Winner of the New Statesman SPERI Prize in Political Economy 2016

Thursday, 8 March 2018

Tangled up in red

There have been three constants in the Brexit negotiations so far. The first is that the UK side makes speeches, and the EU side drafts agreements. In a way this is logical, because of the second constant, which is that the clock is always ticking. The ticking clock means the EU has nearly all the power in these negotiations. That leads to the third constant, which is that whatever is finally agreed is pretty close to the original EU drafts. It is obvious if you think about it. The EU side has the power and they also have a clear purpose and unity in achieving it. The UK side is weak and divided with no clear purpose, so the best it can do is to give speeches so UK voters get the impression the UK is influencing what is going on.

The EU published yesterday a framework for an FTA between the UK and the EU. Given the logic above that means any agreed FTA will be pretty close to this framework. It has been designed by the EU to be compatible with Theresa May’s red lines. The EU is quite clear that it would be possible to have fewer barriers to trade than this FTA framework involves, but this would require changing the UK’s red lines. These red lines include that the UK will not be part of any customs union with the EU or the Single Market for goods.

Some have interpreted this framework as implying that the EU is prepared to compromise on the hard line it took on the Irish border last week. However the document starts by noting that “negotiations can only progress as long as all commitments undertaken so far are respected in full”. That includes the first stage agreement involving the Irish border, which gave three possible options: an agreement between the UK and EU so strong that it meant no hard border was required, a technological solution, or Northern Ireland staying in the EU customs union. The second option is magical thinking. 

What the EU FTA framework shows is that the first option is not going to happen. The UK are not going to get an FTA much better than this, precisely because they are not as yet prepared to accept the obligations that go with a customs union or the Single Market. So Northern Ireland has to remain in a customs union with the EU to avoid a physical border, and there is no reason why the EU should compromise over this. 

That means that the EU's FTA document is for the remaining UK, and would involve a customs border between two parts of the UK. It seems incredible that the Conservative party could accept that, and the DUP will certainly not. As a result, the UK will carry on pretending that an alternative solution is possible, and saying that the EU should “get on with” looking at the first two options for the border. The EU has no intention of doing that, because the EU does not do magical thinking over Brexit.

This impasse could be broken by parliament if enough Conservative MPs had the nerve to vote for the UK to remain in the customs union, as Labour now wish. That would be absolutely the right thing to do, because the arguments that we should stay out of a customs union are absurd. We are likely to get much better trade deals with third countries as part of the EU than outside. It already looks like we will lose deals the EU has already made. And with Trump in the White House raising tariffs it is crazy. 

Ironically one reason Tory rebels may fail to rebel is that the delusion that there are other solutions to the Irish border problem will be broken sometime in the autumn anyway because of the second constant, the ticking clock. The clock in this case is that the EU will not agree to a transition period until the UK signs up to the legal version of the first stage agreement. So sign the UK will.

Whenever the UK government is finally forced to concede that it will have to agree to stay in a customs union with the EU the Brexiters should finally break with the government. That is the event that May has been so desperately trying to avoid, which is why she has got herself so tangled up with her red lines. If May understands what is going on, then she will spend the next few months trying to convince the Brexiters that signing the legal version of what she already agreed in December is not the commitment to the UK staying in a customs union that it in fact is. Declaring that it was something the UK could not sign was not a wise way to start that process. May is all tangled up in her red lines, and the country is all tangled up in blue. 

Postscript (09/03/18) Yesterday Donald Tusk said he was putting "Ireland first". The UK had to provide "specific and realistic" plans to avoid a hard border in Ireland before Brexit talks could make any progress. 


  1. "The clock in this case is that the EU will not agree a withdrawal agreement until the UK signs up to the legal version of the first stage agreement."

    The legal version of the first stage joint report IS the withdrawal agreement.

