Brexit: keeping asleep the ghosts of the Irish border
Last Thursday, the UK Government proposed its own “solution” to the Irish border dilemma, the aim being to avoid the risk of a hard border between the Republic of Ireland and Northern Ireland once the United Kingdom leaves the European Union (EU). The long-awaited concrete solution to the Irish question is the final missing link in the divorce settlement. If it is approved by the EU at the summit on 28-29 June, negotiations over the long-term future relationship will finally be able to begin.
The result of a tug of war between Brexit Secretary David Davis and Prime Minister Theresa May, the UK proposal is a temporary solution that would potentially be put in place after the transitional period ending on 31 December 2020, and then only in “exceptional circumstances”, such as delayed implementation of the end state settlement. Theresa May wanted it to be permanent, but David Davis threatened to resign if this option was not time-limited. It would therefore be in place for a limited period, until the new customs agreement is implemented, which the UK government expects to be the end of December 2021 at the latest.
In practice, the proposal aims to avoid tariffs, quotas and customs controls such as rules of origin. To that end, the United Kingdom has committed to apply the common external tariff as well as any other part of the EU’s common foreign policy that would be necessary for the temporary agreement to function. However, the United Kingdom would like to be officially outside the common foreign policy so as to be free to negotiate, sign and ratify free trade agreements with the rest of the world. It wants to be able to implement those elements of such agreements that do not affect the functioning of the temporary customs arrangement with the EU. Rather than officially staying within the customs union, Theresa May’s proposal consists of a customs arrangement that seeks to prolong the status quo and that would significantly limit the United Kingdom’s freedom to negotiate with third countries, with such freedom limited to services sectors only.
Will the EU accept this solution? May’s problem fails to address all aspects of the border issue. It mainly eliminates the need for customs controls, including in particular rules of origin, but leaves aside the issue of regulatory controls, which are generally more costly. It is not enough to ask for ‘substantial alignment’ with the EU rules, as proposed by Theresa May in her Mansion House speech on 2 March; it also has to be decided who will check compliance with European standards and how – in other words, what will be the monitoring and judicial supervision mechanisms. The governance issue thus remains unresolved to date, and the EU is unlikely to accept May’s proposal unless the United Kingdom remains under the supervision of the European institutions, including in particular the European Court of Justice. Furthermore, agreements would also be needed in some services sectors – notably transport – to avoid border controls.
Could the solution really become permanent? The nightmare for proponents of a hard Brexit is Theresa May’s backstop solution becoming permanent. If that were to happen, the United Kingdom would not be free to negotiate its own import tariffs with the rest of the world. If, moreover, the United Kingdom accepts European governance as the price it has to pay for access to the market in goods, that would serve the interests of the EU, which has a trade surplus with the United Kingdom in goods sectors. The United Kingdom would lose significant leverage, and an agreement in services sectors might never see the light of day. On the EU side, an agreement similar to the Jersey model, with the United Kingdom permanently remaining within the customs union and the single market for goods, would require the EU to agree to separate the four fundamental freedoms of the single market – especially if the United Kingdom refuses to abide by the free movement of people for lack of an agreement on services. Theresa May’s proposal thus had to be temporary and uncomfortable enough for both parties in the long term to force them to reach a better compromise for the long-term relationship.
Even if it ends up being adopted by the EU – not without a few adjustments and additional conditions – May’s solution will only be temporary. The Irish border issue will thus remain at the heart of the debate over the future relationship, and the political statement that must be agreed by October 2018 will have to reflect this. The United Kingdom cannot guarantee an invisible border without resolving the regulatory issue, which is itself linked to the governance issue. In this regard, the EU has rejected the United Kingdom’s proposal of a system of mutual recognition, since the United Kingdom, by becoming a third country, will no longer share “a common regulatory, supervisory, enforcement and judiciary framework” with the EU. The United Kingdom must give guarantees in support of the regulatory alignment it is seeking, accompanied by concrete measures to avoid regulatory controls, in keeping with the undertakings given in last December’s Joint Report. In that report, the UK Government committed to a three-phase approach: the prime objective is to find a solution via the overall agreement on the future relationship and, if that proves impossible, through solutions specific to the island of Ireland. Lastly, and only if these first two avenues fail to result in an agreement, the United Kingdom has committed to maintaining regulatory alignment with those rules of the single market and the customs union that support the protection of the 1998 peace agreement and cooperation between the North and South of the island. The first avenue appears impossible unless the United Kingdom remains within the European Economic Area, which alone is able to offer a common regulatory framework. A change of such magnitude in the government’s position seems unlikely in the short term. Labour, the main opposition party, is not in favour either, in spite of its recent shift in support of a customs union and continued access to the single market. At the same time, solutions specific to the island of Ireland appear difficult to put into practice without compromising the integrity of the UK single market itself and without giving rise to political conflict.
Slavena Nazarova, Group Economic Research