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Image of Alan Winters9 December 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Our analysis finds that under the UK-EU Protocol on Northern Ireland, about 75% of Northern Ireland’s imports of goods from other locations, including Great Britain, would be subject to EU tariffs on their arrival in Northern Ireland. This is not easily reconciled with the government’s assertion that Northern Ireland remains within the UK customs territory.

Under the Brexit Withdrawal Agreement’s Protocol on Ireland/Northern Ireland, Northern Ireland’s imports from the EU, including the Republic of Ireland, would face no tariffs. Among imports from elsewhere, the Protocol requires that any goods deemed at risk of moving to the European Union should be subject to the tariffs of the EU rather than those of the UK.

Relying on a a range of statistical data and informed assumptions, the analysis breaks Northern Ireland’s imports down according to the risk criteria in the Protocol and finds that about 82% of Northern Ireland’s imports from non-EU countries and approximately 64% of imports from Great Britain would face EU tariffs. Summing the contributions to Northern Ireland’s imports from the EU (25% of the total), the rest of the world (12%) and Great Britain (63%) suggests that, overall, around 75% of all Northern Irish imports will pay the EU tariff on entering the province.

While goods that are proved to have been sold to final buyers in Northern Ireland can have any EU tariff they have paid rebated, those rebates are likely to be difficult for the private sector to claim and are therefore unlikely to refund much tariff revenue.

Further, since Northern Ireland’s imports from the EU would not face any change under the Protocol but a large share of imports from Great Britain may newly face tariffs, it seems likely that, over time, Great Britain may lose market share in Northern Ireland, both to domestic supply and to increasing imports from the EU.

Further, a Free Trade Agreement between the UK and the EU would not completely avoid the problem. While goods produced in Great Britain exported to Northern Ireland and transiting on to the Republic of Ireland would face no tariffs, they would still need to satisfy rules of origin to prove that they had been produced in Great Britain. Hence there would still be administrative hurdles for such exports to jump.

The analysis was commissioned by the Good Law Project, who explain its context and also provide a link to the evidence.

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.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

December 9th, 2019

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Image of Alan Winters4 December 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

The Prime Minister seems to think that an ‘oven-ready’ Brexit deal is the best that we can choose from the menu of policy alternatives. It sounds neither appetising nor nourishing, but if it really were quick and easy, maybe it would be worth it.

But it’s not quick or easy: ‘oven-ready’ is just not true.

It is true that a Withdrawal Agreement exists and could be put to Parliament in December, but even that is not ready-to-go and passing the Withdrawal Agreement is not the same as Brexit. A couple of examples of how the Withdrawal Agreement is part-baked:

  • The financial settlement (the price tag) is not specified.
  • The Conservative manifesto promises Northern Ireland ‘unfettered access’ to the market in Great Britain. Launching it, two Cabinet Ministers said ‘There will never be any fees or tariffs on goods flowing between Northern Ireland and Great Britain and vice versa … .’ In fact, the Withdrawal Agreement clearly states that many goods flowing between Great Britain and Northern Ireland will face tariffs (at EU levels!) and the Brexit Secretary conceded in Parliament that there would be forms to fill for any goods flowing the other way.

Passing the Withdrawal Agreement and exiting on 31st January 2020, is just the start of a complex negotiation between the UK and the EU, which will be painful, long-lived and probably chaotic.

First, consider the parties.

For the EU, the negotiations will take place under Articles 207 and 218 of the Treaty on the Functioning of the EU, which govern negotiations with countries outside the EU, and which have a far more demanding process for approval than the Withdrawal Agreement. The member-states have to agree to any deal unanimously and if the deal spreads into areas which are still governed by the States themselves (some services and investment), each will have to go through a ratification process that may involve their national and regional parliaments. The EU’s agreement with Canada, which took seven years to negotiate, was held up for nearly a year because the Wallonian Parliament declined to agree.

On the UK side, there has been no effort to spell out the implications of the Free Trade Agreement (FTA) that Mr Johnson wants, let alone the one he will get. For example, Michael Gove claimed on 26th November that because there was effectively no EU Single Market in services, UK services firms will suffer no adverse effects from Brexit with an FTA. Wrong! OECD has shown that EU barriers to service imports from third countries are, on average, four times higher than those between members. Canada failed to get much in services from the EU after seven years negotiating; the same will apply to us.

