What could happen the weekend of leaving the EU?

Neil Warwick OBE, Head of EU and competition at North East commercial law firm, Square One Law explains what this ‘no deal scenario’ could mean for the North East in practice.

It is exactly one week since the Government produced the first 25 papers, in a series of 80, which are designed to help businesses and consumers prepare for the possibility of a no-deal Brexit.

The first 25 guidance notes, covering such issues as trade, product labelling for tobacco, nuclear research and State aid, have produced a great deal of curiosity and the team at Square One Law has certainly taken more phone calls, meetings and emails from clients and colleagues who have queries around this issue, than since the week following the result of the Referendum.

Every sector from advanced manufacturing to philanthropy has been seeking clarity on what this could mean and, in particular, why the Government has put so much effort into producing these guidance notes.

Blind or no deal Brexit?

Before looking at the factual position of what a no-deal Brexit would mean, it is worth discussing the difference between a ‘blind Brexit’ and a ‘no-deal Brexit’ as the two terms have started to be inter-changed over the past weeks.

A blind Brexit is where the UK leaves the EU on the 29 March 2019, having agreed withdrawal terms with the EU, but having failed to agree or set out the terms of the future trading relationship.

Effectively, this would mean that the UK would enter into a transitional period up to 31 December 2020 and would, during that time, have to agree trading terms with the EU.  During the transitional period the UK would have to continue paying into the EU, commence paying the so-called divorce bill and accept EU laws.

However, at the same time the UK would lose its right to vote in the EU Parliament, lose its right to veto legislation and lose its rebate. This would mean the UK would lose its current right to maintain a reduced contribution to the EU budget, so our payments would increase.

Official Government guidance states there remains the possibility that the UK may leave the EU without a deal in March 2019.  To avoid a no-deal Brexit the UK Parliament must simultaneously agree a Withdrawal Agreement whilst the EU Council obtains the European Parliament’s consent to adopt the Agreement.  This process normally takes six months, but the EU has said that it will extend the deadline for receiving the proposed agreement until the EU Council meeting in the second week of October.

A no-deal Brexit is the scenario where either a Withdrawal Agreement cannot be reached, or time runs out for the approval of such an agreement. This would mean the UK leaves the EU at 11:00pm on Friday 29 March 2019 and must then trade with the EU and any countries covered by Free Trade Agreements with the EU, on World Trade Organisation (WTO) rules.

If this were to happen, the EU’s guidance states that in a no-deal scenario, the EU will treat the UK as a ‘third country’ for all purposes, which would mean that extra border regulations and tariffs would be implemented to ensure the goods entering were of EU standard. This particularly would include items such as livestock, medicines and perishable food stuffs.

It is therefore clear that if the UK leaves the EU on a no-deal basis, for a period of time it will have to trade as a ‘third country’ on WTO rules and tariffs.

What could happen the weekend of leaving the EU?

The subject of Brexit has, and remains, extremely emotive and anyone commentating on a no-deal scenario must do so with caution.  Therefore, the following statements relate to a factual analysis of what could happen on the weekend of leaving the EU.

Unless North East businesses or residents permanently stay within the UK, have UK-based banking and only buy goods and services produced in the UK, they should expect to feel some change to their normal day-to-day lives when the UK leaves the EU.

At present the UK Government has passed a number of laws and has given reassurances it will treat EU nationals as if they were UK nationals.  If the EU were to implement reciprocal arrangements it would be possible to have some of the benefits of a transitional period whilst both sides continued to negotiate a future trade agreement.

However, it is unlikely that the EU would have sufficient time to implement reciprocal arrangements at the point at which the UK leaves the EU, meaning that as the law currently stands, businesses and individuals would have to plan for a worst case scenario.

If the UK left the EU at 11:00pm on 29 March 2019 without a deal, anyone travelling to or from mainland Europe that weekend would have to make contingency plans to travel by ferry or the Eurotunnel as the open skies arrangements, which cover air travel, would be suspended.  This would be the case if you are traveling for business or pleasure.

Equally, if any business or individual were on mainland Europe they would have to ensure they have sufficient currency as electronic card or online payments made through any financial institution based in the European Economic Area may not be immediately recognised and therefore may not be able to be processed.

Individuals and businesses not in a country that has a single crossing to the UK, for example Western European countries like France and Holland, or countries like Spain, which are adjacent to the UK dependencies such as Gibraltar, would also need to ensure that they have the necessary extra paperwork to cross borders within the EU.

Any business or individual who planned to bring goods into the UK, for example wine from Calais for personal consumption, or take goods out of the country, such as exporting agricultural goods or fresh fish, would also have to have sourced the necessary commodity codes, enter the code into a customs clearance form and pay the requisite tariffs at the point of entry or exit at the UK border.

HMRC, in conjunction with the EU, issues a commodity code for every product so that the goods can be identified and tracked. Delays at borders due to increased paperwork may mean shortages of some items if they arrive for sale unfit for consumption, which in turn will lead to increases in some food prices.

Managing expectations

The Government has issued these guidance notes to reassure the UK public that there is a significant level of contingency planning being undertaken and to reinforce the message that businesses and individuals need prepare themselves as best they can for an extended period of uncertainty.

After 29 March 2019 it will be important for the Government to manage expectations around how quickly transition period negotiations between the EU and UK will progress. Given the complexity of finalising a new trade agreement, negotiations could be protracted and take a number of years to finalise.

Therefore, 29 March next year is not the conclusion, but more likely just the start of a new working relationship with our European neighbours.