EU relations is unavoidable. Against this backdrop, the Government’s assertion that ‘no deal is better than a bad deal’ is not helpful. It is difficult to envisage a worse outcome for the United Kingdom than ‘no deal’.
The key factor adding to the risk of ‘no deal’ is time—the Article 50 clock is ticking. The closer the UK and the EU get to the deadline of 29 March 2019, the more damaging a breakdown of negotiations, and a ‘no deal’ outcome, would be. Both sides need to show flexibility, and for the UK to compound the rigidity of Article 50 by enshrining the same deadline in domestic law would not, we believe, be in the national interest.
The Government insists not only that the UK will leave the EU on 29 March 2019, but that both the Article 50 withdrawal agreement and an agreement on future relations will be agreed before this point. This means in practice that the agreements will have to be reached by October 2018, to allow time for the UK Parliament and the European Parliament to consider and vote on them.
An early and comprehensive agreement would, in our view, be the best solution for all sides. But precedent, and the overwhelming weight of evidence, suggests that it will not be possible by March 2019, and that negotiations on future relations will need to continue beyond that point.
If this is the case, both sides will need a transition period. This will not just be an implementation period, since the agreement on future relations will still be under negotiation, but will begin with a ‘standstill period’, to buy time to finalise that agreement, followed by an implementation or adaptation phase. The Government has yet to acknowledge the legal complexity of such a transition period, which may be tested by the Court of Justice of the EU prior to March 2019.
In particular, we question whether Article 50 TEU provides a secure legal basis for the continuing application of EU rules after withdrawal, or for implementation of any yet-to-be-defined agreement on future relations. We also note that while ‘off-the-shelf’ alternatives for transition, such as temporary membership of the EEA or EFTA, may have merit, they would be subject to risk and uncertainty.
Time is passing, and the Government needs to reflect on what steps it will take if negotiations are still continuing as we approach March 2019. We note that Article 50 provides two potential means of securing a limited extension of the UK’s EU membership, which could buy more time for negotiations—either to extend the Article 50 period (which would require the unanimous agreement of the EU 27) or, within the withdrawal agreement, to set a date later than 29 March 2019 for withdrawal to take effect. Either of these options could help the UK achieve its objective of concluding the withdrawal and future relations agreements in tandem.
The overriding UK and EU interest is in securing an orderly and legally certain transition, and we urge the Government and EU to discuss all options for achieving this outcome, and to make their conclusions known before the end of March 2018.