11 June 2018
Alasdair Smith is an Emeritus Professor of Economics and Dr Peter Holmes is Reader in Economics at the University of Sussex. They are both Fellows of the UK Trade Policy Observatory.
On June 7, after prolonged internal discussion, the UK government published its paper proposing the extension to the whole UK of the ‘backstop’ provision in the EU draft withdrawal agreement to incorporate Northern Ireland (NI) into the EU’s customs territory until another solution can be found for the problem of the Irish border. The UK is unenthusiastic about the backstop and hopes it will not be needed, but wants any backstop to cover the whole UK, so as to avoid the need for border inspections of trade between NI and the rest of the UK (GB). Perhaps surprisingly, the government paper does not address the fact that the EU’s proposal is for NI to be included in a ‘common regulatory area’ as well as in a de facto customs union: any backstop needs to deal with regulation as well as customs.
The EU and the UK evidently disagree about the interpretation and implementation of the December 2017 joint report from the Brexit negotiations. Just one day after the publication of the UK government paper, Michel Barnier reaffirmed that the EU wants the backstop to apply to NI alone: “Let me be clear. Our backstop cannot be extended to the whole of the UK.”
The UK government seems to be devoting its time and energy to resolving its internal disagreements when it should be focusing on how to persuade the EU of the merits of a UK-wide backstop.
We have argued previously that the EU should accept a UK-wide customs and regulatory backstop as the appropriate way to safeguard the Good Friday Agreement. But the EU holds the upper hand in the negotiations because a disorderly Brexit without a withdrawal agreement would be an economic disaster for the UK and would not command a Parliamentary majority: the EU can insist on its preferred alternative.
It’s understandable why the EU is hostile to a UK-wide backstop, which would give the UK access to at least some of the single market without accepting the full responsibilities of the European Economic Area (EEA), notably freedom of movement of labour. The EU also wants to agree the long-term UK-EU trade relationship in a second-stage negotiation rather than in the withdrawal agreement. We do not seek to revisit these issues here.
If NI were in the EU’s customs territory and in the common regulatory area, while the rest of the UK deliberately diverged from the EU customs union or from EU regulation of goods, there would have to be inspections at the GB-NI border.
If the UK cut the tariff on cane sugar, for example, there would need to be border inspections of all GB agri-food sales in NI, to impose EU tariffs not only on cane sugar itself but also on high-sugar-content GB food manufactures.
Similarly, if the GB departed from EU regulation on lawn-mowers, industrial chemicals, or chlorine-washed chicken meat there would need to be regulatory inspection of goods to ensure that only lawn-mowers, chemicals and chicken meat satisfying EU regulations entered NI, while goods made in NI would have to be produced in accordance with EU regulation.
Only with customs and regulatory inspections at the GB-NI border, and with the application of EU regulation of production in NI, could goods in circulation in NI be permitted to cross the Irish border without inspection and circulate in the EU market.
The EU would surely not seek to have EU customs inspectors on the GB-NI border, an internal border of a non-member state, so the GB-NI border controls would be under the control of the UK government. Similarly, it would be the UK government that imposed EU regulatory requirements on the production and sale of goods in NI. The UK would be accepting the jurisdiction of the European Court of Justice (CJEU) over GB-NI border inspections and over the production and sale of goods in NI. There may, of course, be legal reasons why this could require the creation of a body similar to the EFTA Court rather than the CJEU having direct jurisdiction. Some of the arrangements for implementing and overseeing the agreement might well be different from those currently applied in NI as part of an EU member state: for example, assessment of the conformity of goods with EU regulation might have to be done by EEA-based entities.
Since the EU is proposing a NI-only backstop, it must believe that there can be a satisfactory and enforceable legal agreement between the UK and the EU whereby, after Brexit, the UK as the sovereign state with responsibility for NI, can commit to ensuring that GB-NI border inspections and regulation in NI meet the requirements of the EU customs territory and the common regulatory area.
Now suppose that the UK were to argue that the preferred way for the UK to meet this commitment would actually be to ensure that the whole UK conformed with all the requirements of the EU customs territory and the common regulatory area. Necessarily, that would mean that NI, as a part of the UK, would meet those requirements. Most UK businesses would probably be very happy with such a proposal, and the political and security problems of the GB-NI border would be avoided.
