Thursday 17 January 2019

Why Brexiteers' hopes of 'frictionless' trade with EU border on impossible

Johnson and Co should recognise untrammelled sovereignty will come at a very high cost to the UK, says Colm McCarthy

CHILE RECEPTION: Boris Johnson plays an electronic guitar made by children being taught coding by the British Council in Santiago. Photo: Stefan Rousseau/PA Wire
CHILE RECEPTION: Boris Johnson plays an electronic guitar made by children being taught coding by the British Council in Santiago. Photo: Stefan Rousseau/PA Wire
Colm McCarthy

Colm McCarthy

Britain's chief diplomat in Brussels at the time of the EU referendum in June 2016 was Sir Ivan Rogers and he survived just six months in harness, resigning in January 2017. Rogers was unhappy with a pattern that has persisted since that time: the UK government underestimates the complexities of withdrawal from the European Union.

Rogers has voiced regularly his frustration with the UK's conduct of negotiations, most recently in a speech at the University of Glasgow last Wednesday evening. The speech came in the same week that his former boss, Foreign Secretary Boris Johnson, ventured to South America in pursuit of new trade deals outside Europe. The diplomat and the politician have very different perceptions of the choices facing the UK.

Johnson is the sunny optimist: in the Chilean capital Santiago, he pronounced that 'Now we are leaving the EU, there is a chance to be more global, more outward-looking, more engaged.' He drew particular attention to the opportunities available in Argentina, Chile and Peru and expressed confidence that lucrative trade deals would soon be available in these territories. The three countries boast a combined population of 93 million, which sounds promising. Unfortunately these countries are a long way away, are not in the EU's single market and do not import on a large scale from Europe.

In 2016 the United Kingdom exported merchandise worth £713m (€814m) to these three countries. In the same year goods exports to the Republic of Ireland totalled £16.823bn (€19.2bn), 24 times the combined total for the objects of the foreign secretary's attention.

The Republic's population is a mere 4.8 million, so per capita demand for UK goods in Ireland was about 460 times the figure for Mr Johnson's chosen trio. The UK's trade with the county of Cork is not far behind the total for the whole of South America. Abandoning integration with the accessible markets of your European neighbours, in pursuit of compensating expansion into distant and less prosperous climes, is a policy that Sir Humphrey, in Yes Minister, would have called 'courageous'.

This breezy resort to globalist delusions was a target in the Glasgow remarks of Ivan Rogers. He has no time either for the incessant focus in London on the customs union issue as if it could, on its own, resolve the Irish border problem. The cabinet is divided on two customs variants, both of which have been rejected by the EU27.

The UK has already resigned from 'the' customs union, adherence to which is confined to European Union members. It is, however, open to third countries to seek a special customs arrangement with the European Union - Turkey has done so. Rogers makes two critical points: this is difficult to do, and will not fix the Irish border problem. The discussion in London these last few weeks has proceeded as if roll-your-own membership in the customs union was freely available, on convenient terms, to resigning EU countries, and also fixes the Irish border.

Even if privileged terms were available for ex-members of the customs union (the EU-27 have made no such offer) the obstacles to future trade across the Irish border arise principally from the UK's departure from the single market, which will see the re-introduction of non-tariff barriers painstakingly eliminated over the last quarter-century with enthusiastic British support.

Tariffs will likely be low or zero anyway. The EU eliminated tariffs and completed the customs union long before the borders came down. It was the single market reforms, overseen by a UK trade commissioner, Lord Cockfield, which tackled the non-tariff barriers (protectionist rules about product specifications, onerous red tape in each jurisdiction) which delivered frictionless trade. If the UK declines to seek participation from outside in the single market as Norway and others have done, there is no customs deal that solves the Irish border problem. British exit from the food products regime on its own is enough to necessitate border inspections.

Moreover the UK has other neighbours, bigger trading partners than Ireland, including nearby France, Belgium and the Netherlands, each of which will need hard borders too. It is the policy of the UK government, and of the Labour opposition, to pursue 'frictionless' trade, 'no hard border in Ireland' and all things bright and beautiful, while exiting the single market.

The preferred option is a free trade deal as a third country, perhaps along the lines of the EU's recent deal with Canada. But this means borders and trade frictions according to Ivan Rogers: "...it is simply absurd the extent to which the debate about whether to stay in some form of customs union with the EU after Brexit has now become, with the Irish border issue, the only apparent subject for discussion. We spent several decades in the customs union, with the political class evidently largely failing to understand what it was, how it worked, and what the linkage was to the single market."

He continues: "No developed country has chosen to leave a customs union before. It can be done, though. But anyone suggesting it is easily done needs their head examined.

"What clearly cannot be done is to replicate the effect of removing all internal borders via customs facilitation, whether you call that "maximum" facilitation or not. And that is not because of EU obstinacy or obstructionism.

"It is because those internal barriers are only removed by participation in the single market as well as the customs union. And it is because World Customs Organisation rules require certain processes, such as the declaration of goods crossing borders, which cannot legally be eliminated.

"This means, for example, that even zero-rated goods have to be declared, to prove they should be subject to a zero tariff. A zero tariff is not no tariff. It is therefore not a means of eliminating customs requirements. Nor do things like trusted trader schemes work for any but a small minority of companies: only about 100 or so companies benefit from such schemes on the US-Canada border."

In a bad week for Brexiteers another intruding expert, Jon Thompson, the chief executive of the UK's customs service, told the Treasury select committee the running costs of their preferred 'maximum facilitation' formula to solve the customs riddle would add up to £20bn per annum (you read that right - per annum). This is roughly double the UK's annual net contribution to the EU budget in recent years, the burden of which was a vote-winner for the Leave campaign at the referendum.

Ever since Theresa May's Lancaster House speech in January 2017, the UK position on the terms of Brexit has been a Letter to Santa - can we please leave the European Union, be relieved of the costs and obligations, while retaining privileged trade access on current terms? And without submission to oversight from the institutions of the Union which apply to everyone else?

It has been a non-runner from the outset that any such deal will be conceded. The best deal available is membership in the single market with some practical customs arrangement and a climb-down on budgets and oversight. The trade-off between untrammelled sovereignty and the threat to economic prosperity has yet to be faced.

Sunday Independent

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