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Monday, November 26, 2018

Brexit: Here's what happens now

There is one thing currently uniting Prime Minister Theresa May with her 27 EU counterparts: They all want the Brexit withdrawal agreement to be approved by the U.K. Parliament.

But there's a high possibility that the deal will be voted down — risk consultancy Eurasia Group assigns a 75 percent probability for that outcome. In the eyes of the U.K. prime minister and the other 27 EU leaders, this would bring uncertainty and difficulties at all levels for businesses, consumers and citizens.

"This is the best deal possible for Britain, this is the best deal possible for Europe, this is the only deal possible," European Commission President Jean-Claude Juncker said Sunday after a special Brexit summit. Brussels, as well as Theresa May, has tried to make it clear to U.K. parliamentarians that there will not be renegotiations if they disapprove of the withdrawal plan.

If the agreement is voted down by U.K. lawmakers, the government could try to extend the deadline of March 29 (when the U.K. is officially due to leave the European Union) or the country crashes out of the EU without a deal.

The first scenario could allow the government to perhaps negotiate further with the U.K. Parliament until the House of Commons approves the exit deal. In order to extend that deadline, the U.K. would have to ask the EU for permission and the 27 countries would have to accept the request unanimously. Such an outcome would also not erase uncertainty for citizens or the economy.

The second scenario is the most feared in Europe and by many business groups in the U.K. — a no-deal Brexit. Leaving the EU in March of next year without a deal would mean that World Trade Organization rules would apply. This would inevitably raise tariffs and costs for both producers and consumers. At the moment, the U.K. is a member of the EU single market of goods, meaning that trade is frictionless and with zero tariffs.

There would be immense disruption and uncertainty, including in the energy market, the supply of medicines and medical devices, as well as in the car industry.

In fact, the biggest car makers in the U.K. have warned on different occasions that a no-deal would hurt their imports of EU components to assemble cars in their U.K. plants. According to the Society of Motor Manufacturers and Traders (SMMT), without a deal that keeps tariffs at zero "U.K. companies selling components to the EU will face an average export tariff of 4.5 percent while manufacturers of vehicles will face an export tariff of 10 percent."

"Our base case (80 percent chance) remains that Parliament will either pass the current deal in a first or second vote or — after significant political turmoil — will endorse some other solution that avoids a 'no deal' hard Brexit in the end," analysts at Berenberg bank said in a research note to clients on Monday.

If May overcomes the current opposition to her Brexit plan, then the process will move forward. This means that the U.K. will stop being a member of the European Union on March 29. And from that moment onwards, the transition period will begin — it is during this phase that the U.K. and the EU will negotiate their future relationship, including new trade arrangements.

The transition is set to last until the end of 2020, 21 months. However, the EU and the U.K. have decided to assess the state of their negotiations in July of 2020 to see whether they need more time to conclude those talks. The transition period could be extended for up to two years.

During the transition phase, the U.K. will not have any say in EU policymaking.

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