Wednesday 16 January 2019

Chaotic UK crash-out looms if border solution can't be reached

The Brexit transition deal is a concession from the EU-27 and is conditional on certain issues being resolved, writes Colm McCarthy

OPPOSING VIEWS: Leo Varadkar and Theresa May side by side at Downing Street — but their aims are divergent
OPPOSING VIEWS: Leo Varadkar and Theresa May side by side at Downing Street — but their aims are divergent
Colm McCarthy

Colm McCarthy

The Brexit debate in the British media and the House of Commons this last week has been confusing, particularly the stuff about solving the Irish border problem through UK willingness to stay in the EU's customs union. Some people seem to think (a) the UK can unilaterally opt to stay inside the customs union and (b) that this would be enough to solve the problems about the land border in Ireland. They are mistaken on both counts.

Theresa May's 'red lines' since early last year have included the UK's departure from the customs union and the single market. With the despatch of the UK's resignation letter to Brussels 13 months ago an inexorable process was set in motion.

It is not legally possible for the United Kingdom to 'stay in the customs union', whether to help solve the Irish border problem or for any other purpose. The UK leaves the European Union on March 29 next year and leaves the customs union on the same date, since membership of the customs union is an adjunct of EU membership.

It is open to the UK if the EU-27 are amenable, as they might very well be, to negotiate a customs arrangement from the outside, as Turkey has done, which would replicate many features of customs union membership. But the free and open borders between EU members date from the implementation of the single market in the 1990s and the consequent removal of non-tariff barriers.

There were no frictionless borders consequent on the customs union alone, which saw tariffs inside the Common Market eliminated in the late 1960s. There are serious non-tariff barriers with Turkey and there are physical frontier posts on the borders with Bulgaria and Greece.

A customs union arrangement along Turkish lines would simplify trade across borders but the critical requirement is that the UK also seeks single market membership from outside the EU. Even with both a customs arrangement and single market membership, there are other complications, the harmonisation of VAT collection for example.

The UK's rejection of the so-called Norway option, the retention of single market membership, ensures that non-tariff barriers will prevent frictionless borders, not just with Ireland but also with the UK's other European neighbours.

Contrary to assertions sometimes made in the UK, no non-member has frictionless borders with the European Union: not Norway, not Turkey and not Switzerland, which also has extensive deals with the EU which go beyond the kind of free trade pact Mrs May is seeking.

With no more than a free trade deal, along the lines of those with non-European countries like Canada and South Korea, there will be frictions, extra costs all round and nothing to negotiate other than a lose-lose deal.

This post-Brexit deal will be negotiated from April 2019 once the UK becomes a third country and could well involve zero tariffs on almost everything. But it cannot deliver anything approaching the effortless access to European suppliers and customers which UK firms enjoy at present, because this flows more from the single market than from the absence of tariffs.

The post-Brexit standstill or transition deal, freezing current arrangements until the end of 2020, is a concession from the EU-27 and is conditional.

Agreement must first be reached on the UK's outstanding financial liabilities, the rights of EU citizens in the UK and Brits abroad and the Irish Border, or there will be no withdrawal agreement and hence no transition deal.

As EU commissioner Phil Hogan explained to the Seanad last week, this set of issues needs to be wrapped up by autumn or there will be no negotiations about customs unions, single markets, free trade deals or anything else. There will instead be a chaotic UK crash-out 11 months from now.

The Tory party's Brexiteer faction is resisting pressure from the Labour party, the House of Lords, various business lobby groups and some pro-EU Tory MPs to strike a Turkey-style customs arrangement.

Several Brexit ultras are seeking to portray the Irish government's insistence on an open border as unreasonable, and prefer a crash-out with no deal at all. This would see the UK trade with the EU-27 on World Trade Organisation (WTO) terms, as do countries like Brazil or Russia. Any enhanced deal is not worth a single British concession, in their world. Jacob Rees-Mogg, a Brexiteer backbencher, is the bookies' favourite to succeed Mrs May as leader of the Conservative party (4/1 in a large field) and addressed the issues last weekend.

He suggested that "if Britain trades on WTO terms, we could potentially slap tariffs of up to 70pc on Irish beef. That could bankrupt Ireland, who export £800m of beef to us every year". He kindly threw in the observation that Britain's withdrawal would 'bankrupt the EU', so important is the UK's financial support.

His estimate of the value of Irish beef exports to the UK is actually a little on the low side. His alarming estimate of its economic importance is utterly deluded.

In any event, Rees-Mogg appears to be unaware that WTO rules would preclude the unilateral tariff action he surmises. As to the UK's (discounted) financial contribution to the EU budget, it has recently been running around £9bn per annum. For the EU-27 population of 450 million this works out at £20 per head per year.

That a backbencher quite uninformed about the economies of neighbouring countries, about the EU budget or the WTO rules could be the favourite, from a potential field of 317 MPs, to lead the Tories next time round is an amazing turn of events.

The Tories, without being entirely fanciful, have always seen themselves as the natural party of government, the repository of patriotic sentiment, the steady-the-ship party and all-purpose safe pair of hands. All political parties have a somewhat higher estimation of themselves than the electorate at large, but it is rare for a major party in a big European country to display the total indifference to competence implied by Rees-Mogg's popularity.

Their only rivals are the Labour party, whose position on Brexit has been impenetrable since before the referendum. Just as the Tory right detests the EU as a socialist super-state there are Labour front-benchers who regard the same EU as a cunning capitalist plot and display a voracious appetite for side-issues.

Shadow chancellor John McDonnell believes that his nationalisation plans for the railways would be thwarted in the EU, most of whose members have state-owned railways (including the UK - Northern Ireland Railways is in public ownership).

Labour has declined to explain the basis for its opposition to the retention of single market membership despite polling evidence that Labour supporters are in favour.

There will be a binding vote in the House of Commons in May on the customs union. A constant Brexiteer refrain is that Britain was conned into the Common Market in 1973 - we only wanted tariff-free trade and we were told it was just a customs union.

Rees-Mogg and his supporters will then vote against any continuing customs union. If this sounds coherent and you live in the United Kingdom, think about joining the local Conservative Association.

You could be leadership material.

Sunday Independent

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