What does Brexit mean without an agreement?

LONDON – Negotiations between the UK and the EU to try to reach a post-Brexit trade deal are about to take place, and even officials have admitted that talks could go either way: towards a deal , a free trade agreement between the two parties, or a no-deal.

Britain’s post-Brexit transition period ends on 31 December, so the race comes to an agreement before then; Both the EU parliament and the UK should ratify an agreement and there are expectations that this can be done quickly, given the need to mitigate a “cliff” scenario for companies on both sides of the English Channel. the Hose next January 1st.

There are lights of hope that an agreement can still be reached. British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed to continue talks beyond last Sunday. Then, on Monday, Von der Leyen noted that there had been some “movement” in the talks and on Wednesday, he said that while he could not say whether or not there would be an agreement, “now there is a path to a agreement “.

“I am pleased to report that governance issues have now been largely resolved. The next few days will be decisive,” von der Leyen noted, but added that competition rules (to maintain what the EU calls “equal conditions”) and fishing rights remain unresolved.

If no trade agreement is reached in the next few days and there is no extension of the transition period (the EU has not ruled out extending talks beyond 31 December, but the UK has repeatedly rejected the notion), then the UK and the EU will have to trade under the terms of the World Trade Organization (WTO).

At a basic level, this means that import duties will be imposed on products and that trade will become more expensive and complex. As a result, consumer prices for goods will most likely rise and British supermarkets are already storing certain long-lived goods in the event of shortages or delays in ports.

In 2019, UK exports to the EU were worth £ 294 billion or $ 393.5 billion (43% of all UK exports), while UK imports from the EU were worth £ 374 billion. pounds sterling (and accounted for 52% of all UK imports), according to government data.

Experts note that trade in WTO terms would be more difficult for some sectors than for others.

“Without an agreement on their future trade relations, in particular some kind of free trade agreement, trade between the UK and the EU will be based exclusively on WTO terms,” ​​said Catherine Barnard and Anand Menon. , senior member and director, respectively, of ‘The UK in a think tank on changing Europe, noted in a detailed report on the subject.

“This means that import duties and various controls will be imposed on trade between the UK and the EU, with concentrated impacts on agriculture and industries that depend on products that cross repeatedly between the UK and the rest of the world. EU, such as automotive components or food processing ingredients “.

A scenario without agreement would see that other areas of old cooperation would also collapse overnight. Access to UK waters for EU fishing fleets (and vice versa) could disappear overnight, trips to the EU from the UK should stop (at least temporarily due to the coronavirus pandemic) and the services industry could be severely affected — ideal scenario. All of this is still unknown as negotiations continue.

Trade in WTO terms would mean that the UK services sector, a large part of its economy that could previously “access the entire EU single market relatively freely, would only be allowed access very more restricted than EU-UK commitments to the WTO, “according to the UK in Europe, Barnard and Menon.

The financial services industry remains one of the uncertainties. The EU has not yet decided whether to grant market access to UK banks and other financial firms after 31 December and may not make a decision until January. The lack of clarity has already caused some banks to move offices and staff to continental Europe.

Fishing has also been a constant point during negotiations with the EU that want to maintain access for fishing fleets and the UK to greatly curb fishing rights. A scenario without an agreement could cause EU access to UK waters to end abruptly, and vice versa, and the UK has already threatened to deploy cannons to protect British waters. There is concern that some fishing fleets may ignore any restrictions and provoke potential clashes. These are not unpublished; there have been physical skirmishes, called “scallop wars”, between the British and French fishing fleets in recent years amid disputes over fishing.

Travel is an area that worries many people in the UK when it comes to whether or not to treat; The Covid-19 pandemic has generated more uncertainty about the possible interruption of travel after the end of the transition period, as the UK will become a “third country” and outside the EU, meaning that British travelers will not they could enter the region given the country’s major infection, unless it is expressly exempt.

The EU has already published contingency measures covering the aviation and road transport industry in the event of no agreement.

The measures aim to ensure “basic air connectivity … to ensure the provision of certain air services between the UK and the EU for 6 months, as long as the UK ensures this”, as well as measures to ensure the safety of aviation. It also proposes a regulation covering basic connectivity for both road freight and road passenger transport for 6 months, as long as the UK is appropriate.

Finally, and controversial by the UK for wanting to “regain control” of its territorial waters, the EU proposed a contingency measure on fisheries “for continued reciprocal access of EU and UK vessels to waters of others after 31 December 2020. In order to ensure the sustainability of fisheries and taking into account the importance of fisheries for the economic subsistence of many communities “.

Economists, analysts and strategists on both sides of the English Channel have spent months, if not the last four years, since the Brexit referendum in June 2016 (and most likely, before that) debating the economic impact of Brexit (agreement or non-agreement) could have on the pound, gross domestic product (GDP), foreign direct investment, real estate prices and the price of goods, among other things.

Peter Oppenheimer, Chief Equity Strategist at Goldman Sachs, this week weighed the possible impact of an agreement and a non-agreement. He and his team concluded that “if there is finally no agreement, national (UK) companies would be affected in various dimensions”.

These would be: “1) Lower GDP growth when friction affects production and trade; 2) Higher costs in terms of GBP (pounds sterling) as the pound sterling falls compared to other currencies and 3) Lower revenues real for consumers as the basket of goods they buy becomes more expensive in terms of pounds sterling. “

Goldman reiterated its non-Brexit target for EUR / GBP at 0.96 (one euro is currently trading at around 90 pence), “but would expect markets to only partially trade, even if talks do not work during the coming weeks “.

Paul Dales, UK chief economist at Capital Economics, argued in a note this week that a “disagreement” scenario would be “very different from the“ disagreement ”people have been talking about since the June EU referendum. 2016 “.

“At the time, ‘no agreement’ meant that the UK would leave the EU without any agreement on anything. But now, a ‘no agreement’ would probably involve all those agreements in the withdrawal agreement (the financial agreement, the rights of citizens, Northern Ireland), the substantial progress made in the equivalence of financial services and the renewal of the bulk of third-party trade agreements with the United Kingdom in the EU, ”he noted.

“A non-agreement at this stage would therefore be a less harmful ‘cooperative’ than a more harmful ‘non-cooperative’. As a result, the economic consequences would probably be less than what most people fear,” he said. . Although he admitted that “the economy would not give up for free.”