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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

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16 November 207

Ilona Serwicka is Research Fellow in the Economics of Brexit at the UKTPO.

The European Chief Negotiator for Brexit, Michel Barnier, has recently confirmed that the UK will cease to be a member of the EU at midnight (Brussels time) on 29 March 2019. This means that we are now less than 500 days and under 350 working days away from the Brexit date. More time has already passed since the United Kingdom voted to leave the European Union on 23 June 2016. (more…)

November 16th, 2017

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Erika SzyszczakImage of Alan Winters26 September 2017,

L. Alan Winters CB, Professor of Economics and Director of UKTPO. Dr Peter Holmes Reader in Economics at the University of Sussex and Fellow of the UKTPO, Erika Szyszczak is a Professor of Law at the University of Sussex, independent ADR Mediator and a Fellow of the UKTPO.

Now it’s official. More than a year after the UKTPO said that it would be necessary (see Briefing Paper 2 and NIER paper), the Prime Minister has announced that the UK wants a transitional deal that preserves the status quo. Namely, membership of the Single market, a customs union with the EU, free mobility of labour, jurisdiction of the Court of Justice of the European Union (CJEU), budget payments and no external trade deals. Sad to say, this seems like progress.

Despite the language and some of the press commentary, Britain is not ‘opting for’, still less ‘agreeing to’, a transitional deal; it is asking for one in the negotiations. The Florence speech still uses the language of an ‘implementation period’. This implies that between now and 2019 the UK can both negotiate a final settlement to be implemented after the transition and the transition itself.  But the Prime Minister has made no proposals about how to construct such a deal, other than that the UK leaves the EU on 29th March 2019, so that the transition requires agreement(s) between the EU (27 remaining members) and an independent UK. (more…)

September 26th, 2017

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Image of Alan Winters21 August 2017

L. Alan Winters CB, Professor of Economics and Director of UKTPO.

Economists for Free Trade (EfFT) are back, offering the Introduction to an unpublished – and hence unknown – report that claims £135 billion benefits from Brexit. It not only repeats the previous claim that GDP will increase by 4% if the UK adopts free trade, which I characterised  as ‘doubly misleading’ in April, but it adds in an extra 2% from ‘improved regulation’, 0.6% from our net budget contribution to the EU and 0.2% from removing the ‘subsidy to unskilled immigration’. It also promises faster growth as well.

I’ll come back to free trade, but, first, what regulations will be improved? We are not told. Similarly, what subsidy to immigration? Who knows? The budget contribution to the EU may be saved, but we will need to spend much of it on providing replacements for various EU regulatory bodies such as the European Medicines Agency, on negotiating new deals on things like airlines or nuclear isotopes, supporting farmers (which EfFT apparently accepts), on customs formalities on trade with the EU, on managing alleged unfair trade and on trade disputes, etc. Until we see the details, you have to doubt these numbers. (more…)

August 21st, 2017

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23 June 2017

L. Alan Winters CB, Professor of Economics and Director of UKTPO and Ilona Serwicka, Research Fellow at UKTPO

One year ago the British people voted to leave the EU. Out of 33.5 million votes cast, 51.9 per cent were for ‘leave’, albeit in the absence of any statement about what ‘leaving’ might mean. The government is still vague about what the UK’s post-Brexit trade policy should be – even after triggering the formal leave process – but the general election has pressured Theresa May to soften her Brexit stance. Even though Brexit negotiations are now formally under way, the options suddenly again seem wide open for debate.

In terms of options the UK is back at square one, but following a year’s analysis, it is now clearer what these options amount to. Over the year, the UK Trade Policy Observatory (UKTPO) has discussed many of the options and this note draws on some of that analysis to try to light the path forward. (more…)

June 23rd, 2017

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Image of Alasdair Smith19 June 2017

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

It’s now 12 months since the referendum decision, 3 months since the Article 50 notification, and only 21 months until the date on which the UK is due to exit the EU. Brexit negotiations start today, but most politicians have still not progressed beyond the stage of wishful thinking.

