Synopsis of Consequences of leaving the EU without an agreement: From Senior European Experts
1. Leaving the EU without an agreement also means leaving the European Economic Area, governed by Single Market rules, including Iceland, Liechtenstein and Norway as well as the EU. The UK would cease to have a preferential relationship with Switzerland and would lose the benefits of all the EU’s agreements with third countries.
RIGHTS
2. UK citizens would no longer have the absolute right to travel in the EU/EEA and Switzerland unless special arrangements are made. They could be stopped, detained or deported if they had have no valid EU Member State visa.
3. UK citizens in an EU Member State would lose their right to live, work, study or retire in the EU. They would automatically become third country citizens under EU law and have less access to local healthcare or employment.
EU nationals working in UK would also have lost free movement rights. The UK-Ireland Common Travel Area (CTA) would be difficult to sustain and the Irish Government would be obliged to introduce border and customs controls at ports and airports for UK travellers as well as on the land border with Northern Ireland.
ECONOMY
4. i. Tariff-free trade with the EU ends, requiring UK exporters to pay third country duties as the UK falls back on WTO rules.
ii. Ports and airports disrupted because of the need to apply customs duties, health and other rules with consequent disruption to manufacturing businesses and complex supply chains, key to imported food supplies.
iii. WTO rules have limited service sector coverage; so impact would be particularly severe in financial services; a probable fall in the value of sterling.
iv. Loss of preferential trading rights with over 50 countries which have free trade or agreements with the EU.
v. Potential food and other shortages caused by the delays at ports and airports.
vi. Loss of foreign direct investment and access to essential workers for businesses and public services; skill shortages, higher prices and closure of some businesses; significant parts of the public services unable to fill key vacancies.
vi. Few major countries rely on WTO terms for trade with the EU. The US has a series of equivalence agreements on financial services, veterinary issues, mutual conformity of assessments etc. The UK would need these too.
TRADE
i. Adopting zero tariffs on imports from the EU but would be contrary to WTO most-favoured nation (MFN) rule unless we applied this to ALL WTO members.
ii. EU duties range from two per cent to 40% on some meat and dairy products. This would be a sharp fall in exports and a rise in prices.
iii. 14,000 trucks a day enter and leave the UK. These would be subject to third country border controls, something not needed since 1993. The UK would need to introduce such controls and staff very quickly. We are reliant on France and Belgium for the operation of immigration controls enabling UK Borders staff to check passports at Belgian and French ports. With the UK leaving suddenly would Belgium and France be willing to increase their number of staff to deal with the chaos at ports, railway stations and airports?
iv. New IT systems would be needed to process the greater number of customs and other border formalities.
v. Non-tariff barriers, such as regulatory standards for goods and services are a bigger obstacle to trade than tariffs. A UK outside the EU would have no influence over Single Market rules.
SERVICES
i. Services, 80% of the UK economy, are hardly covered by WTO rules. Loss of access to the Single Market would have a major economic impact.
ii. Financial services would be badly hit because of the loss of mutual recognition arrangements, legal doubts about the regulation of the service being provided and the loss of free movement, an essential part of service exporters’ business.
iii. Without mutual recognition of professional qualifications some British service providers could go out of business overnight if their host country no longer recognised their qualifications or regulatory approvals. Legal difficulties on jurisdiction, enforcement, and the protection of intellectual property and data would also arise.
FINANCIAL SERVICES
The UK is the world’s largest exporter of financial services and insurance, employing 2.2 million people and the EU representing £50 billion of the £200 billion coming from this sector. The immediate consequences of leaving without an agreement would be:
i. Loss of access to the financial services and insurance Single Market.
ii. Non-recognition of some UK businesses because regulatory arrangements would no longer be compliant with EU rules.
iii. The UK provides a major service to EU businesses in clearing and settlement so EU businesses could turn to the New York market if the UK can no longer perform this function.