Second, consider the commitment to get it all done by December 2020. Any deadline puts pressure on both parties, but particularly the one with more at stake (the UK). The default at the end of 2020 is not the status quo but a ‘no deal’ Brexit, so the cliff-edge that plagued the March and October 2019 deadlines will be repeated.

Third, the content: we may agree to keep zero tariffs on all goods, but there will still be border formalities. In order to claim tariff exemptions, UK exporters will have to prove that their goods are substantially made in the UK. Most commentators reckon that together these frictions add perhaps 4% or 5% to the cost of exports. We may be able to negotiate better conditions than average, but not by December.

Worse than tariffs will be regulations.

First, UK exporters will have to prove that their goods meet EU standards. It doesn’t matter that the UK says they do, they have to prove it. Where standards are critical, either the UK government will have to enforce EU regulations throughout the UK (which a Johnson government won’t) or exporters will have to obtain certification from an EU-approved inspection agency. If that task is to be done in the UK, it needs to be negotiated.

If the EU is to give up its tariff protection, it will want to know that UK firms are not obtaining ‘unfair’ competitive advantages through lax labour or environmental rules or through subsidies or violations of competition law. (These are the so-called level-playing field conditions.) The current government clearly hates such constraints, but the EU will not commit to free trade without some such commitments – result impasse. Mr Johnson’s casual suggestion on 29th November that the UK relax EU rules on state-aid to companies will make this doubly difficult.

Finally, there are issues strictly lying outside an FTA, but which will inevitably be bound up with it. For example, whether airlines based in the UK can fly between EU cities and whether EU fishermen get access to UK waters in return for the UK selling its fish in the EU.

You can’t help feeling that it is us, the British public, that is oven-ready, who are going to get ‘done’.

We will have a torrid 2020 deciding what we want of an FTA and a worse time getting even a part of it. Much will remain undone by December 2020, and so the subsequent years will be spent trying to patch up the holes, one-by-one from a position of weakness. The UK will spend five years trying to restore commercial relations with the EU and still end up with something a lot less satisfactory for traders than we have at present.

This blog was first published by Remain United.

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.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

December 4th, 2019

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24 October 2019

Michael Gasiorek is Professor of Economics at the University of Sussex and a Fellow of the UK Trade Policy Observatory. 

There has been some discussion that the unique arrangements outlined in the Protocol on Northern Ireland within the Withdrawal Agreement between the UK and the EU mean that Northern Ireland may get the best of both worlds – tariff-free access to both the EU Single Market and the UK market. This is because Northern Ireland will remain in the UK’s customs territory, however, for trade between Northern Ireland and the EU (and therefore the Republic of Ireland) the EU’s Union Customs Code will apply, with no tariffs or other restrictions. Northern Ireland will also remain within the EU’s single market for agriculture and manufactured goods.

The aim of this blog is to think through this carefully. (more…)

October 24th, 2019

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Photo of Emily Lydgate16 July 2019

Chloe Anthony, Ffion Thomas, and Dr Emily Lydgate – lecturer in Law at the University of Sussex and a fellow of the UK Trade Policy Observatory.

In May we published a blog analysing the EU Exit statutory instruments (SIs) on pesticides prepared under the EU Withdrawal Act 2018. One of the key concerns that we raised was that EU restrictions on pesticides with endocrine disrupting properties had been deleted. After this omission was identified, DEFRA responded very swiftly, clarifying that the deletion had been accidental and releasing a new Statutory Instrument (SI). (more…)

July 16th, 2019

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Image of Alan Winters03 July 2019

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Last week I was challenged twice for using the term ‘no deal’. There is no such thing, I was told, because, even if the UK does not ratify the Withdrawal Agreement of 25th November 2018, there will still be plenty of deals. At the time I thought, for several reasons, that this was wrong in substance if not literally, but more recently I have concluded that it is also dangerous.  Like we saw in the referendum campaign, it undermines informed debate by deliberately confusing the terminology.

‘The deal’ is an agreement between the EU and the UK ‘setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union’ (Article 50 – Treaty on European Union). ‘No deal’ is the absence of such a deal. For business and the economy, ‘no deal’ has come to mean the absence of a trade agreement under which the UK and the EU trade with each other on terms better than those provided for under the World Trade Organization. The former ‘no deal’ implies the latter – as I argue below – but the reverse is not true. (more…)

July 3rd, 2019

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Erika Szyszczak11 April 2019

Erika Szyszczak is Professor of Law at the University of Sussex and a fellow of UKTPO.

Tempting as it is to work through the lyrics of the Paul Simon song,* the latest round of Brexit talks between the UK and the EU are already translating into the movie: The Long Goodbye.