  2. What does a hard border even mean? If it means some customs checks then that's fine.Irish Revenue gave evidence that they would only need to check 6-8% of freight and the rest would be by electronic paperwork. And that they would only need a few customs posts, which don't have to be on the border line.

    By insisting that the Irish border is a problem when it isn't, Remainers in their ignorance and the Irish govt in its duplicity maximise the risk of a hard Brexit, because of Tory divisions ensuring no deal makes it through the Commons in time.

    That would maximise economic harm to NI (and the fictitious political harm from terrorism), by creating a "hard" border on day one. NI should avoid inhibiting its trade with the south but it is four times more important not to limit its trade with GB.

    A hard Brexit also maximises the recession risk from Brexit, and that risk applies to NI, GB, and RoI. Remainers must concede the point on the border instead of playing this brinkmanship.

    1. A hard border means any physical infrastructure on the border

    2. «Irish Revenue gave evidence that they would only need to check 6-8% of freight and the rest would be by electronic paperwork.»

      Indeed the problem is to check that all freight has the paperwork, and that can be done by sampling the traffic, and selecting at random around 6-8% of vehicles going through *might* be enough. But on most other similar borders *all* vehicles are stopped to check that their cargo is still sealed and the paperwork has been done...

      The issue is not no much tariff/excise avoidance, but VAT fraud and trafficking forbidden goods, which can give massive profits even if 6-8% of shipments get caught.

    3. "NI should avoid inhibiting its trade with the south but it is four times more important not to limit its trade with GB"

      The thing about this as I've tried to point out elsewhere is that these negotiations are now between the EU-27 and the UK and not a rehash of various British negotiations within the EU as a continuing member state. As a result, the EU-27 absolutely do NOT have to be concerned about internal British problems, and for them the importance not to limit trade between NI and GB is NOT THEIR PROBLEM. They go into these negotiations looking to make the best out of a bad situation and work with what the British have offered (which is only concrete negatives - No ECJ, No Free Movement, No Customs Union, No Hard Border on the island of Ireland; and nebulous positives - undefinited "deep and special partnership").

      In that context it would seem they have already resigned themselves to taking a hit on trade between the EU-27 and GB (and the Irish have resigned themselves to a hit on trade between Ireland and GB which, if I'm not mistaken is also greater than Irish/NI trade). So as to limit the damage they take one of the few British concrete goals (No Hard Border on the island of Ireland) which they share and work out how best it can be achieved for them. The upshot is that NI would have to remain in the customs union and also in the Single Market for goods.

      How the British work out how to ensure NI has unfettered access to GB market and that there are no new regulatory barriers is for the UK to determine, but it's interesting to note that while the British government is proposing technology as a solution for the NI/Ireland border it isn't proposing technology as a solution to ensure that NI/GB trade remains unfettered in the event that NI remains in the customs union and single market for goods. Surely what could work for a heavily settled, winding land border that cuts across communities and farms should in fact work much better for the air and sea crossings which are the only way to get between NI and GB. Yet the much vaunted technological solutions aren't even thought of for NI/GB even though it would cheaper, simpler and quicker to implement by virtue of the access points all being ports (airports and seaports) and thus controlled spaces already. Makes one wonder what to really make of these calls for technological solutions.

      Ultimately the easiest route would have been for the UK to sign up to an EEA-like agreement plus customs union (as EFTA members must sign up to pre-existing bloc-wide EFTA free trade agreements with third countries then joining EFTA to rejoin the EEA would not work if the UK was also in customs union with the EU). The second easiest option then would have been for the UK to join EFTA and rejoin the EEA from that end but to keep NI in a customs union with the EU. At that point NI becomes like Liechtenstein in reverse (Liechtenstein is in the EEA but also in a customs union with fellow EFTA State Switzerland which is also in the EU's single market but not via the EEA and with some definite differences) - so there could be something akin to the parallel marketability solution for Liechtenstein where goods are labelled and controlled in such a way that it can be both in the Swiss market and the EEA. Beyond that we get the apparent solution which is upon us - NI remains in the customs union and single market for goods and the rest of the UK gets CETA-dry.

