8 December 2017

Jim Rollo is Deputy Director of UKTPO, Emeritus Professor of European Economics at the University of Sussex and Associate Fellow, Chatham House. Dr Peter Holmes Reader in Economics at the University of Sussex and Fellow of the UKTPO.

The agreement to proceed to the next phase of  Brexit talks is a step forward on the road to a softer Brexit. But it does not offer a definitive solution to the status of the Irish border, which will depend on the nature of the final agreement on the UK-EU trade relationship. At best, it represents an exercise in constructive ambiguity designed to allow the shape and length of any interim agreement, which will help determine the shape of the long-term agreement and, in turn, will be the basis of any permanent solution to the status of the Irish land border with Northern Ireland.

Art 49 of the joint statement says the UK is committed to having no “hard border”. Most analysts believe that the only way to avoid border checks between Northern Ireland the Republic is for the UK to retain full participation in the Single Market and be part of a comprehensive Customs Union with the EU, (although having left the EU it is not possible to be a member of the EU Customs Union. Article 49 notes the UK’s wish to find a solution in its new arrangements with the EU, but goes on to say:

“ In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement”

“Hard border” is not precisely defined, but must mean checks at the border on goods being transported across it. One possibility is for customs checks to be done on goods at customs warehouses away from the border, not unknown in the pre-1992 EEC, but requiring at least an initial check at the border, or else untried electronic surveillance systems.

Otherwise, doing away with border checks is only possible if we remove all reasons for needing such checks.  These are related first to customs duties (tariffs) and second to monitoring compliance with mandatory standards for health and safety, etc. Both conditions need to be satisfied. An EEA arrangement would give the latter, but not the former.

To have no customs duties to collect would seem to imply a fully comprehensive customs union (as now) with the EU covering all products including agriculture, and with a totally comprehensive common commercial policy for all partners so that all EU FTAs are  replicated for the UK  and adjusted to include provisions for diagonal cumulation with the UK.  The EU assumes this will happen but it cannot force third countries in effect to sort out a mess the UK has made.  (See Gasiorek and Holmes “Grandfathering” UKTPO blog).  But, the UK would also have to commit to the same anti-dumping duties. The EU-Turkey customs union does not have this and it’s one reason why there need to be border checks between the EU and Turkey, (to stop trade deflection of goods bearing very high anti-dumping duties coming into the EU via Turkey or vice versa).

An alternative possibility is to propose a Free Trade Agreement that effectively replicates a Customs Union by specifying that the UK will actually keep the same tariffs as the EU on all goods so that there is no need for checks on origin. The UK would then also have to agree to the same anti-dumping regime, as having the same FTAs as before, suitably modified. In all variants of this, the UK would have to find a way to deal with the distribution of tariff revenue for third-country goods that transit between the UK and the EU.

The anti-dumping issue is far from simple: the UK would have problems at the WTO applying anti-dumping duties where no injury to UK producers had been shown.

But this is only half the story: goods need to be checked at the border for regulatory compliance. The joint text makes it clear that to have no border inspections between Northern Ireland and either the Republic or the UK there must be full regulatory alignment with the EU for the whole UK.  It could be argued that the UK needs only comply with product standards to make this work. But it’s not clear how far the need to keep the Irish border physically open would extend to services other than road transport.

Ominously perhaps, the EU in its paper on the deal notes that it does not intend to extend automatic accreditation of UK conformity assessment post Brexit.

“ On this last point, the Commission negotiator insists on any compliance activity post-withdrawal to be performed by competent authorities or bodies under current EU law, whilst the United Kingdom negotiator wants the United Kingdom to retain temporary (but potentially open ended) competence for such activities.”

In conclusion

The EU-UK trade agreements envisaged here as being consistent with a frictionless border imply both a form of customs union and a degree of regulatory alignment that goes a long way beyond, for example, the EU-Canada CETA FTA. It would have to be as strong as the EEA in many ways, but could conceivably exclude services and the production process rules.

There appears to be a huge amount left to be negotiated before the types of framework implied by the agreement’s objective of a fully open land border on the Island of Ireland could be spelled out in full and implemented. In the meantime, the status quo or something very like, it will need to apply in the UK customs area after March 2019 all the way until a new and permanent EU-UK trade agreement is implemented.

The answer to the question in the title seems to be that only an extremely soft Brexit will begin to deal with the problem of keeping the Irish border open.

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.