2 March 2018
Alasdair Smith is an Emeritus Professor of Economics at the University of Sussex, and is a member of the UK Trade Policy Observatory.
The European Commission has this week published its controversial draft of the withdrawal treaty for the UK’s exit from the EU. The draft includes the EU’s proposal for dealing with the issue of the border in Ireland – Northern Ireland to remain in a customs union with the EU and to retain all the elements of the Single Market that support free movement of goods.
This part of the document has excited much attention. Many of the immediate responses of UK commentators and politicians have been hostile. The EU proposal would require the introduction of a customs border between Northern Ireland and the rest of the UK if the UK were to leave the EU Customs Union and the Single Market.
However, it’s possible to take a more positive view. George Peretz QC has pointed out that effectively the Commission document offers Northern Ireland what has become known as the ‘Jersey option’, variously proposed by Kevin O’Rourke, Martin Sandbu, and John Springford and Sam Lowe. The Jersey option would have the whole UK remain in a customs union with the EU and remain in the Single Market for goods. There would then be no need for any customs borders between the UK and the EU, so no border in Ireland and no border between Northern Ireland and the rest of the UK. It would deal with the main objection to the Commission’s current draft: the need for a customs border in the Irish Sea.
The willingness of the EU to offer a Jersey option to Northern Ireland does not automatically imply that it would be willing to offer the option to the whole UK. But could the EU argue that an arrangement that would be practical and acceptable in principle for one part of the UK should not also be practical and acceptable for the UK as a whole? It is reasonable to interpret the Commission’s draft as indicating that it is willing to contemplate the Jersey option for the whole of the UK.It’s also important to note that the draft is silent on freedom of movement of labour between Northern Ireland and the EU. The only reasonable interpretation of this silence is that the Commission thinks that the Jersey option for Northern Ireland does not require freedom of movement. Again, one could one could ask whether what is acceptable in principle for Northern Ireland should be acceptable for the whole UK.
The Prime Minister’s response on Tuesday to the Commission’s proposal was that no UK Prime Minister could accept it. A more constructive response would be that the UK would be willing to consider the Commission’s proposal, but only if it applied to the whole UK.
The implications for the UK would be that the Ireland border problem would be solved, the costs of Brexit for agriculture and manufacturing sectors would be avoided (so the UK car industry would survive), there would no longer be freedom of movement of labour, and UK services sectors would no longer be in the Single Market. The UK would not have an independent trade policy, and would have a limited say in the setting of both trade policy and regulatory policy for goods.
This policy package would be unwelcome to hard Brexiters who want the UK to be able to make its own trade deals; but it would address the issue of freedom of movement, which opinion polls suggest was the big issue for most Leave voters. Those who would prefer the UK to remain in the EU could probably accept a soft Brexit as an acceptable compromise. The loss of single market membership could be a challenge to many service industries, but most could probably adapt to a degree of increased complexity in doing business in the EU.
The EU has been firm in rejecting ‘cherry-picking’. The Jersey option is not cherry-picking because the UK would be accepting that the service sectors which constitute 80% of the UK economy would lose the benefits of the Single Market. The UK would be buying itself out of freedom of movement of labour between the UK and the EU, but at a price for UK services exports.
The EU has expressed its willingness to contemplate flexible and imaginative solutions to the issue of the border in Ireland. Extending to the whole UK the ‘common regulatory area’ envisaged in Chapter III of the protocol on Ireland/Northern Ireland of the draft withdrawal agreement would indeed be a flexible and imaginative solution to the Irish border issue, and to much more besides. With the main trade policy issue settled, the UK government and the Commission could turn their attention to the many other questions that still need to be addressed about Brexit.
Here’s what Theresa May could have said this week to move the Brexit negotiations out of their current limbo: “The Commission’s proposal for the Irish border is imaginative but is completely unacceptable to the UK government for reasons which everyone knows. However, if the EU is flexible as well as imaginative, and extends its proposal to the whole of the UK, we will have an agreed basis for long-term frictionless trade between the UK and the EU as well as a welcome solution to the issue of the Irish border.”
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Being in “a” customs union and the single market doesn’t fully solve the Irish border problem because customs unions normally involve rules of origin. The EU customs union doesn’t need these because it aligns not only tariffs but also other possible charges (countervailing and anti dumping charges and any charges imposed as part of safeguard measures), because it has the same customs legislation whose interpretation is ultimately for the ECJ and because its FTAs with third countries apply to all of its members. Of course, it would be very desirable for all this to continue to apply to the UK after Brexit but it wouldn’t be easy to negotiate with the EU, with the EU’s FTA partners and, most of all, with the Brexit zelots in the UK.
The fallacy of this article is that it assumes that the UK is not interested in International Trade outside the EU. The UK is very interested in making free-trade deals wherever possible. Any ‘Customs Union’ would preclude the UK from making deals with differing tariffs and duties from the EU. This is completely against the philosophy of the government and the proposers of the Brexit referendum.