    4. I'm well aware that the EU27 don't solve to solve a GB-NI problem, but it still matters for whether a deal can be achieved, even if it is only to be achieved for the benefit of RoI.

      There's good reason not want to avoid a sea border, no matter how technologically advanced, in favour of a land border. When the volume of goods is four times the size, the overhead in time and money is four times as damaging to the NI economy. Whether that overhead in large or small, it's better to impose it on the smaller north-south business.

      Irish Customs gave evidence to the Oireachtas that they would need to check less than 10% of freight and it would be some distance from the border; the customs points would only be a handful. You could impose a similar burden on NI-GB trade then, but north-south makes more sense overall.

      NI will already suffer the macroeconomic damage to the UK from Brexit, it's best to compound it as little as possible with trade disruption.

  3. NI will also need to comply with a significant amount of single market legislation to avoid sanitary and phytosanitary tests at the border so remaining in the/a customs union will almost certainly not in itself be judged to suffice.

    1. «comply with a significant amount of single market legislation to avoid sanitary and phytosanitary tests at the border so remaining in the/a customs union»

      Oh it goes much further than that: being in "the" EU CU or "a" generic CU means that for the trade covered by the customs union there is in principle no check between the countries in the union. Therefore not only there must be the same regulations, and joint political control, and compensatory funding among the participants, the more so the wider the customs union is.

      Put another way a customs union requires matching single market institutions, cannot be independent of them, because it creates a single market. Therefore it is possible to have EEA membership without EU CU membership, as in the case of EFTA countries, but not viceversa.

      The additional problem is that trade agreements because of WTO rules cannot be "sectoral", but must cover "substantially all" of agricultural good, or manufactured goods, or services. So "a" generic customs union (where one member is also in the WTO) cannot be just for trade in cereals but not in fruit, or just for electronics but not for cars, or just for accounting but not for banking. BTW a number of "Leavers" also want to exit the WTO because its rules also limit english sovereignty and independence to the whim of faceless and unaccountable tradecrats in Geneva.

      The Good Friday Agreement covers six areas: agriculture, education, environment, health, tourism, transport. That would require "a" customs unions covering *all* of agriculture and services.

      But T May has recently rejected passporting, in her Mansion House speech:

      “We are not looking for passporting because we understand this is intrinsic to the single market of which we would no longer be a member”

      Put it another way, there will be a hard border between north and south Ireland, but the can will be kicked down the road with a 2 year "implementation" period, so nobody is worrying about it yet.

  4. PPS -- Headline and first para don't match actual quote from Tusk. Which was: “As long as the UK doesn’t present such a solution, it is very difficult to imagine substantive progress in Brexit negotiations.”

    Simon, I'd appreciate it if you'd answer the point about the terrorist threat to border posts being laughable, when you get round to it... I have been asking and asking. I am a Remainer from NI, I'd be happy to man a border post, the chances of attack are 0%. The terrorist threat was recently downgraded by MI5, and the second-biggest dissident republican group Oglaigh na hEireann has declared a ceasefire in January. Clearly they don't relish the prospect of Brexit as an opportunity for attacks (which would reduce their popularity yet further as well as harm north-south trade) or even for recruitment.

    Other Remainers seem to think this point is a trump card when it is actually bogus to keep the UK in a customs union and risks causing a hard Brexit by mistake.

    1. Others are probably better able to say why a physical border is such an important issue, so let me just say that I can easily understand the symbolism when a good percentage of the N.I, population would like a united Ireland.

      The larger point is that the Irish government's wish for no hard border matters because Ireland is an EU member and the EU supports its members. The EU, in turn, has the power in this negotiation. I think the risks of No Deal are tiny because it would not get through parliament and May does not want it. But like it or not we are going to find out.