CAR SECTOR
The automotive sector would be particularly badly hit:
i.Tariffs on vehicles and components of around 10%.
ii. Delays caused by the requirements of rules of origin.
iii.Disruption to just-in-time supply chains.
iv. A fall in exports with a 10 per cent duty on British-made cars exported to the EU. Cross-border supply chains disrupted relocations from a UK which outside the Single Market.
v. Rules of origin issues which allocate the appropriate duty on an imported item according to the percentage of the item manufactured in the exporting country. Even for large companies it will be a problem because half the components in a British car are imported.
PHARMACEUTICALS, MEDICAL AND CHEMICAL
These sectors are heavily dependent on EU regulation and the EU is the UK’s largest export market. 75% of chemicals come from the EU and 60% of UK exports go there. Chemicals and pharmaceuticals would lose their ability to sell new products in the Single Market without approval.
The nuclear industry is regulated by Euratom which would not continue in a Brexit without agreement.
AGRICULTURE AND FOOD
i. 70% of UK trade in food is with the EU. EU duties on some food products are high; from dairy products at 35.5% to 87% on frozen beef. Duties are 25% on confectionery and 15% on cereals.
ii. Tariffs would put up domestic food prices and reduce UK exports. Complex cross-border supply chains, rules of origin procedures and public health rules would add to costs and impact Northern Ireland especially. Exporting animal-based products would require a new regulatory framework while UK importers would lose access to EU inspections in third countries.
CIVIL AVIATION
The UK has the third largest civil aviation sector in the world. It is worth £55 billion to the UK economy and employs almost a million people. The EU regulatory framework governing civil aviation covers not only flights to European destinations but also those from the UK to the US.
i. There is no fall back to WTO rules in this sector. British-based airlines would lose their rights to operate flights between destinations within the EU as these derive from the Single Market. British airlines will need to have a subsidiary inside the Single Market in order to take advantage of its benefits.
ii. Flights to non-EU countries would also be affected. Flights between the UK and the USA are governed by the EU’s Open Skies agreement with the US, which would no longer be applicable.
ENERGY
There would be particular difficulties in energy. EU countries exchange electricity and gas supplies to meet temporary demand.
UK businesses would no longer be eligible to bid for public procurement contracts in the EU.
SECURITY AND JUSTICE
The UK would lose access to essential tools used by the police and security agencies to protect our borders, fight terrorism and bring criminals to justice.
i. End of access to the Schengen Information System database, used in border controls.
ii. End of access to the Europol database.
iii. End of the European Arrest Warrant system for the UK.
iv. A return to old extradition arrangements, which took nine months to a year in each case.
v. Loss of the co-operation arrangements for police, prosecutors and judicial authorities that operate via Europol and Eurojust.
vi. Loss of goodwill in the fight against terrorism and cross-border crime in Europe.
vii. Loss of ability to influence EU policy in security, crime and justice.
OTHER CONSEQUENCES
The UK’s budget contribution is likely to be pursued through international courts as it was a treaty commitment. The EU is likely to take retaliatory action if we renege on our payment.
The UK is the third largest recipient of EU funding for research and innovation. It would mean a loss of opportunities to participate in important cross-border research projects with a loss of skilled research staff in research and universities.
The UK would lose influence in the EU’s foreign and security policies with a global loss of influence in the medium to long-term.
NATIONAL STANDING
Walking away from treaty obligations without meeting its responsibilities would have major consequences. The UK has sought to promote a rules-based international order in the world so this would be a fundamental change of direction affecting both relationships with the EU and the UK’s attractiveness as a trade partner in the wider world.
COSTS
Leaving the EU without agreement would mean that public resources would have to be diverted to deal with multiple urgent problems. There would be a major impact on parliament, on the civil service and on public services with frontline services subordinated to administration. Customs, regulation and new legal frameworks along with the need to negotiate 700 treaties wit other countries would reduce the size of the economy and mean lower tax revenues. Industry and commerce would at best be diverted into surviving where many would face closure.
CONCLUSION
While the UK leaving the EU without an agreement would have adverse consequences on the EU and particularly Ireland, the UK would be by far the biggest loser and the consequences would be with us for decades to come.
