border

After two months of customs, the past few days have been all about the backstop option, but why the sudden panic?

The biggest topic of conversation over the past couple of months has been the question of our future customs arrangements with the EU, particularly in relation to the problem of maintaining an invisible Irish border. See, the EU Customs Union eradicates tariffs when moving goods across borders within the EU and imposes common tariffs for goods coming in from the outside. This removes the need for rules of origin (ROO) certificates to identify where the things originated, as the tariffs are the same in every territory. The Irish border though, will become an external EU border following Brexit and so checks will be necessary unless we can come up with a way of circumnavigating the need for them. To this end, the cabinet has been thrashing out two options.

The first, called ‘maximum facilitation’ or ‘MaxFac’, relies heavily upon technology to track goods across borders. The trouble is that such technology does not currently exist operating on the necessary scale anywhere in the world, it would take years to implement if it did at massive cost, it will require new customs declarations from businesses to an estimated cost of £20bn a year, and the EU has told us that it will not work.

The second, called a ‘new customs partnership’ or ‘NCP’, would require Britain to oversee two separate customs regimes, first administering tariffs on behalf of the EU when goods enter, then tracking goods to their final destination, which if ultimately is the UK market would require the government to refund importers the difference between the EU’s tariff and our own. The trouble with this one is once again that nobody really thinks it will work, that it would take years to implement if it did, and that the EU has ruled it out.

The biggest trouble with these two options is that we are currently discussing them at all, when neither looks workable, neither is acceptable to the EU, but most importantly, neither solves the issue of the Irish border.

The real important stuff when it comes to frictionless borders are non-tariff barriers, all of which relate to our membership of the single market rather than the Customs Union. Customs arrangements - accounting for 30% of border operations according to Michel Barnier, are just one piece of the puzzle. Whitehall thinks it is just 20%. The single market is the bigger piece, and so it is rather baffling as to why this is where all the political capital seems to have been spent recently. It is even more baffling when you consider that we cannot even begin discussions with the EU about future arrangements until the Withdrawal Bill has been agreed and ratified, and that this cannot happen unless we agree upon the more pressing issue of the backstop option.

Customs arrangements - accounting for 30% of border operations according to Michel Barnier, are just one piece of the puzzle. Whitehall thinks it is just 20%.

In the joint report of December last year, both sides laid out the areas that needed further work before the withdrawal bill could be agreed, one of the most politically and practically taxing being what to do in the event of no future agreement to ensure that no hard border be imposed in Ireland.

As with all things Brexit, there are significant trade-offs, and no obvious solution that satisfies May’s Irish border trilemma – that there must be no infrastructure on the Irish border, that there must be no border between Northern Ireland and the rest of Britain, and that Britain must leave the Single Market and the Customs Union. According to conventional logic, only two of these things can be true at any one time, but whilst the cabinet is spending time trying to figure out a future arrangement that satisfies all three, the EU’s main concern - and the primary Ireland-related issue holding up the Withdrawal Bill - is what happens if end up without a deal. Never mind future arrangements; without the backstop agreed, the Withdrawal Bill cannot be signed.

The options presented real problems for Theresa May. One would have seen Northern Ireland having a special status and de-facto remaining part of the Single Market and the Customs Union, but in practice this would put a border in the Irish sea and mean divergence between NI and the rest of Britain – something the DUP will not accept. The government’s actual plan, as revealed in the past few days, is to extend that special status to the whole of the UK, aligning us with the EU for the foreseeable future whilst losing our voice within it.

Never mind future arrangements; without the backstop agreed, the Withdrawal Bill cannot be signed.

The plan is far from perfect, it would be safe to call such a scenario ‘Brexit in name only’ and so many Conservative backbenchers would be seriously unhappy with it, with some worried that we would get stuck in such a position. It is also not particularly desirable from the EU’s perspective, as it almost resembles a ‘all of the benefits with none of the obligations’ scenario. But the cabinet is anyway adamant that the backstop is unlikely to be needed as a proper deal will be ready by the end of the transition in December 2020.

The final cabinet row over the backstop was over the inclusion of a time-limit, with David Davis being the main troublemaker. From his perspective, the backstop must be time limited as to ensure that the EU has an incentive to negotiate a better deal for post-backstop. The problem is that the whole point of the backstop is that it is not time-limited, and that is precisely what we agreed to in the December joint report. The EU has re-stated this, and has said they are not interested in discussing a ‘backstop-backstop’.

It turns out that Davis won this one, and the backstop report released today contains an end-date of December 31st, 2021. We will find out in the next few days whether the EU accepts this but it looks unlikely. Taoiseach Leo Varadkar has also stated that a backstop with a time-limit would be unacceptable.

Why, you may ask, are the Brexiteers so worried about the backstop when they are so confident we will be able to negotiate a great deal, solve the border issue and avoid using it anyway? Well that may be because we are approaching what might be a number of significant crunch points where everything may change.

For a start there are EU council summits in June, October and December this year, in which the original plan was to sign the Withdrawal agreement and move talks onto the matter of the future arrangements. Well June isn’t going to happen, and it is rumoured that within the Government there is not much confidence about October either. This would mean that the bill could only reach final agreement by December, leaving just three short months for it to be ratified to ensure that we enter a transition in March next year rather than fall out without a deal.

Before that though, there is the small matter of the Withdrawal Bill which faced 15 amendment defeats for the Government in the House of Lords being pushed through the Commons in just one day on June 12th. It looks like we are due for more twists and turns next week.

 

Alex Davies is a research analyst at Greater Manchester Chamber of Commerce @GMCC_Alex