The UK has recently indicated that, unless there is a "fundamental change in approach" from the EU, it is prepared to exit the transition period without a trade deal. In this briefing, we highlight the key areas where "no deal" is likely to make a difference.
In broad terms, no deal is likely to have two main impacts as compared with the position if the EU and the UK had managed to agree a free trade deal of the type which has been under discussion:
More detail on all the issues mentioned above is set out in the remainder of this article.
It has been suggested that in a no deal scenario, "mini-deals" could be put in place covering certain areas. In our view, it is more likely that certain easements/facilitations will be made available on a unilateral basis, as both the EU and the UK were proposing to do in 2019 (in case the Article 50 deadline expired without a withdrawal agreement in place). However, these may well be very limited in their scope and businesses should not plan on the basis that they will be available.
Exiting the transition without a trade deal with the EU is sometimes described as an "Australian-style deal". This is meaningful only in so far as Australia has no free trade deal with the EU (although it is at a reasonably advanced stage of negotiating one). However, the characterisation is misleading in the following respects:
For more information on Brexit and WTO terms, see this Q&A.
In a no deal scenario, both exports and imports of goods will be subject to tariffs. For certain categories of goods (such as food or vehicles), the level of tariff will be significant and may undermine the viability some businesses. In other cases, it will merely add to the extra costs that businesses involved in goods trade were already facing because of the additional red tape arising out of the UK's exit from the EU Single Market and Customs Union. Both the UK and the EU have set out the tariffs they expect to apply from the end of the transition period – so you can estimate the level of additional costs that you or your customers would face. We can help you with this analysis.
It is possible that in a no deal scenario, the UK could introduce an interim tariff, as it proposed to do in 2019, in case it was not possible to reach a Withdrawal Agreement with the EU. Had this interim measure come into effect, it would have removed tariffs altogether from 87% of goods by value. Such a move would cushion the impact of a no-deal Brexit on UK businesses which are reliant on imports (including imports from non-EU countries). However, in our view, the EU is unlikely to reciprocate, so it will not help exporters. It remains unclear whether the UK would be prepared to introduce an interim tariff at all – and even if it did, it may not be as generous as its previous proposal. In view of this uncertainty, businesses should plan on the basis of the new global tariff which the UK says it plans to bring into effect from the end of the transition.
No deal is also likely to exacerbate disruption to supply chains arising out of the introduction of new border processes for goods (because of the UK's exit from the EU Single Market and Customs Union). Although some disruption is expected because of the introduction of new border processes on EU-UK goods trade, much depends on the approach adopted by border officials to enforcement. If they are prepared to tolerate a certain level of non-compliance, this would help to limit the level of disruption. However, in a no deal scenario, officials may feel unable to adopt a such a comparatively relaxed approach; this in turn is likely to lead to more consignments being held up at the border.
Businesses reliant on imports from the EU may wish to consider the following:
In a no deal scenario, it is unlikely that the UK will receive an "adequacy ruling" from the EU in time for 1 January 2021. As a result, EU firms which transfer personal data to businesses in the UK will need to take additional measures in order to continue to comply with the requirements of EU data protection legislation.
The key takeaway point is that UK services businesses should be talking to their EU trading partners now to ensure that, if necessary, those measures can be put in place by 1 January 2021 with a view to ensuring that data flows can continue. For more detail, see: Brexit, your business and data: personal data transfers.
Certain UK businesses which handle personal data from the EEA may also need to take additional steps ahead of the end of the transition (although these steps would probably be necessary even with a deal). See this briefing for more detail: Brexit, your business and data: processing European personal data.
As explained in this briefing, the difference between a deal and no deal when it comes to movement of people is unlikely to be substantial. Either way, there will be additional red tape for business travellers.
However, in practice, much will depend on how restrictions which could be imposed on UK citizens travelling to the EU for work purposes are enforced. In a no deal scenario, UK business travellers could find themselves being challenged more frequently about the purpose of their visit and subjected to a higher level of scrutiny by border officials. For more detail, see this briefing: Should employers be worried about business travel post-Brexit transition?
The difference between a deal and no deal so far as most services are concerned is likely to be relatively narrow. However, as in the case of other areas where businesses will face additional restrictions/red tape, such as goods trade, data transfers and business travel, service providers may find that in a no deal scenario, regulatory authorities in the EU will be less likely to take a relatively relaxed approach to compliance. In practice, this may exacerbate some of the additional barriers that UK service providers could face after 31 December this year.
For more detail and to find out what service providers need to do to prepare, see this briefing: Service providers: getting ready for Brexit.