By a Decision adopted on 11 April 2019, the European Council – under the patient and saintly leadership of Donald Tusk – agreed to grant the UK a second extension to Article 50 TEU either until 31 October 2019, or, an earlier date (if the Withdrawal Agreement is ratified) or until 31 May 2019 if the UK fails to hold elections to the European Parliament. The UK has in fact put in place an Order to facilitate the organisation of the elections to the European Parliament. (more…)

April 12th, 2019

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Image of Alan Winters3 April 2019

Dr Michael Gasiorek is a Senior Lecturer in Economics at the University of Sussex and a fellow of the UK Trade Policy Observatory. L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Understandably the politics surrounding the UK’s exit from the EU are dominating current discussions. But the economics of the options still matter, and it is not always evident how well the core economic issues are understood.

In the light of the Government’s ‘approach’ to Labour to find a consensus and in the light of the indicative votes, the aim of this blog is to clearly outline the economic issues and summarise the likely consequences associated with two of the current (indicative) options. (more…)

April 3rd, 2019

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11 February 2019

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

Parliamentary discussions on Brexit seem to be making no progress towards a decision that can command a majority and the timetable for future Parliamentary votes is uncertain. The only result of last week’s discussion in Brussels was an agreement to hold further talks later this month, a jaw-droppingly relaxed timetable in the circumstances.

The Labour Party leadership has produced a statement with two objectives both of which are probably unattainable: a customs union with the EU in which the UK has a significant voice in the setting of EU trade policy, and a close relationship with the single market that falls short of membership. The Conservative Party is having internal discussions (with civil service support, a constitutional innovation) about the Malthouse Compromise, whose oxymoronic objectives are a new backstop that is not a backstop or an agreed withdrawal without a withdrawal agreement.

Out of this unpromising material, however, some outcome must emerge before March 29. (more…)

February 11th, 2019

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17 January 2019

Dr Peter Holmes, Reader in  Economics at the University of Sussex, Director of Interanalysis and Fellow of the UK Trade Policy Observatory

Since the Government’s defeat in the House of Commons, there has been a flurry of comments, notably from Steve Baker arguing that Mrs May’s deal can be replaced by some form of Free Trade Agreement.

One must immediately point out that the treaty basis of the Withdrawal Agreement does not include a long-term trade agreement. This can only be negotiated after Brexit. But even if it could be negotiated now, it would not solve the problem of the Irish Border. The UK and the EU in both the Good Friday Agreement and the Dec 2017 joint statement committed themselves not merely to barrier-free trade in goods with no hard border in Ireland, but to the preservation of an All-Island Economy. (more…)

January 17th, 2019

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Image of Alan Winters10 December 2018

L. Alan Winters CB, Professor of Economics and Director of the UK Trade Policy Observatory 

The Brexit Withdrawal Agreement and the Political Declaration are being presented as a means to end the uncertainty about the UK’s future relationship with Europe. But in an explainer for the ESRC’s UK in a Changing Europe, Professor L Alan Winters argues that this is not the case. Uncertainty will continue regardless of what happens to the Withdrawal Agreement.

Briefly, he argues that, if the Withdrawal Agreement is approved by Parliament and the EU:

  • The backstop it mandates requires a customs union between the UK and the EU and that most EU regulations for goods will apply in Northern Ireland. However, there is no regulatory alignment between the rest of the UK and the EU and so, if the backstop came into operation, there would be border formalities both in the Irish Sea and as UK goods entered the EU via any other route.
  • Negotiating a trade agreement with the EU will take a lot longer than the 21 months allowed for it in the Withdrawal Agreement, not least because every EU member state has a veto over trade agreements.
  • The Political Declaration that defines the parameters for that negotiation is imprecise in critical places and is, anyway, non-binding.

However, neither would rejecting the Withdrawal Agreement resolve the uncertainty. There is a wide range of possible outcomes all but one of which impose serious economic harm and/or require further negotiation. The option that involves least uncertainty and cost would be to remain within the EU; however, trying to achieve that outcome involves both significant political risks and the risk of ‘no deal’ if the attempt failed.

‘Through a glass, darkly’ is biblical – 1 Corinthians 13:12 – and is interpreted as meaning that we can see only imprecisely and via a mirror, but that, in the end, all will become clear. Seems about the best we can hope for.

Read the full article, What are the options for the UK’s trading relationship with the EU after Brexit?

December 10th, 2018

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