    2. I am no expert (not even Irish) so may have got it wrong but a recent paper produced by some people at the British Academy and some Irish experts led me to believe that much of the discussion in the UK on this matter is missing the point (par for the course I fear).

      The point seems to be this. Until the Good Friday Agreement was signed, the Republic of Ireland laid claim to the whole territory of Ireland, refusing formally to accept the Partition, given that it was against the will of the majority of the people of Ireland. In the GFA the Republic agreed to relinquish this claim at least until the people of the six counties voted to join the Republic. In exchange for this, the UK government (and NI?) agreed to allow the Republic a share in the governance of all-Ireland matters through the North-South Council, with implications for the government of the six counties. In the area of agriculture, for example, the governments pledged to cooperate in formulating policies on an all-island, cross border basis. The policies which have been in place these last twenty years in accordance with this have of course involved no difference in regulatory regimes, therefore no need for sanitary or phylosanitary checks and no need for any tariffs to be charged.

      The concern of the Irish Government is that the UK and NI authorities continue to comply with their commitments under the GFA, given that the Republic made concessions itself to reach agreement. Unsurprisingly, having made their concessions, they would be extremely unhappy if the UK and NI authorities were to renege on their side of the deal. Introducing a separate regulatory regime or customs regime for agricultural products would pretty clearly be contrary to any maintenance of existing policies developed cooperatively between the parties for implementation on a all-island, cross-border basis.

      I think references to terrorism and Remainer preferences are two red herrings to some degree. This is a discussion between the UK government on the one side and the Irish Government and the EU on the other about how the British propose to keep to their GFA commitments.

    3. Simon, (I'm the NI Anon you replied to), the symbolism is a disadvantage yes, but it's nowhere near as serious as ppl seem to think, there is no terrorism threat and Sinn Féin will rant and rave for a while but then have to accept it, as they have done with benefit cuts. A sea border has symmetrical symbolism for unionists, so it cancels out. Except, what we have left over is the asymmetrical economic harm.

      No, the odds of No Deal are not tiny! Article 50 will take effect automatically, and that is No Deal, regardless of what Parliament does. This is what Irish and Remainer brinkmanship is risking. Automatic hard border, automatic maximum economic damage to the UK.

    4. William C, the UK Supreme Court already ruled the GFA does not require the UK to be an EU member, only to have the cross-border bodies set up by the GFA. The bodies have the power to implement EU law within their field. Obviously a duty for "maintenance of existing policies" from those bodies doesn't exist either.

      Not only is terrorism a red herring, so is the GFA. The Republic's interest in this is to keep frictionless trade between GB and RoI since GB is such an important export market. The best way for them to get this is to keep the EU and UK in some kind of customs union, because much of their trade with rEU is via GB.

      I would be grateful for a link to the British Academy paper.

    5. The UK and Republic entered the EEC simultaneously, the end of tariffs and the phytosanitary regime has nothing to do with the GFA and everything to do with the single market and customs union. Those things are not a GFA commitment, the only commitment was to have cross-border bodies.

      The cross-border bodies on any topic get almost no media coverage or public interest in NI. The food safety one runs a few TV ads. No one cares. Customs checks would be controversial, but they're irrelevant to the terms of the GFA. Cross-border cooperation under the GFA will continue regardless, no politician says otherwise.

  5. Simon I hope you will read this one from the Irish Times in last week which is similar to my own position.

    Since the land border is unrelated to the GFA, but the Republic wants to protect both north-south and GB-ROI trade from restrictions, they seem to want to bounce us into a UK-EU cutoms union after Brexit, as Varadkar keeps calling for. However, this has created a "customs union or bust" problem. The downside is the risk of hard Brexit.

  6. @Anonymous

    I am afraid I did not bookmark it so am not sure. It will have been one of their Brexit Briefings - perhaps that by Prof Anthony. In any event, I see the EU 27 are using much the same interpretation in their draft withdrawal agreement made available yesterday which of course matters a great deal more than anything I say or write.


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