Saturday 20 July 2019

Gay Mitchell: 'Joint bid to avoid tariffs on trade can create a climate for re-engagement in Brexit storm'

Uncertain times: The Port of Dover, in Kent, during a trial of how roads will cope in the case of a no-deal Brexit. Photo: Reuters/Peter Nicholls
Uncertain times: The Port of Dover, in Kent, during a trial of how roads will cope in the case of a no-deal Brexit. Photo: Reuters/Peter Nicholls

Gay Mitchell

For reasons of survival, the British government raised the backstop to a core issue. It is indeed a core issue - but for the EU, not for the UK.

The backstop is part of the UK-EU 585-page binding Withdrawal Agreement and can be replaced but not repealed. It is reasonable to assume that it will never be used because the UK's trade rules must continue to be in alignment with the EU's. This will be the outcome of Brexit negotiations one way or another. The key issue is the customs union, which came into existence following the Treaty of Rome in 1958. It is an important pillar of the single market and is vital to the free flow of goods and services. The UK says it wants to leave the EU but it certainly does not want to leave the union's market.

The European single market accounts for almost a quarter of global gross domestic product. Currently about 45pc of the UK's exports go to other EU countries, and half of its imports are from EU countries.

The UK Office for National Statistics points out that exports are distance related. The nearer the EU country, the more the UK exports. For example, the value of trade with Ireland is higher than that of Italy or Spain. Furthermore, the UK runs a trade surplus with Ireland.

In the context of Brexit, Article 28 of the Treaty on the functioning of the EU is inescapable. It reads: "The union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between member states of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries." In a nutshell - no duties on trade with partners, common duties on those outside. At present there are EU duties on about 6,000 imported products.

EU duty rates can be as high as 10pc but average 4pc. It is possible to be outside the customs union but inside the single market where goods move freely as well as services, people and capital (the four freedoms). This brings with it obligations. The UK government says it does not want this arrangement.

There are about 120,000 officials working for customs authorities across the EU. In 2015 they seized 7,000 weapons and 3.2 million pieces of ammunition, and in 2014 about 450 tonnes of drugs. The European Commission says that a strong customs system helps foster competitive business, increases wealth, protects against terrorism and enhances health and environmental protection. Almost three-quarters of trade is by sea or air, according to the European Parliament's Research Service (EPRS). As islands, the UK and Ireland make up a large part of this.

Turkey, Andorra and San Marino have individual customs arrangements with the EU. General rules apply to this arrangement, such as: a) free movement of goods either wholly produced or put in free circulation after their importation from third countries; b) alignment of external tariffs; and c) approximation of customs law and some other laws.

Two other provisions apply: though goods covered can circulate freely, products not so covered will be based on a free-trade agreement. This will include rules about the origin of products. For San Marino, the customs union applies to all products except coal and steel. Turkey's customs union is limited to industrial products and processed agricultural products (not other agricultural products or coal or steel products). As they are not in the single market they do not have free movement of people or capital.

So different countries can have different arrangements under a customs union with the EU. The words "alignment" and "free-trade" arrangements give plenty of room for negotiation, but rules must be binding.

These rules have worked to everybody's advantage. The difficulty the UK has raised, as spelled out by the EPRS, is this: the EU must impose a common external tariff. All imports to states in the customs union are subject to the same rate of import duty. If one of the customs union members was allowed to unilaterally lower its external tariffs it would lead to goods entering the EU through the ports/airports of that country. These would then be re-exported to other states, tariff-free inside the customs union. The technical term for this is "trade deflection". This same principle is raised by the UK's departure.

This reality will govern future relations, and applying external tariffs is the last thing the UK or the EU want. The EU offered a type of free-trade agreement dealing with limited services, zero tariffs and no quotas on goods to the UK last March. That was an opening position and a much closer arrangement is possible.

British and EU civil servants are very capable of crafting a deeper agreement but, on the UK side, they need sound directions from the politicians. A simple direction to seek an outcome that does not involve tariffs could create a climate for re-engagement. Negotiations under the non-binding 26-page statement on future relations could then get under way and real progress would be made and made quickly.

Gay Mitchell is a former MEP and Minister for European Affairs

Irish Independent

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