Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

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.

December 8th, 2017

Posted In: UK- EU

Tags: , , , ,

Leave a Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Photo of Emily Lydgate7 December 2017

Dr Emily Lydgate is a lecturer in Law at the University of Sussex and a fellow of the UK Trade Policy Observatory.

How can the UK uphold its commitment to leaving the EU Single Market and Customs Union while also preserving the invisible intra-Irish border? Leaving aside crucial questions of political feasibility, this post looks at some of the options and their trade and border implications. Notably, there are limits to ‘flexible and creative’ solutions that involve turning a blind eye to customs and regulatory checks solely on the intra-Irish border: trade rules leave little room for such ad hoc approaches.

Option 1: Regulatory divergence between Northern Ireland and the rest of the UK

Northern Ireland could diverge from the rest of the UK, forming a customs union with the EU and continuing to harmonize its domestic regulation with EU regulation and standards for goods and services. Arguably, such full integration is a necessary condition for maintaining the open border (though note that Turkey, which has a customs union, and broad regulatory alignment with, the EU, still faces border checks).

There are models for Northern Ireland to maintain formal independence from the EU while gaining the benefits of an invisible border. Close to home, we can look to the Channel Islands. As ‘Crown Dependencies’ they are not EU Members nor strictly part of the UK; they have judicial independence and the right of self-government. They voluntarily follow EU standards and legislation, and are part of the EU Customs Union. Their Single Market participation is limited to free trade in goods, and does not extend to services or people.

Yet the situation in Northern Ireland is more challenging than just maintaining formal independence: it requires preserving political unity with one country, the UK, whilst forming a customs territory and regulatory union with another, Ireland (and the EU). In theory, such a model could preserve an open intra-Irish border for goods – and services, if extended further – and allow Northern Ireland to maintain integration with the rest of the UK in some areas. But it is difficult to see how the United Kingdom could continue to function as a union. In order to preserve the integrity of the EU’s Common External Tariff, the EU would likely require Northern Ireland to align all of its Free Trade Agreements with those of the EU – rather than the UK. Northern Ireland would also likely be bound by European Court of Justice rulings pertaining to EU regulations which it has incorporated, thus limiting its ability to have an independent judiciary.  As has been well noted, such divergences in customs and regulatory regimes would also necessitate border checks between Northern Ireland and the rest of the UK.

Option 2: Regulatory ‘alignment’ between the UK and the rest of the EU

David Davis MP, Secretary of State for Exiting the European Union, has ‘clarified’ the position that the UK as a whole – not just Northern Ireland – will align its regulation with the EU, stating that:  “Alignment … isn’t having exactly the same rules. It is sometimes having mutually recognised rules, mutually recognised inspection – that is what we are aiming at.”

It’s a curious word choice: in the recently-concluded EU-Ukraine Association Agreement, ‘regulatory alignment’ means that Ukraine is expected to incorporate the EU acquis, its body of law and regulation, in covered areas. Determining whether it has fulfilled this obligation is down to the EU.

This is quite different from mutual recognition, which Davis then advocates. The Mutual Recognition Agreements the EU has concluded are limited in scope and application. They allow companies in a sub-set of sectors to certify that their products meet EU standards at the point of production (mutual recognition of conformity assessment), thus obviating the need for checks to happen twice.

This is a far cry from an invisible border. It does nothing to prevent border checks resulting from tariff barriers and rules of origin checks. Davis notes that mutual recognition would only happen ‘sometimes’ such that border infrastructure would need to be in place for non-covered sectors. Which leads us to….

Option 3: Sectoral alignment

Northern Ireland could identify sectors in which regulatory alignment was particularly useful– say, health care, transport, environmental regulation and agriculture. In these areas it could align with Ireland and the rest of the EU, departing from the rest of the UK.

Indeed, Northern Ireland has some regulatory divergence from the rest of the UK now. Yet, for reasons noted above, this would not lead to the conditions necessary for an invisible border (see our recent briefing paper: Can A UK-EU Free Trade Area Preserve The Benefits Of The Single Market And The Customs Union In Some Sectors?). A sectoral approach could even lead to two sets of border checks: between Northern Ireland and Republic of Ireland, and between Northern Ireland and the rest of the UK.

Bonus section: Ad hoc solutions to achieving frictionless trade

But what if the UK, desperate for a solution, decided to simply look the other way – not worrying about lost tariff revenue or accepting goods that did not meet UK standards? Under any of the models considered above, turning a blind eye would facilitate frictionless trade. This would give goods coming in from Ireland – the UK’s only land border – a de facto special status. Aside from the other problems that this would create, the UK would run into problems with WTO rules.

Turning a blind eye would necessitate admitting goods from Ireland tariff-free. The Most Favoured Nation (MFN) principle prohibits the UK from giving special tariff rates to one WTO Member that it does not extend to all of the others. There is an exception for Free Trade Areas, in which tariff barriers are eliminated for substantially all trade. Thus such an arrangement would only be possible as an extension of a zero-tariff UK-EU Free Trade Area; otherwise it would violate WTO MFN obligations.

Another WTO obligation, GATT Article X, would also prove problematic. In the words of the WTO Appellate Body, it ‘establishes certain minimum standards for transparency and procedural fairness in the administration of trade regulations’. It also requires that there ‘uniformity’ in the administration of trade-related regulation. In other words, countries should not treat some goods – or some countries – much differently than others in the administration of customs procedures. There are a dozen or so disputes focusing on this requirement. A light-touch approach applied only on one border could certainly prompt another.

Article 7 of the Trade Facilitation Agreement, which recently entered into force, also obligates each WTO Member to ‘apply common customs procedures and uniform documentation requirements for release and clearance of goods throughout its territory.’

On the other hand, Article XXIV of the GATT Agreement, which applies to Customs Unions and Free Trade areas as well as territorial application and frontier traffic, seems to provide some scope for differential treatment of goods coming through the land border. Article 3(a) states that:

The provisions of this Agreement shall not be construed to prevent:

Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic.

There is no case law clarifying this provision and what is meant by ‘frontier traffic’. Yet even if there were no WTO complaints, such an approach could turn the intra-Irish border into a ‘smuggler’s paradise.’ Nor would it eliminate border checks unless the EU participated as well – and it is notoriously protective of its internal market.

In sum, leaving aside the political challenges associated with each of these flexible and creative options, they still fall short of re-creating the invisible intra-Irish border – and create a number of subsidiary challenges. However, if all Parties are willing to accept the introduction of a ‘hard’ intra-Irish border, there are some options that can help soften it – such as the UK aligning with EU regulation. The harder the Brexit, the harder the border.

 

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.

December 7th, 2017

Posted In: UK- EU

Tags: , , , , , , , , ,

One Comment