1. Leaving the EU without an agreement also means leaving the European Economic Area, governed by Single Market rules, including Iceland, Liechtenstein and Norway as well as the EU. The UK would cease to have a preferential relationship with Switzerland and would lose the benefits of all the EU’s agreements with third countries.
RIGHTS
2. UK citizens would no longer have the absolute right to travel in the EU/EEA and Switzerland unless special arrangements are made. They could be stopped, detained or deported if they had have no valid EU Member State visa.
3. UK citizens in an EU Member State would lose their right to live, work, study or retire in the EU. They would automatically become third country citizens under EU law and have less access to local healthcare or employment.
EU nationals working in UK would also have lost free movement rights. The UK-Ireland Common Travel Area (CTA) would be difficult to sustain and the Irish Government would be obliged to introduce border and customs controls at ports and airports for UK travellers as well as on the land border with Northern Ireland.
ECONOMY
4. i. Tariff-free trade with the EU ends, requiring UK exporters to pay third country duties as the UK falls back on WTO rules.
ii. Ports and airports disrupted because of the need to apply customs duties, health and other rules with consequent disruption to manufacturing businesses and complex supply chains, key to imported food supplies.
iii. WTO rules have limited service sector coverage; so impact would be particularly severe in financial services; a probable fall in the value of sterling.
iv. Loss of preferential trading rights with over 50 countries which have free trade or agreements with the EU.
v. Potential food and other shortages caused by the delays at ports and airports.
vi. Loss of foreign direct investment and access to essential workers for businesses and public services; skill shortages, higher prices and closure of some businesses; significant parts of the public services unable to fill key vacancies.
vi. Few major countries rely on WTO terms for trade with the EU. The US has a series of equivalence agreements on financial services, veterinary issues, mutual conformity of assessments etc. The UK would need these too.
TRADE
i. Adopting zero tariffs on imports from the EU but would be contrary to WTO most-favoured nation (MFN) rule unless we applied this to ALL WTO members.
ii. EU duties range from two per cent to 40% on some meat and dairy products. This would be a sharp fall in exports and a rise in prices.
iii. 14,000 trucks a day enter and leave the UK. These would be subject to third country border controls, something not needed since 1993. The UK would need to introduce such controls and staff very quickly. We are reliant on France and Belgium for the operation of immigration controls enabling UK Borders staff to check passports at Belgian and French ports. With the UK leaving suddenly would Belgium and France be willing to increase their number of staff to deal with the chaos at ports, railway stations and airports?
iv. New IT systems would be needed to process the greater number of customs and other border formalities.
v. Non-tariff barriers, such as regulatory standards for goods and services are a bigger obstacle to trade than tariffs. A UK outside the EU would have no influence over Single Market rules.
SERVICES
i. Services, 80% of the UK economy, are hardly covered by WTO rules. Loss of access to the Single Market would have a major economic impact.
ii. Financial services would be badly hit because of the loss of mutual recognition arrangements, legal doubts about the regulation of the service being provided and the loss of free movement, an essential part of service exporters’ business.
iii. Without mutual recognition of professional qualifications some British service providers could go out of business overnight if their host country no longer recognised their qualifications or regulatory approvals. Legal difficulties on jurisdiction, enforcement, and the protection of intellectual property and data would also arise.
FINANCIAL SERVICES
The UK is the world’s largest exporter of financial services and insurance, employing 2.2 million people and the EU representing £50 billion of the £200 billion coming from this sector. The immediate consequences of leaving without an agreement would be:
i. Loss of access to the financial services and insurance Single Market.
ii. Non-recognition of some UK businesses because regulatory arrangements would no longer be compliant with EU rules.
iii. The UK provides a major service to EU businesses in clearing and settlement so EU businesses could turn to the New York market if the UK can no longer perform this function.
