Now that Brexit negotiations have restarted after the Summer break, the scramble to agree a deal by October or later is well and truly underway.
Eighty per cent of the content of the withdrawal agreement has been agreed. The main remaining sticking point is the so-called “backstop” arrangement for the Northern Irish border. This will be activated in case there is no deal on the EU-UK future relationship by January 1, 2021, when the transition period – during which Britain keeps all access to the European single market in return for taking over all EU rules – comes to an end.
The EU’s proposal for this backstop is to simply isolate Northern Ireland out of the UK and keep it under the EU’s regulatory and common tariff regime. This would avoid checks at the Northern Irish border which some fear would endanger the already fragile peace process. Many EU diplomats genuinely believe this was a fair and balanced offer to the UK, pointing at precedents in countries that have a part of their territory under a different customs regime, including, for example, Austria before it joined the EU.
Given how hard it is for UK MPs to agree on anything Brexit-related, this is quite telling. Some in the EU may think Britain’s stance is irrational and “ideological”, but, given the fact that a large part of the Northern Irish population fears one day ending up a minority in an Irish Republic, it’s a reasonable insistence.
Importantly, however, British MPs have not voted to rule out a regulatory border between Northern Ireland and Britain’s mainland.
Therefore, perhaps a compromise could take the following form: Britain accepting a regulatory border in the Irish Sea and the EU accepting that at some point there will be customs checks on the Northern Irish border. These will be unavoidable if Britain regains the right to set different tariffs than the EU, at least in the absence of customs checks within the UK.
How likely it is to see such a compromise emerge this autumn?
As reported by Bloomberg, the UK government has have been working on proposals that, according to officials speaking privately, involve keeping Northern Ireland aligned with EU regulations. That would mean putting a regulatory border, but not a customs border, between Northern Ireland and Britain.
Interestingly, Bloomberg claims that Jeffrey Donaldson MP, the Chief Whip of Northern Ireland’s DUP, which props up Theresa May’s government, has “hinted” that the plan could be acceptable. Indeed, he only mentioned “a customs border” as something that would be “unacceptable” to his party. Perhaps this is all over-interpretation, but both UK and EU officials have pointed out that there are already some differences in regulations between Northern Ireland and mainland Britain and that regulatory checks already exist between the two for animal imports, something that EU Brexit negotiator Michel Barnier has been highlighting as well.
Barnier has pledged to “de-dramatise” the EU’s backstop offer by looking at limiting the legal power the EU would wield over Northern Ireland. In particular, this would involve only requiring routine and limited controls and scaling back the powers of the European Court of Justice, which would only be given indirect authority over the UK.
This shouldn’t be that far off what the UK could accept. In its proposals for the future relationship, the UK has suggested an arrangement whereby a joint EU-UK panel would need to refer questions related to EU law to the ECJ and whereby UK courts would need to pay “due regard” to ECJ rulings, even if the UK would be part of a separate jurisdiction.
Even if some kind of “soft” regulatory checks in the Irish Sea were agreed on, the EU would need to concede to customs checks between Northern Ireland and Ireland emerging at some point — unless it wants to reconsider the UK’s innovative facilitated customs arrangement again.
How likely is a concession on customs checks?
Assuming that different tariffs between Northern Ireland and mainland Britain are a real “red line”, both for the British Parliament and the DUP, demanding to rule out customs checks on the Northern Irish border and thus different tariffs between the UK and the EU is effectively the same as demanding that Britain never recovers an independent trade policy, with the right to set its own tariffs.
Even if Britain did not check that goods crossing the Northern Irish border comply with UK tariffs, surely EU member states would tell Ireland to check if EU tariffs have been paid on goods entering Ireland from the UK.
Irish PM Varadkar may have pledged that not a single one of the 1000 newly hired customs and supervisory officials will be posted at the Northern Irish border, but other member states may ultimately ask him to put them there.
The UK government has proposed a system that is designed to square the circle, combining different UK tariffs with avoiding Irish customs checks on the Northern Irish border. Its facilitated customs arrangement involves the UK collecting tariffs on behalf of the EU for goods first entering the UK but with the EU as their destination.
Many are rightly sceptical about this system, which involves a high degree of trust, but one could think of arrangements whereby Britain promises to financially compensate for the EU in case of unexpectedly low tariff revenues, if that were the concern. There is a precedent here: in 2009, the EU agreed to trust a non-member’s (Switzerland’s) customs checks as equivalent.
Britain also has the second option of a “maximum facilitation” model. “Max fac” attempts to minimise friction at the border using technology and the imperfect precedents of those other two neighbouring countries that are not a member of the EU’s customs union: Switzerland and Norway.
The head of the Swiss customs service has said that his experience suggests an “invisible border” in Ireland after Brexit is possible. Because only a minority of possibly necessary checks relate to customs matters, this should perhaps be something conceivable for Ireland and the EU.
To convince the EU, the UK could simply suggest that it would apply the same tariffs as the EU for a period after January 1, 2021, meaning no customs checks on the Irish border would be needed for a long time. In effect, as its offer for the Irish backstop, the UK proposed in June that the whole of the UK – so not just Northern Ireland – could remain in the EU’s customs union after the end of the transition.
In a technical paper, Britain suggestss applying a “temporary customs arrangement … between the UK and the EU” that would allow it to sign free trade deals with other countries that would only enter into force when a new, “future customs arrangement” would be introduced, which the UK paper “expects” to be the end of December 2021 at the latest.
This may be a little optimistic, as a lot of work will be needed to adapt UK customs bureaucracy, both for Northern Ireland and the Channel ports, while Britain is likely to need a lot of time anyway to negotiate a trade deal with the likes of India, the United States and Indonesia. Therefore, a longer period may be necessary. Also, many big manufacturers with plants in the UK operate on a “just in time” basis. If there were different tariffs between the EU and the UK, they would need time to make changes to that model.
This would all involve the whole of the UK and not just Northern Ireland staying in some kind of common customs union with the EU for a limited period. Barnier has said he has no objection to a UK-wide customs area “in principle”, also as he’s apparently being pressured to be more flexible on this by “northern trading states”. He has however raised doubts over such an arrangement being “temporary”.
According to Bruno Waterfield, the always well-informed Brussels correspondent of The Times, the current compromise envisioned by negotiators would be for the UK to accept the backstop as drafted by the EU, but the EU also accepting to negotiate a UK-wide arrangement during the transition, so the whole of the UK would be kept under the common tariff regime with the EU until final trade arrangements was ready.
This scheme, first reported by The Telegraph‘s Peter Foster, is being described as the “Siamese twins” of “a bridge for the UK and a backstop for Northern Ireland”. If indeed this were to be the outcome, the UK would remain under a common customs regime with the EU for quite some time, as, again according to Waterfield, the EU has claimed that UK proposals on customs – FCA and Max Fac – require the EU to change its own customs code, which would take “at least a decade”.
Even more troubling is the fact that, short of any other deal with the EU, it might mean that Britain wouldn’t regain its own trade policy. Waterfield adds that “[the EU] and Whitehall both fear that internal Tory politics at [the Conservative] party conference in Birmingham could kill a backstop compromise. [There are] fears that Jacob Rees-Mogg and the European Research Group are “on manoeuvres””.
In any case, some EU flexibility is needed for Britain to recover its own trade policy. Any deal which makes the UK leaving the EU’s common tariff regime dependent on an EU veto won’t be sustainable.