Business Irish

Tuesday 21 August 2018

Government needs to use its powers of persuasion to battle hard border

Foreign Affairs Minister Simon Coveney with EU chief negotiator Michel Barnier. Photo: AP
Foreign Affairs Minister Simon Coveney with EU chief negotiator Michel Barnier. Photo: AP
Ailish O'Hora

Ailish O'Hora

It is quite a scary proposition that as we head for the last stretch in the EU/UK Brexit negotiations, the Border issue appears to be one of the biggest stumbling blocks.

EU chief Brexit negotiator Michel Barnier said so much himself late last week. "There are always difficulties, and risks of failures," he told France 2 television.

That was just after The Telegraph, a pro-Brexit publication, reported that Brussels had rejected a number of UK post-Brexit proposals outright including customs proposals in a bid to solve the border issue.

This report was largely rejected in Brussels circles as "overblown", with a statement from the EU side referring to British Prime Minister Theresa May's commitment to a legally operative "backstop solution" for Ireland/Northern Ireland as part of the withdrawal agreement.

However, it may prove a timely salutary warning for us as we enter into the final phase of talks and the choppy waters that lie ahead.

It highlights, again, how vulnerable we are with the Border issue not even close to resolution and also just how dependent we are on our European colleagues headed up by Barnier.

Let's face it, in the past few months the UK government has been exposed as having little understanding or interest in what a massive role the Border issue is for Ireland Inc - although arguably it is not their problem when you look at the bigger Brexit issues from their perspective.

Then there's the pressure on us over our corporate tax regime which is seen in many European circles as particularly lax and was raised again last week by French President Emmanuel Macron.

Macron's speech mainly called for a new European sovereignty in a bid to combat the wave of authoritarianism sweeping across Europe, particularly in the former Eastern bloc.

While this clarion call should be welcomed, especially at a time of growing democratic fragility in many EU member states, Macron also used the opportunity in his address to politicians in Strasbourg to highlight his plans for a new digital tax to help fund the EU budget.

Macron didn't exactly put flesh on the bones of his digital tax plans in the speech, but in the past he has advocated the taxing the revenues of the likes of Google, Facebook and Apple in the country where they are generated as opposed to the current system whereby these businesses are structured so the profits are booked in lower tax economies like Ireland, as well as some other European countries.

Of course, calls for tax harmonisation and a digital tax have sent successive Irish governments running for the hills but how long can this approach last especially when we need to keep Europe onside as we enter into some of the most sensitive Brexit talks.

In addition, concerns have now been long-raised about the sustainability of our €8bn a year corporation tax which is largely driven by these very multinationals that other bigger European countries want to regulate more and, of course, by changing the way they are taxed, extract tax revenue from them in their own jurisdictions too.

While Ireland could of course veto any move on tax harmonisation, that approach would not necessarily be helpful in our quest to build new alliances in the EU as our closest partner leaves the bloc.

The Irish Government, for its part, is more in favour of the OECD approach for a move towards a low rate, broad-based model.

Taxation troubles aside, it is the Border issue now that seems to be in the spotlight as we head into what is supposed to be the home straight in the Brexit talks.

In fact, some believe that the Irish government dropped the ball by letting the Border issue remain unresolved heading into the next round of talks which commence on April 30.

Whether or not that is the case is probably moot at this stage.

What is clear, though, is that some kind of border will have to exist post-Brexit.

But what form it will take, however, is still up in the air.

Certainly the EU seems to have rejected the idea of a 'technology' border - using CCTV and electronic pre-clearance systems - which was proposed by May.

How this would be workable is certainly questionable.

The 'backstop' plan, which would involve Northern Ireland remaining a member of the Single Market or Customs Union, has already been rejected by Brexiteers as well as the handful of DUP politicians that are currently propping up the minority Conservative Government.

So it looks like we are pretty much back to square one.

There's no doubt that Barnier's unique understanding of how the Border works is to Ireland's advantage and the Irish diplomats has worked very hard on our behalf in the talks but we can't take EU support for granted in these talks despite the sense of solidarity we have seen so far from other member states.

One thing is clear, the last thing we want is Britain crashing out of the negotiations without a deal because that would mean one thing only - a hard border - which would be the worst possible outcome for Ireland Inc.

It is arguable that the Government here is somewhat distracted by serious issues on the domestic front, not least the Referendum on the 8th Amendment of the Constitution which takes place on May 25 although the prospect of an election seems to have all but disappeared, at least in the short-term.

Quite apart from the great work being done behind the scenes at the diplomacy level, the Government now needs to look at the bigger picture.

We need to deploy troops on the ground in Europe, so to speak, and use our powers of persuasion to best effect as we head into the last round of negotiations.

Taoiseach Leo Varadkar, for example, should go on a European Brexit roadshow and build on the rapport he has established with Macron and other European leaders - tax difficulties aside.

And Tanaiste and Foreign Affairs minister Simon Coveney could spend more time in Brussels and London over the next few crucial weeks as could Minister for European Affairs Helen McEntee.

But there is one chink of light at the end of the Brexit tunnel too.

May is facing a House of Commons revolt this week over Britain's future customs arrangements with Europe after Labour MPs and Tory rebels joined together to force a vote.

Could the European negotiations team have been focusing on this weakness as they quietly pooh-poohed the British Brexit proposals out of the water?

I, for one, will be watching the debate on that parliamentary motion which is calling for an "effective customs union" when it takes place in Westminster this Thursday, very closely.

I won't be alone.

Sunday Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business