It’s hard to see how the EU could argue that this way of ensuring that goods put on the market in NI met the requirements of the EU customs territory and the common regulatory area was in any legal or technical way less secure than the previously described way. The EU has already, by hypothesis, accepted that the UK government, under the direct or indirect jurisdiction of the CJEU, can enforce EU rules at its borders and in NI. Whatever conformity assessment regime is envisaged by the EU as applying to NI under the NI-only backstop can, as a matter of principle and practice, be applicable in the whole UK. Whatever border processes are envisaged at the GB-NI border to enforce the requirements of NI being in the EU customs territory can be implemented at the UK’s external borders.
Inspections at the GB-NI border will not be needed. Goods crossing that border already meet EU customs and regulatory requirements. Inspections at the border between NI and the Republic of Ireland are not needed, for the same reason.
‘We accept that your concern is only to avoid a hard border in Ireland and that an NI-only backstop will suffice for that purpose. We will make a commitment that goods entering into or produced in NI satisfy ; that these matters are subject to the jurisdiction of the CJEU; and will be supervised by agencies recognised for this purpose by the EU. We will fulfil that commitment by ensuring that all goods entering into or produced in the UK satisfy EU regulatory and customs requirements. These conditions will be subject to the jurisdiction of the CJEU and supervised by the same EU-recognised agencies as would supervise an NI-only arrangement. Border inspections at the GB-NI border will, therefore, be unnecessary. Indeed, there is no practical or economic reason to have barriers at any EU-UK borders.’
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The UK cannot accept that EU law and ECJ jurisdiction applies directly or indirectly within the UK after we leave the EU. That is incompatible with the referendum result. If it were conceded the EU would demand other things incompatible with the referendum result such as freedom of movement. The UK should simply trade on WTO terms, something which works fine today for the majority of UK trade, and not enforce its side of the NI border. This is something it already does in relation to private individuals bringing alocohol and tobacco from the Republic to Northern Ireland where the UK already forgoes considerable amounts of duty. If the Republic or their masters in Brussels wish to erect border controls that is their business.
The question of whether the UK would be serving its citizens well by crashing out of the EU with no deal is a subject of much controversy. But what is clear is that we have formal obligations that make the suggestion in this comment illegal. The joint report of Dec 2017 states:
“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.”
This is an obligation we have signed up to specifically in the event of ‘no deal’ – so we must preserve EU rule. It requires us to adopt CU rules at least for NI.
Meanwhile, if we simply chose not to monitor border trade flow, we would be in violation of our obligations under Article 1 of the GATT which requires all 3rd countries be treated the same in the absence of an FTA or a Customs Union.
We could, of course, choose to ignore our international obligations and face the consequences in the manner of President Trump.
The December statement has no legal basis in international law. It is not a treaty. It is a mere progress report and nothing between the UK and EU is agreed until everything is agreed in a withdrawal agreement ratified by the UK and all remaining 27 EU member states.
Even with an all-UK backstop, presumably there would be nothing to stop the EU applying borders to goods moving between the UK and mainland EU while accepting border free access for the NI – EU border given it’s small size? I imagine the scope for UK exports to be re-routed through NI is pretty low.
Free born John is wrong to think that the majority of UK trade is done on WTO terms. We currently have better than WTO terms not only in trade with the EU but also with all the countries with whom the EU has preferential trade agreements. Trade with these plus trade with the EU is far more than half of UK export trade. Incidentally, “not enforcing the UK side of the NI border” would be incompatible with “WTO terms” unless the UK also did not enforce its side of the border with all other WTO members, because it would infringe the fundamental WTO principle of non discrimination between members. Nor would it avoid a hard border, because the EU too, and Ireland as a member of it, has to treat all WTO members with whom it does not have a trade agreement in the same way and therefore would have to enforce the border on its side. As to what is “incompatible with the referendum result”, all the referendum established was that there was a small majority in favour of leaving the EU. It did nothing to rule in or rule out which of the various models of relationship with EU has with third countries would best suit UK interests or what form of dispute settlement arrangement would be included in it.
All states with whom the EU has FTA have agreed with the UK that such arrangements will continue after Brexit.