CAR SECTOR
The automotive sector would be particularly badly hit:
i.Tariffs on vehicles and components of around 10%.
ii. Delays caused by the requirements of rules of origin.
iii.Disruption to just-in-time supply chains.
iv. A fall in exports with a 10 per cent duty on British-made cars exported to the EU. Cross-border supply chains disrupted relocations from a UK which outside the Single Market.
v. Rules of origin issues which allocate the appropriate duty on an imported item according to the percentage of the item manufactured in the exporting country. Even for large companies it will be a problem because half the components in a British car are imported.
PHARMACEUTICALS, MEDICAL AND CHEMICAL
These sectors are heavily dependent on EU regulation and the EU is the UK’s largest export market. 75% of chemicals come from the EU and 60% of UK exports go there. Chemicals and pharmaceuticals would lose their ability to sell new products in the Single Market without approval.
The nuclear industry is regulated by Euratom which would not continue in a Brexit without agreement.
AGRICULTURE AND FOOD
i. 70% of UK trade in food is with the EU. EU duties on some food products are high; from dairy products at 35.5% to 87% on frozen beef. Duties are 25% on confectionery and 15% on cereals.
ii. Tariffs would put up domestic food prices and reduce UK exports. Complex cross-border supply chains, rules of origin procedures and public health rules would add to costs and impact Northern Ireland especially. Exporting animal-based products would require a new regulatory framework while UK importers would lose access to EU inspections in third countries.
CIVIL AVIATION
The UK has the third largest civil aviation sector in the world. It is worth £55 billion to the UK economy and employs almost a million people. The EU regulatory framework governing civil aviation covers not only flights to European destinations but also those from the UK to the US.
i. There is no fall back to WTO rules in this sector. British-based airlines would lose their rights to operate flights between destinations within the EU as these derive from the Single Market. British airlines will need to have a subsidiary inside the Single Market in order to take advantage of its benefits.
ii. Flights to non-EU countries would also be affected. Flights between the UK and the USA are governed by the EU’s Open Skies agreement with the US, which would no longer be applicable.
ENERGY
There would be particular difficulties in energy. EU countries exchange electricity and gas supplies to meet temporary demand.
UK businesses would no longer be eligible to bid for public procurement contracts in the EU.
SECURITY AND JUSTICE
The UK would lose access to essential tools used by the police and security agencies to protect our borders, fight terrorism and bring criminals to justice.
i. End of access to the Schengen Information System database, used in border controls.
ii. End of access to the Europol database.
iii. End of the European Arrest Warrant system for the UK.
iv. A return to old extradition arrangements, which took nine months to a year in each case.
v. Loss of the co-operation arrangements for police, prosecutors and judicial authorities that operate via Europol and Eurojust.
vi. Loss of goodwill in the fight against terrorism and cross-border crime in Europe.
vii. Loss of ability to influence EU policy in security, crime and justice.
OTHER CONSEQUENCES
The UK’s budget contribution is likely to be pursued through international courts as it was a treaty commitment. The EU is likely to take retaliatory action if we renege on our payment.
The UK is the third largest recipient of EU funding for research and innovation. It would mean a loss of opportunities to participate in important cross-border research projects with a loss of skilled research staff in research and universities.
The UK would lose influence in the EU’s foreign and security policies with a global loss of influence in the medium to long-term.
NATIONAL STANDING
Walking away from treaty obligations without meeting its responsibilities would have major consequences. The UK has sought to promote a rules-based international order in the world so this would be a fundamental change of direction affecting both relationships with the EU and the UK’s attractiveness as a trade partner in the wider world.
COSTS
Leaving the EU without agreement would mean that public resources would have to be diverted to deal with multiple urgent problems. There would be a major impact on parliament, on the civil service and on public services with frontline services subordinated to administration. Customs, regulation and new legal frameworks along with the need to negotiate 700 treaties wit other countries would reduce the size of the economy and mean lower tax revenues. Industry and commerce would at best be diverted into surviving where many would face closure.
CONCLUSION
While the UK leaving the EU without an agreement would have adverse consequences on the EU and particularly Ireland, the UK would be by far the biggest loser and the consequences would be with us for decades to come.
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