The UK Parliament does not approve the exit deal
If the UK Parliament ultimately does not approve the Withdrawal Agreement, the UK will still leave the EU on 29 March 2019 , but will do so in a disorderly fashion. There will be no transition period and no prior (trade) arrangements. This scenario would be very disruptive. But really, why is everyone so afraid of this? After all, with the US and China, we do not have any trade agreements either, and are we perfectly able to do business?
The most important element herein is the international interdependence of the supply chains of many companies, leading to large trade flows in just-in-time supply chain and manufacturing processes. Without corresponding infrastructure and personnel in place, the checks of goods at the border or the completion of legal formalities could lead to delays and additional expenses. We notice that companies are already preparing themselves to cope with this disruption. Companies are for example already building up emergency stocks around the Brexit date, in order to prevent not being able to fulfill their contractual delivery obligations, or that a business process would temporarily stop.
Despite the fact that both the EU and the UK are working hard to prepare for a ‘no deal’ Brexit scenario, the question remains whether individual national governments will be ready for this outcome. Even if authorities are ready, disruption will be hard to prevent. In most instances, companies are to-date insufficiently familiar with new customs checks and formalities and they are likely to remain uninformed until they arrive at customs. Just imagine a line of trucks ready to board a ferry to the UK, and then it is found out that several trucks are not compliant with the new customs regulations. Is there any infrastructural capacity to park these trucks? What is the effect of delay for other trucks that transport fresh products, for example? Each company has to assess whether these questions are relevant or in any case applicable for their businesses. In the scenario that the UK Parliament does not approve the withdrawal agreement, the EU and the UK could unanimously decide to extend the withdrawal and negotiation period to give businesses and themselves additional time to prepare. This alternative does not seem unlikely to us, given the how close we are now to the deadline. The extension can be agreed upon right up to the last moment.
The UK Parliament approves the deal (eventually)
If the UK Parliament does approve the Withdrawal Agreement (perhaps after several votes), the UK will leave the EU on 29 March 2019 in an orderly fashion. A transition period will then enter into force, so for most aspects the UK would be treated provisionally (until 31 December 2020) as if it were still an EU member. This includes all rights and obligations of EU membership which means, among other things, that the free movement of persons and goods will continue to apply during the transition period. After this period, the UK will become a third country, as a result of which the European agreements on the free movement of goods and persons will no longer apply. However, what a new trade relationship between the UK and the EU will look like after the transition phase is currently unclear and is expected to remain unclear until late into 2020.
It also remains unclear whether the EU and the UK would be able to conclude a free trade agreement during the relatively short transition period. Effectively, both parties have just over a year to negotiate a trade agreement, which is very ambitious to say the least. It is therefore possible that either the term of the transition period would be extended, or if both parties are unable to come to an agreement within the limited time frame, that the UK will leave the EU without an agreement on the new trade relationship. Then the fiercely criticized backstop will enter into force, with de facto Northern Ireland having to continue to adhere to a large part of EU legislation and the regulatory alignment between both parts of the island of Ireland will remain in place.
A new referendum?
The Brexit negotiations have shown that anything is possible. The option of a new referendum in the UK can therefore also not be excluded. We consider the chance of a second referendum rather small. There may instead be a slightly higher chance that a second referendum would be held on the question of whether the present agreement should be adopted, or if the UK should leave the EU without an agreement. In sum, we do not expect the Brexit to be reversed by a new referendum.