Brexit and a balanced backstop

Anyone who thought about Brexit should have known the border between the UK and Ireland would be a knotty and crucial issue to solve.

The common travel area allows British and Irish citizens to cross borders freely. We also share a customs union, regulatory framework and VAT/excise arrangements. These remove the need for sea or land border checks between the UK and Ireland. Brexit puts an end to the customs, regulatory, VAT and excise arrangements, with huge social, economic, political and constitutional implications. Ireland has made the land border its priority, and the EU26 back them to the hilt.

A combination of its red lines and hubris, Northern Ireland’s needs, Ireland’s strength of feeling and the EU27 position on the single market presents the UK with a huge problem. We have to have an agreement, and so we have to agree a backstop. But an economic border with Great Britain violates the spirit of the Belfast/Good Friday Agreement at least as much as checks on the land border. I am not sure Brussels understands what undercutting unionists like that might mean. I’m not even sure Dublin (very much alive to nationalists’ concerns) fully grasps the implications. (And you don’t have to let London, which remains primarily responsible, off the hook to say so.)

The main practical elements of the border problem are:

  • the EU customs union
  • the EU VAT area
  • EU arrangements for excise duties
  • the EU acquis in goods — including agricultural and fisheries products, together with sanitary and phytosanitary rules (but not the CAP or CFP).

Is there any way to square the circle? Below I suggest a possible way through. I’m not saying it’s foolproof, or necessarily right. But it might help us pick our way through.

Customs, VAT and excise: the UK follows the EU

The first step would be to agree an all-UK customs union, as well as the UK adopting the EU’s rules on VAT and excise duties. These aren’t seen as part of the single market and so don’t breach the EU’s ‘four freedoms’ red line.

The EU doesn’t object to an EU-UK customs union in principle. The UK would need to accept the common external tariff for all goods and the full Union Customs Code. That’s fine: we’ve basically conceded it for backstop purposes anyway. The Commission claims Article 50 cannot extend it to Great Britain, but the EU would probably agree to it via some legal means.

The harder question is whether the EU27 would be willing to treat VAT and excise similarly. No non-EU state has secured this except Monaco (thanks to its special relationship with France). The role of the CJEU (note that the EFTA Court doesn’t deal with the acquis in VAT or excise) would need clear protection. But it doesn’t breach the EU’s position on the four freedoms.

Goods regulation, part one: Northern Ireland follows the EU, but what about Great Britain?

The toughest issue is regulatory alignment in goods. So far, the EU27 have said the single market cannot be cherry-picked for goods and the four freedoms cannot be split.

The first concern is that the UK could deregulate its services, produce goods more cheaply and then exploit its single market access. But this is essentially a question of getting ‘level playing field’ issues right. These are mainly state aid, employment, health and safety and environmental standards, and they can also be addressed in any backstop. Indeed, the Commission’s draft backstop does cover them for Northern Ireland.

That leaves the divisibility of the four freedoms. For the final deal, the UK hopes to end free movement of persons by forgoing free movement of services. Its position implies something similar for the backstop. In public, the EU27 have consistently rejected the idea. Whether, and to what extent, public pronouncements match private reality remains hotly disputed. In any event, banking on such a climbdown to square the backstop is quite the risk.

Goods regulation, part 2: Great Britain follows Northern Ireland, and checks are selective

Still, we might be able to pick our way through the Commission’s Northern Ireland-only backstop and the Government’s view that it should be UK-wide. The Commission says alignment between Great Britain and Northern Ireland is for the UK to deal with. Now, I think that’s pretty disingenuous in the context of a Northern Ireland-only backstop. Both sides need to agree that standards, customs, VAT and excise are similar enough to avoid border checks.

The Commission’s choice of words offers a possible clue. A couple of stories have suggested the UK is exploring whether ‘parallel marketability’ might help solve this problem. Parallel marketability has already entered the Brexit debate (for Scotland and Northern Ireland). It’s how Liechtenstein squares EEA membership with its customs union with Switzerland. Goods made to either EEA or Swiss standards can circulate there. Liechtenstein then has to take steps to keep goods which attract Swiss tariffs or don’t meet Swiss standards out of Switzerland.

This system works for a principality of 38,000 with one open border. (The Austrian border is checked.) Major divergence would probably test it to destruction if Northern Ireland accepted goods made to both EU and UK standards. There’s a land and a sea border, both politically fraught and one with a long tradition of smuggling. But if the whole UK forms a customs union with the EU and adopts EU rules for goods, VAT and excise, many concerns fall away. There would be no divergence in goods standards to monitor. The UK would apply the common external tariff, so tariff differences wouldn’t be an issue.

So if Great Britain aligns in full, could parallel marketability avoid systematic checks on the land and sea border? We would still have checks between Great Britain and the EU26. (Whether we’d have them between Great Britain and Ireland or between Northern Ireland and the EU26 is an open question.) The risk would now be one of principle, not practical impact.

Could we make it work?

The volume of trade between Great Britain and the EU26 would make major trade diversion via Northern Ireland fairly obvious. (That holds, to a lesser extent, for trade between Great Britain and Ireland.) The current draft protocol includes a specialised EU-UK committee to oversee it. In this model it could monitor reported traffic flows, receive reports from UK and EU/Irish authorities, and require action. Spot checks could be carried out within Great Britain, Northern Ireland and Ireland, and on a intelligence-led basis at ports and on land. VAT records could also help track some re-routing of goods.

Legally, the Commission claims Article 50 can be used for a Northern Ireland backstop, but not a UK-wide version. I think that’s dubious. EU-UK relations cover more than the contents of a backstop, so I don’t think it pre-empts the conversation about those relations. The idea that the EU’s Article 50 competence is geographically limited also seems weak. (The Belfast/Good Friday Agreement argument that Northern Ireland can be covered, but not the whole UK, rests on a one-sided assessment of that accord in my view.)

But the EU27 can’t be persuaded on the law, is there another option available? Could the backstop in the Withdrawal Agreement could include a commitment to amend it via Article 218? This is the legal basis the Commission cites for UK-wide elements. We could publish those amendments with the Withdrawal Agreement and ratify them during the transition.

Why should anyone do this?

For the UK, this option beats the current backstop. It addresses the Northern Ireland issue. We’ve already accepted a customs union for any fall-back arrangements, so we don’t lose much from a global trade point of view. In practice we’d adopt most EU goods standards anyway. Border checks would still exist for Great Britain unless a wider deal scraps them, but shared standards and no rules of origin helps business.

For the EU, this squares a tricky circle, delivers for Ireland and upholds its stated principles on the single market pending a wider deal. The UK aligning in goods, not services, works nicely for a union which is a net exporter of goods and a net importer of services vis-à-vis the UK, so long as level playing field rules are robust. The UK will be seen to pay a price. And it forestalls a regulatory competitor in goods, where the single market is most developed.

And overall?

We’d have a UK-wide backstop framed to fit the language of the Joint Report. The whole UK would align with the EU on customs, VAT and excise. Northern Ireland would align with the EU on goods. Great Britain would align with Northern Ireland on goods. And the EU27 would do the minimum required to avoid borders between Northern Ireland and either Great Britain or Ireland.

It’s not ideal for anyone. But the backstop is supposed to be a last-ditch solution. We’re seeking tolerable imperfection. This might fit the bill.

This post was originally published on Medium.com on 6 September 2018.

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