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Avoiding no deal

Saturday, 23 February 2019
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Thursday, 17 January 2019

Following this week's heavy defeat over its proposed Brexit deal, we look at what the government can do in order to secure cross-party support for its approach to Brexit  - and to avoid a "no deal" outcome.

Towards a softer Brexit?

A key problem for the government is that a significant number of Conservative MPs are strongly opposed to its deal and many of them have stated publicly that they would be content to leave with no deal.   Meanwhile, the Democratic Unionist Party is adamantly opposed to the Northern Ireland backstop.  Theresa May has already taken steps to appeal to MPs in other parties in meeting with party leaders following the confidence vote, although Labour will need to be part of this process.  Ultimately, however, the belated realisation of the need for a consensus approach points towards exploring the possibility of a stronger commitment to a softer Brexit than is currently set out in the draft political declaration; the aim of doing so would be to win over MPs from other parties who wish to be seen to be honouring the referendum result by leaving the EU but are concerned about the economic impact on their constituents.

Can the draft political declaration be reopened?

Whilst much attention has focussed on the NI backstop, securing significant changes to this aspect of the draft Withdrawal Agreement is likely to be difficult - as demonstrated by the government’s failure to obtain anything more than a clarification from the EU on the backstop.  The EU may, however, be more open to the U.K. seeking changes to the draft political declaration, on which far less time and effort has been expended in the course of the negotiations so far (and which is not in any event intended to be legally binding).  However, given that time is short, the EU is more likely to be receptive to changes based on some of the existing models for its relationship with nearby non-EU countries, which we have examined previously, notably:

  • An EEA-style deal (the "Norway option") 
  • An Association Agreement (adopting elements of the EU-Ukraine relationship)
  • Participation in the Single Market for goods (similar to the Swiss model)
  • A customs union (similar to Turkey's relationship with the EU – see Q6 of this Q&A)

Which model?

If the key concern of MPs whose support is needed to get a deal through Parliament is to preserve frictionless trade in goods, then a combination of the above models is likely to be required, allowing for continued participation in the Single Market for goods together with a customs union (i.e. a combination of the Swiss and Turkish models; a customs union on its own is unlikely to achieve this aim).   In order to meet EU concerns about the form of the Swiss model (which consists of an unwieldy patchwork of bilateral agreements), it would probably also be necessary to propose some form of association  agreement, which would involve borrowing from the Ukraine model.  This last possibility should not be a "big leap" for the government, since the draft political declaration already refers to the possibility of an association agreement. 

If MPs wish to preserve economic benefits of EU membership beyond the goods sector e.g. to encompass services as well, then the focus would need to shift to models which envisage fuller participation in the Single Market – namely, the EU-Ukraine Association agreement or an EEA-style deal (although once again, preserving frictionless trade in goods would probably require the UK to enter into a customs union with the EU as well).

If MPs take the view that honouring the referendum result means that the UK cannot commit to free movement of people as part of the future relationship, then much will depend on how far the EU insists that the four freedoms are indivisible. However, as we have noted previously, the EU has not always insisted on this principle in practice – and because of the limitations imposed by its own red lines, it is not clear that the UK government has fully explored the scope for compromise with the EU in this area.

But time and politics are not on the government's side

It has been suggested that MPs could be asked to vote on various options for the future relationship, which could indicate where a majority might lie.  However, building a viable cross-party consensus on a deal is likely to take time, which is currently in short supply - hence the suggestion that the Article 50 deadline of 29 March 2019 could be extended.  In addition, party political considerations could quite easily undermine attempts to build a consensus between MPs of widely differing political outlooks.

But if MPs cannot agree what they want and there is no majority for a second referendum, then Article 50 and the European Union (Withdrawal) Act 2018 make it quite clear that the UK will be leaving without a deal on 29 March 2019. It is not too late to prepare for that eventuality – click here to find out how we can help.  

 

Jonathan Rush
Competition and Commercial
Travers Smith LLP
Email Jonathan
+44 (0)20 7295 3471

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