EU: There will be No Brexit Agreement with the UK

The chances of reaching an agreement between the EU and the UK on their future business relationship are reduced. The differences remain, and the tension between the two parties has increased in recent weeks. The European Commission already assumes in its economic forecasts that there will be no agreement with London.

The European Commission has decided that it will separate with the United Kingdom without changes in the policy, as it applies to the Member States. In other words, the Commission prepares its economic prospects by analyzing the current economic reality.

The United Kingdom has decided that it will not apply as a baseline scenario. Which is what it has been practicing up to now of an unchanged commercial relationship. The principle will be impossible to follow once the transition period expired on December 31. 

On a technical basis, the EU and its former member state will not agree on a new trade relationship. Therefore, the rules of the World Trade Organization will apply from January 1.

The two parties may trade under basic “WTO rules”

Suppose the United Kingdom exhausts the transition period on December 31 without achieving a new trade framework with the EU. In that case, the economic consequences will be significant when exporting its goods to the bloc and even when importing some essential goods. It will also affect services. A departure without an agreement would cause 90% of the UK’s export of goods to the EU to face tariffs.

According to the government’s analysis, the UK economy’s impact would be an additional 7.6% drop in its GDP over 15 years. The reduction would be 4.9% with a free trade agreement. Moreover, this abrupt exit would come just as London is trying to overcome the recession caused by Covid-19.

The EU will also feel the negative impact. According to the IMF, the employment rate of the 27 countries would fall 0.7% if the WTO rules were applied after Brexit. According to the Fund, the most affected Member States would be mainly Ireland, the Netherlands, and Denmark.

Negotiations between Brussels and London make little progress on the fundamental chapters of access to UK fishing waters and state aid. The tension has increased this month after the presentation of the Internal Market law. The Government of Boris Johnson threatened to break part of its commitments acquired to exit the EU signed a year ago.