If Ireland or its master in Brusels wants to force policing of its side of the Northern Ireland border then so be it. But the desire of the Uk to keep this border as open as possible can never override the territorial integrity of the UK or the referndum result. You may not have been in UK in June 2016 but it is widely recognised that the desire to control our own laws, end free movement of labour with the EU and to be free to sign trade deals with non-EU states we’re prime reasons for the referendum result. That result ISS not therefore compatible with staying in the single market or customs union either de Jurevis or de facto. The UK must leave all aspects of EU Control.
[…] their latest blog, How can the UK ensure an all-UK Backstop? Professor Alasdair Smith and Dr Peter Holmes analyse the implications of extending the proposal […]
Interesting article, but it is missing the point of the negotiations and of how customs unions and trade agreements work.
Yes, if the UK maintained the same regulatory and customs standards as the UK and subjected itself to the CJEU and EU regulatory agencies, then there would be no need for border inspections. However, if the UK committed to doing that in perpetuity (as is required of a backstop which is supposed to be indefinite), then there would be little point in negotiating a new trading relationship after Brexit, since that would become the new trading relationship. However the EU is not going to negotiate the new relationship under Article 50 (since that would be legally very iffy), but rather under the other provisions of the treaties that give it legal competence to negotiate trade relationships with third countries.
The EU does not have to be persuaded to accept a UK-wide backstop. Rather it is the UK that has to decide whether it really wants to diverge from the EU or not. If it does, then it will have to come up with its own solutions for trade between GB and NI that allows for unhindered trade (perhaps this is where all those technological solutions can actually be applied) while allowing NI to form a common regulatory area with the EU and remain in the EU customs union OR it will have to accept that it will need to build border infrastructure on the NI/ROI border. The problem is the UK has both said it wishes to diverge (leave the Single Market and Customs Union) AND that it wants no border inspections on trade along the NI/ROI border (not along the entire UK/EU border if you notice). If that is what the UK really wants then the backstop the EU proposed is the only practical option and the UK then needs to figure out how to ensure internal trade between GB and NI can continue much as before. In that regard it’s rather amusing that the solution proposed by civil servants in the NI Office of a green channel and a red channel for goods traded between NI and GB (green channel for NI made goods bound for GB and red channel for all other goods bound for GB) has not be taken up by the UK government as something to add to the structure of the backstop.
If the UK does not want to diverge from the EU then it needs to come out and say so in order for time not to be wasted negotiating for outcomes based on the assumption of divergence. In that case they can scrap the current goals of the negotiations and aim for an EEA-like agreement between the UK and EU along with a customs union agreement, both of which would follow on from the end of the transition period and be fully negotiated during the transition period. At that point no backstop would be necessary. Or if the UK wished to diverge in small ways, it could then commit itself to maintaining regulatory alignment in goods and tariffs on goods so that the green channel/red channel proposal could work even more efficiently with NI being in the EU customs territory and common regulatory area.
Why can’t the UK, after leaving the EU, grant Ireland a non-reciprocal scheme with preferential market access in the form of duty free (zero tariffs) to merchandise originating in the beneficiaries? Generalized System of Preferences (WTO rules).This would remove the need for a hard border crossing on the HI side of the border. The EU would need to make a reciprocal arrangement to avoid a hard border on the Irish side.
Could this provide a Back-Stop until other arrangements can be agreed with the EU and put into operation?
The generalised system of preferences is only available in respect of preferential tariff treatment for developing countries (see Enabling Clause, GATT). The Enabling Clause acts as an exception to the GATT MFN requirement. Last time I checked, Ireland is not a developing country and so the UK would be in breach of the MFN obligation under WTO law. The UK could implement a zero tariff regime for all countries and hence comply with MFN but then this would remove any negotiating advantage for FTAs. The zero tariff option also doesn’t deal with regulatory issues which are by far and away much more complex than tariff treatment.
Re your ‘We will fulfil that commitment by ensuring that all goods entering into or *produced* in the UK satisfy EU regulatory and customs requirements.’
UK manufacturers currently make goods that do not comply with EU regulations, quite legally, their being for sale in other markets. For example, at least one autoclave manufacturer has in the UK both an EU production line and a US production line. In the latter case the autoclaves are manufactured to the ASME Boiler and Pressure Vehicle Code and the production line is visited by ASME inspectors. They do not meet the requirements of the Pressure Equipment Directive.
Andrew