Plan A or Plan B? Deal or No Deal?

“Do or die, come what may” – the evocative language used by the UK’s new Prime Minister, Boris Johnson, with reference to the UK leaving the EU by October 31st.

Which means the new Premier has some fast work to do. Plan A is to agree a new agreement with the EU so that the UK does not leave without a deal. This new agreement would be substantially different to the one that Theresa May negotiated, he maintains. Plan B is to leave without a deal.

How likely is Plan A to come to fruition? And what impact will Plan B have on UK businesses? Let’s look at what lies ahead in the coming months.

Working on Plan A

The Prime Minister will need to establish a working relationship and dialogue with the EU. This will be necessary whatever plan is being executed. Mr Johnson is known to Brussels, having been posted there by the Daily Telegraph from 1989 to 1994.  Most senior EU figures have courteously congratulated him, looking forward to constructive cooperation. Some have pointed to the difficult issues that must be tackled.  Talks of a “war cabinet” in Westminster may not necessarily help to sweeten the mood…

One of the biggest issues the Government must resolve is how to deal with the Irish border issues, which is a central pillar of the Withdrawal Agreement.  The Prime Minister wishes to move the Irish Backstop out of the Withdrawal Agreement which, if ratified by the UK, would be a legally binding document. EU negotiators say they will not reopen the Withdrawal Agreement to do this, but could make some clarifying adjustments to the Political Declaration a non-binding document. Already, we see there is significant scope for an impasse between the new UK Government and the EU. It is difficult to say whether positions will soften leading up to the extended deadline of 31 October.

Adding to the challenge is that the team on the EU side is also changing. Ursula von der Leyen is in place as Commission President-designate, but the Commission College will not be constituted until all the other 27 Commission positions have been filled. This will not happen until, at the very earliest, November 1st.

Michel Barnier is still officially the Brexit negotiator for the European Commission and his mandate, agreed by all the Member States, has not changed since negotiations opened with the former PM Theresa May.  In other words, he cannot substantially change the Withdrawal Agreement without going back to the European Council and requesting approval for a new mandate. Much of the European political establishment in Brussels and capitals are on holiday, and they may not be back until later in August. That leaves only a few weeks to renegotiate something that is immensely complex and took nearly two years to negotiate the first time around. We are not talking about minor adjustments here, according to the new Prime Minister of the UK, but a substantial restructuring and rewriting of what the EU feels was already fairly and satisfactorily decided between the two sides. In short, starting almost from scratch.

Preparing for Plan B

It is dangerous for businesses and citizens to count on a new agreement being in place by 31 October, or to hope for a further extension that would have to be approved by both the UK and all other 27 Member States unanimously.  If they haven’t done so already, organisations and people that rely on access to the Single Market must prepare for a no deal, and quickly.  The EU maintains that its own no deal preparations have been in place since March 31st.

There are four distinct areas all businesses should assess when preparing for no deal: goods; services; capital and persons. Drawing up checklists on what impact the cessation of these freedoms will have on your business is a shrewd place to start what is undeniably a challenging and complex process.

Things to consider:

  • Export status: The UK becomes a third country with no greater access to the EU’s Single Market than Indonesia or Russia. Businesses which hail from countries with which the EU has recently agreed trade deals, for example Vietnam or Argentina will be able to sell most products to the EU without being subject to tariffs. British competitors trying to export products to the EU may be subject to high duties. The competitiveness of UK exports to the EU would be seriously affected. Even if the EU wanted to waive its tariffs on UK products, it could not do this without breaking EU law and WTO rules. Enterprises that trade beyond the EU will have to adjust to the fact of not being covered by the EU’s system of preferential trade agreements and the block’s trade defence instruments.
  • Customs declarations: Tens of thousands of British businesses that import and export products from and to the EU, but not from and to countries outside the EU will have to fill in customs declarations for the first time. This can be quite complicated and mistakes will lead to stoppage and delays at borders. A good many businesses will need to invest in new computer systems and software programmes that are compatible with the software used by customs authorities.  Businesses will also have to adjust to new procedures to prove conformity, as third country providers, with EU regulations and standards.
  • People: The laws providing for mutual recognition of qualifications will no longer apply, affecting potentially thousands of workers. Licences to engage in professions or to operate certain types of machinery and vehicles may not be valid. Businesses that employ workers from EU countries will need to understand what rights and entitlements these workers have if there is no deal, and what this may mean for their families’ residential rights. The provisions to protect citizens’ rights in the Withdrawal Agreement will not apply in the event of no deal.
  • No transition period:  The Withdrawal Agreement provided a transition period of nearly two years where the UK, having left the EU, would have time to complete a longer-term deal. Without ratification of the Withdrawal Agreement, the UK is simply out of the EU with no privileged access to its market, and vice versa.