In the graphic below we set out two types of a ‘no deal’ Brexit.
One is what the Chancellor Philip Hammond termed a “bad-tempered” no deal which results from a breakdown of the negotiations. The UK would immediately become a third country in its dealings with the European Union (EU). It would move to trading with the EU on World Trade Organization (WTO) terms with no preferential tariff agreement. There would be no transitional period and potentially no other agreements with the EU on issues such as data sharing, aviation or customs co-operation.
The likelihood of disruption to business as usual would be very high. There would probably be no Withdrawal Agreement. UK contributions to the EU budget would end and the EU27 member states would have to decide how to pursue outstanding obligations. It would be up to the UK and the EU27 member states to decide how to deal with existing residents from the other jurisdictions. Finally, it would be difficult to avoid anything other than a hard border with Northern Ireland.
A possible alternative scenario would be what we have dubbed an amicable no deal. In this case, the EU and the UK agree that they will not be able to conclude a free trade agreement (FTA) – and move to trade on WTO terms.
But both agree to put in place the sort of agreements the EU already has with other major trading partners to ease (but not eliminate) the newly introduced barriers to trade. There could even be agreement to a short standstill transition, along the lines the Prime Minister set out in her Florence speech, to allow both the UK and EU to be ready for Brexit. One precondition for this would likely be the conclusion of a Withdrawal Agreement; Michel Barnier, the EU’s Chief Negotiator for Brexit, has told MPs that without a deal on the withdrawal issues, there will be no other negotiations.
The Government is currently planning for a ‘standstill’ transition to begin on 29 March 2019. This would allow negotiations on the detail of the future relationship to continue, as well as allow both sides time to get ready for that future relationship. This ‘delayed deal’ would mean a smooth exit but no certainty on the long-term relationship for some time, particularly given reports that the UK is considering a mechanism to allow extension of the transition period.
But of course, other scenarios are possible.