22 May 2018

Alasdair Smith is an Emeritus Professor of Economics at the University of Sussex and is a member of the UK Trade Policy Observatory.

Not before time, the UK government is giving attention to the ‘backstop’ provision which will be written into the Withdrawal Agreement for Brexit to avoid a hard border in Ireland.  But rather than focussing on how to sell this politically in the UK, the government needs to address the more pressing question of whether the European Union (EU) will agree to the UK’s preferred version of the backstop.

The EU’s version of the backstop, as written into the draft Withdrawal Agreement, has Northern Ireland remaining within an EU customs union and retaining regulatory alignment with the EU single market in goods – CU+GSM. If however, as intended by the UK government, the UK leaves the customs union and the single market at the end of the standstill transition in December 2020, CU+GSM in Northern Ireland would require a customs and regulatory border between Northern Ireland and the rest of the UK.

It’s unacceptable to the UK government (and to the DUP) to have an internal UK border in the Irish Sea, so the government now seems to be floating what many commentators have long said is the only workable alternative backstop: a UK-wide backstop of CU+GSM for the whole UK. This too is politically difficult for a government that is committed to leaving the EU customs union and single market: remaining in a customs union with the EU limits (though, as Sam Lowe points out, it does not eliminate) the scope for trade agreements with non-EU countries, and remaining in part in the single market implies being subject to the jurisdiction of the European Court of Justice (ECJ). The government focuses on the customs union and is silent on the single market, and it emphasises that the backstop comes into play only if the government’s preferred solutions aren’t deliverable before the end of the transition period. Mrs May is quoted as saying the backstop will be in place, if at all, for a limited period of time,  as if she knows that her preferred solutions which will not be ready in December 2020 will become feasible only a few months later.

There’s not much point in the UK government pausing its heated internal debate between two proposals neither of which is acceptable to the EU in order to pursue a version of the backstop which the EU will not accept. It’s widely reported that the EU regards the backstop as being on offer only for Northern Ireland. Simon Wren-Lewis and Sam Lowe have noted, the EU is in a position to dictate terms.  If there’s no agreed backstop, there’s no withdrawal agreement. There would not be a parliamentary majority in Westminster for the UK to exit from the EU without a withdrawal agreement, so the EU can insist on the NI-only backstop and the UK government will have no alternative but to swallow hard and accept it.

If the UK government is serious about a UK-wide backstop, it therefore needs to give less attention to its own political sensitivities and focus on how to persuade the EU that a UK-wide backstop is what should go into the withdrawal agreement. It needs to address the three main arguments reported to lie behind the EU’s resistance to a UK-wide backstop.

1. The backstop is a solution to an Irish problem and so should be confined only to Northern Ireland

The joint EU-UK negotiators. Report of December 2017, states (in para 46): “The commitments and principles outlined in this joint report … are, as necessary, specific to the unique circumstances on the island of Ireland.”  These words should not be taken to imply that an Irish problem calls for a narrowly Irish solution. The Irish border issue is an issue for the whole UK and the whole EU, not just for the two parts of Ireland. Economists should tread carefully on sensitive political ground, but we need to remember that the heart of the Good Friday Agreement was the recognition that the different communities in Northern Ireland have different national identities and different aspirations for the future constitutional status of Northern Ireland, but that each would recognise the legitimacy of the identity and aspirations of the other. Creation of a hard border between the two parts of Ireland would be incompatible with the vision of one community; but the creation of a border between two parts of the UK would be equally incompatible with the vision of another community. The backstop provision should be the minimum required to deal with the Irish border issue in a way compatible with the Good Friday Agreement. An NI-only backstop does not do that, and Theresa May is right to say that no UK government could accept it as a long-term arrangement.

2. A UK-wide backstop would let the UK cherry-pick membership of the single market without accepting freedom of movement of labour

The EU is a club whose members accept a mix of rights and obligations. Historically, the UK has been enthusiastic about free intra-EU trade and the single market, unenthusiastic about the common agricultural policy and aspects of EU citizenship, and ambivalent about freedom of movement of labour. A club has to offer its members a package that overall is attractive to all members, but permitting any member to drop unattractive obligations while benefiting from other aspects of membership will cause the club to disintegrate. The EU is right to be wary of ‘cherry picking’, and the concern needs a response.

The first response is that the UK-wide backstop is not cherry-picking because it involves a serious trade-off: the UK would no longer have freedom of movement of labour, but it also would no longer have membership of the single market in services – 80% of the UK economy would no longer benefit from the single market. The cherry of reduced freedom of movement of labour is picked at a considerable cost.

There’s then the practical problem of what it would mean for Northern Ireland, but not the rest of the UK, to be in regulatory alignment with the EU. The manufacturers of cars, food products, lawnmowers and vacuum cleaners in the UK will surely choose to continue to produce their goods in accordance with EU regulations. The UK government will be responsible, under the jurisdiction of the ECJ, for ensuring conformity of goods in circulation in Northern Ireland with EU regulation so that these goods can be put, without impediment at the Irish border, into free circulation in the whole EU. But the same goods, produced under the same regulatory regime, are not permitted to enter the EU market via Calais? Just as a practical matter, it’s hard to see the difference between regulatory alignment for the whole UK and regulatory alignment for NI alone. Once regulatory alignment with the single market without freedom of movement is agreed for Northern Ireland, it’s a very small step, in principle and especially in practice, to agree it for the UK.

Digging deeper, this objection raises the question of why the EU sees the four freedoms as integral to the internal market. Much of the single market can operate perfectly well without freedom of movement of labour. Specifically, regulatory harmonisation in goods allows free movement of goods whether or not there is free movement of labour. Some aspects of free movement in services require mobility of labour – where the mode of delivery of services requires it – but in the UK-wide backstop, services would not be in the single market, so this argument does not apply.

More fundamentally still, freedom of movement can be seen, as a matter of principle, as a right of EU citizens to live and work anywhere in the EU. However, following Brexit, UK citizens will no longer be citizens of the EU, so this argument that the UK must adhere fully to freedom of movement loses its force.

3. A UK-wide backstop would become the permanent UK-EU relationship and the long-term trade relationship should be negotiated separately from and subsequent to the withdrawal agreement.

Sam Lowe points out that para 46 of the December joint report also refers to the desire not to “pre-determine the outcome of wider discussions on the future relationship between the European Union and the United Kingdom”.  It is indeed true that the backstop may be a strong candidate model for the long-term EU-UK relationship. If no alternative solution is found for the Irish border, then the backstop, whatever it is, has to be the long-term relationship. That’s the nature of a backstop. However, if an alternative border solution is found, a different range of relationships can be explored. It’s right for the EU to want the backstop to constrain the long-term UK-EU relationship as little as possible. The backstop should be the minimum required to do the job. But that doesn’t add anything to the debate of what is that minimum.

Finally, consider the likely course of events if the EU, unpersuaded by the force of these arguments, sticks to the position that the backstop should be NI-only not UK-wide. The UK government will have to accept the weakness of its position and sign up. It will argue (as Mrs May is already doing) that a backstop is just a backstop, pretend that other solutions to the border problem will be achieved before the end of 2020 when the standstill transition ends so the NI-only backstop will not be activated. If Parliament accepts that argument, the crunch is postponed until 2020.

But the EU does not believe that the UK government’s alternative solutions will be ready for 2020, if ever. As the end of the standstill transition approaches, and the NI-only backstop comes into effect, the stage will be set for a major political crisis in the UK, from which the only certain outcome would be many further years in which both UK politics and the UK-EU relationship would be poisoned by Brexit.