Lorry park Armageddon or smooth switch to WTO rules? More of a messy in-between

It is reported that no fewer than 11 Cabinet ministers are now in favour of a “managed no deal” if a Withdrawal Agreement cannot be settled by Parliament. The difficulty for supporters and opponents of this is predicting what it will actually look like, as what happens is dependent on a complex mishmash of political, legal and technical decisions that both sides don’t want to talk about honestly.

Remainers warn of Armageddon, as Kent becomes a lorry park and supermarket shelves are emptied. Clean-break Brexiteers suggest the EU can be paid for a one-year transition to give the UK a chance to prepare to trade smoothly under WTO Rules. The messy truth will lie somewhere in between.

The fundamental problem with no deal is that, in the absence of a Withdrawal Agreement under Article 50, there is no legal basis for a smooth exit. The status quo transition period that Brexiteers imagine buying off the EU is a unique creation that is made possible by Article 50, which acts as a bridge to a future relationship with a departing member state. Transition does not legally exist without a Withdrawal Agreement.

In a no-deal world, the UK defaults into being a non-member EU state, a so-called third country. This abruptly leaves the UK acting on a minimalist legal base with the EU, affecting everything from trucking permits to data transfers and derivative contracts.

At the moment, the EU is trading in Armageddon scenarios precisely because it does not want to encourage the idea that a managed no deal exists. So, what one EU source calls a political handbrake has been applied to publicising no-deal planning. More details are expected, but given the state of negotiations, these too will be refracted through a political prism. Officially, the European Commission is taking a hard line, saying the UK must fall back on third country status. If this is enforced it could be deeply disruptive.

For example, road hauliers would have a licensing scheme that only covers five per cent of traffic and “all relevant” EU laws would instantly apply to imports and exports at the border, causing massive tailbacks at Dover and Calais. There would be a total ban on food of animal origin until the UK registers as a third country, hitting farms on both sides of the Channel. Airlines that do not hit 50 per cent EU ownership thresholds (like Wizzair and Iberia) would be unable to fly point to point inside the EU.

On dataflows (the lifeblood of modern business) the EU is ruling out temporary equivalence, forcing businesses into costly and cumbersome alternatives. Only on financial services is there some small measure of latitude.

How tough the EU will actually be will depend on whether EU member states will let the EC pursue what will be seen in the UK as a vindictive “punishment” for Brexit.

Would Ireland really accept a regime that enables the EU to grant licences to only about 1,000 of its 13,000 truckers, many of whom use the UK as a landbridge to Europe? Would Spain allow a situation where Iberia cannot fly from Barcelona to Madrid?

If the Commission pushes too hard, EU member states could take unilateral measures, shattering EU unity. Similarly with vet and food imports inspections, will France, the Netherlands and Ireland allow 30-mile tailbacks at their ports or will they look for practical temporary solutions?

“In practice, there will need to be patches and fixes,” said an EU diplomat from one of the countries familiar with the EU’S internal no-deal planning. So, as member states pass their own no-deal legislation, it is fair to assume patches and fixes will be the order of the day as countries move to protect their affected industries from excessive damage caused by Brexit.

So will it be all right on the night? This is the danger: the EU will not talk in detail about what no deal looks like, and Britain is similarly reticent, as it wants to push the Withdrawal Agreement through the Commons.

Ultimately, no deal will, by definition, be a serious step down from current arrangements and will not change the fact the UK will need a trade deal of some form with the EU, given the bloc remains the destination for 43 per cent of UK exports. Negotiating that is tough; negotiating it from a position where the EU can impose costly and disruptive frictions on the UK economy will be tougher still.

‘Europe is saying the UK must fall back on third country status. If this is enforced it could be deeply disruptive’