There are ambiguities about the objectives of both the large political parties but each seems to want some kind of free trade agreement (FTA) with the EU after Brexit, often described by a phrase like ‘tariff-free access to the single market’. Behind such inherently confused terminology lies an apparent wish to have a ‘deep’ FTA; that is to say, a UK-EU FTA which has no tariffs and sufficient regulatory convergence between the UK and the EU that many of the non-tariff advantages of the single market are retained.

Here’s the first hard truth: a deep UK-EU FTA cannot be negotiated in 21 months. Even much weaker agreements take longer, especially if the political and technical ground has not been prepared in advance, so it’s not ‘challenging’ or ‘ambitious’ or ‘difficult’: everyone who understands the reality of trade negotiations knows that it is completely impossible. (more…)

June 19th, 2017

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Portrait image of David Bowlesimage of Iyan I.H. Offor12 June 2017

Guest blog by Iyan I.H. Offor, Trade & Animal Welfare Project Officer at Eurogroup for Animals and David BowlesAssistant Director, Public Affairs, RSPCA.

The Conservative Government has been quick to highlight the potential benefits and quick wins for animal welfare made possible by new UK trade competencies post-Brexit. However, experience with the reality of trade negotiations is making some animal welfare organisations more sceptical.

The UK has some of the highest standards in the world enacted under a legislative model. This is in contrast to the approach of the US and Canada, for example, which place reliance upon voluntary industry standards. Diverging welfare standards can result in increased imports of low-welfare products for two reasons. First, lower animal welfare standards are invariably linked to cheaper production which out-factors transport costs. Second, there are no effective mandatory product labelling mechanisms for animal welfare, except for shell eggs. Thus, although consumers express willingness to buy higher welfare products and to pay a premium for such products, they inadvertently purchase low welfare meat and dairy because the market does not operate transparently. This puts the livelihoods of British farmers who comply with animal welfare production requirements at risk. (more…)

June 12th, 2017

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18 May 2017

Compiled by Fellows of UKTPO

Brexit will leave many areas of UK policy open to change. International trade policy is among the most important of these for UK prosperity and also among the most immediate because the status quo cannot simply be extended. This is the second in a series of blogs reporting what the major political parties say about trade policy in their 2017 manifestos, as they become available.

The UK Trade Policy Observatory (UKTPO) has set out a series of issues that it believes should be considered in any election manifesto that might form the basis of the UK’s future trade policy. The table below checks whether or not the Liberal Democrats’ Manifesto mentions these important elements explicitly or implicitly. Following that we offer a brief commentary on the treatment of trade policy in the manifesto.

The central plank of the Liberal Democrats’ manifesto is remaining in the single market and the customs union. This implies no change to current trade policies and hence little need to discuss them in the manifesto. Thus their coverage of trade policy is rather sparse. (more…)

May 18th, 2017

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16 May 2017

Compiled by Fellows of UKTPO

Brexit will leave many areas of UK policy open to change. International trade policy is among the most important of these for UK prosperity and also among the most immediate because the status quo cannot simply be extended. This is the first in a series of blogs reporting what the major political parties say about trade policy in their 2017 manifestos, as they become available.

The UK Trade Policy Observatory (UKTPO) has set out a series of issues that it believes should be considered in any election manifesto that might form the basis of the UK’s future trade policy. The table below checks whether or not the Labour Party Manifesto mentions these important elements explicitly or implicitly. Following that we offer a brief commentary on the treatment of trade policy in the manifesto.

(more…)

May 16th, 2017

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26 April 2017

On 22 February 2017, UKTPO, CBI and the TUC held an event in Newcastle that brought together employees and employers to discuss the important regional issues for post-Brexit trade. This guest blog by Sarah Glendinning, Regional Director for the North East, CBI; and Beth Farhat, Regional Secretary, Northern TUC draws on this discussion.

Now that Brexit negotiations are officially underway it’s important to consider what kind of deal workers and businesses want from negotiations, and what kind of deal will enable all parts of the country to develop and prosper after we leave the EU.

As representatives of working people and businesses from across the North East, we are seeking a Brexit deal that ensures stability and delivers decent jobs, fair pay and growth for the region. (more…)

April 26th, 2017

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