Thursday 7 December 2017

Part of the Union?

Not the Strawbs song (sorry) but the Union of Great Britain and Northern Ireland. And the implications of that Union being in or out of the EU customs union.

I'm grateful to the eurointelligence website for a link to an article in the Irish Times by Kevin O'Rourke which goes into the background of the British/Irish customs union of 1923, the Anglo-Irish free trade area of 1965, the implications of the EU customs union and single market together with a discussion of "alignment" or "regulatory convergence" and what these concepts mean in terms of the EU and UK obligations to the WTO. The eurointelligence item* is a summary of the article for those who just want the headlines.

The story starts with the Irish Free State leaving the UK customs union in 1923. Customs posts immediately appeared. They remained despite the signing of the Anglo-Irish Free Trade Area Agreement in 1965. The UK abolished most tariffs on Irish exports, while Ireland started reducing tariffs on UK imports. But while Ireland had agreed to that it hadn't agreed to reduce its tariffs on imports from elsewhere. Free trade areas necessarily involve border checks to ensure that goods from third countries are not given the preferential treatment enjoyed by the countries that are party to the agreement.

In 1973 Britain and Ireland joined the EEC and its customs union. Customs unions don't just abolish tariffs between member states: they surround those states with a common external tariff. By adopting a common trade policy there is no need to check where products entering a member country (say Ireland) from another member country (say Britain) originated from. As long as it entered the customs union legally it will have paid the same tariffs as if it had been imported directly.

So there was no need for customs controls at the border. But controls persisted at the Irish land border. EEC members retained the right to set a variety of regulations on what goods could legally be bought and sold in their countries, so there was still a need to check whether importers were respecting these rules. In 1992 the single market (for which the EU can substantially thank Mrs Thatcher) ensured that what could legally be sold in one country in the bloc could be sold in all of them. So, from 1 January 1993 trade-related border checks between Ireland and Northern Ireland ceased, as they did across the EU. Of course, at the time border controls were retained at the Irish land border for other reasons.

But the point is that getting rid of border controls depended on having both the customs union and the single market. So Norway is a member of the single market but not the customs union, hence there are border controls between it and Sweden. So the logic is that, unless both Northern Ireland and the Republic retain equivalent regulations (the purpose of the single market) the result would be a need for border controls.

According to the Irish Times, the "deal" that Theresa May had to pull out of stated that "in the absence of agreed solutions, the UK will maintain full alignment with the internal market, customs union and protection of the Good Friday agreement". If true I'd say it's a good job we pulled out of that as there would be no incentive for the EU side to agree to anything else: they'd have us hooked for good.

The Irish Times also said that the suggestions that regulatory alignment would only be required in some sectors doesn't work. They say all traded goods would have to be covered to prevent a hard border. Moreover, they say that if the UK were to strike such sectoral deals with the EU, both  the UK and the EU would be in breach of their obligations to other WTO members not to discriminate against their exports, an obligation that can only be waived in the context of free trade agreements covering "substantially all" trade. Oops. Surprising that no-one else has realised that, or that the WTO haven't pointed it out. But it does sound logical, I must say.

So Mr O'Rourke of the Irish Times concludes the Brits have moved a lot and so are desperate for a deal (tell us something we don't know). He also predicts that the EU will become even more reluctant to consider bespoke negotiations and more determined to offer only off the shelf arrangements. Hence the talk in some circles of arrangements like "Canada dry" (in other words just like Canada's deal, I suppose). Eurointelligence agrees, saying it's Canada or EEA, not bespoke. O'Rourke says "it's beginning to look a lot like single market and customs union. Here's hoping".

For reasons I have outlined at length before I'm hoping this will not come to pass as I think it would be hopeless for the UK. And I don't believe it needs to come to that. But the crunch is coming soon. It doesn't need to come to that because we can point out that the Irish border is not just our problem. Or even our problem at all. It's the Republic's problem. We have promised no hard border. But we can't control what the Republic does. As trade across the border and with the UK is more important to the Republic than to the UK we can just say "we're out, but we aren't instituting border controls. Your call Messers Barnier, Juncker and Varadkar." After all, there would be no need to protect ourselves from goods coming in from outside the EU, as we can offer lower tariffs than the EU customs union, so there would be no point in bringing those goods in through the EU. We would only need to institute customs controls if the EU put tariffs on our goods and we choose to retaliate. So it would be their fault.

I suspect David Davies has known of these problems all along: it's why he was urging "flexibility and innovation" from months ago. He presumably worked out long ago that the off the shelf arrangements don't work and that there isn't an answer to some of these issues without new ideas. And it's why we must get the EU side engaged in fresh thinking and understanding that off the shelf doesn't work for them either. By planting the problem in their laps. In that old management jargon canard, we need to get them to "own the problem".

So, time to call their bluff. Have you got it in you May, Davies, Johnson, Gove and company? I wonder.

Oh, but if we could turn back time I still would have voted Remain, because I always thought the separation would all be rather difficult, leading to short to medium term economic impacts and distracting the government of the day from doing just about anything else. And I'll still vote leave if we were to be asked again. As I said on 20 October, for Ozzy's "medical reasons".

PS interestingly the Eurointelligence article agrees with the point David Davies made when he told the Parliamentary Select Committee that economic models can't cope with paradigm shifts so there would be no point in completing or publishing Brexit impact assessments. They say "the impact of Brexit will depend on factors that are themselves uncertain - like the nature of the final agreement and, most importantly the future economic policies of the UK". An eloquent lady from the Institute of Economic Affairs made similar points on Question Time just now, saying that all this was just political point scoring and it was more important to focus on negotiating a good deal, rather than making spuriously accurate predictions for futures that probably wouldn't come about. And we can negotiate that deal best, right now, by making the other side engage by making it clear it's all at least as much their problem as ours and it's time for them to start to scratch their heads.

*Eurointelligence, What the (failed) agreement on the Northern Irish border tells us, 7 December 2017. http://www.eurointelligence.com/public/?t=1&cn=ZmxleGlibGVfcmVjc18y&refsrc=email&iid=7943295d9c424ca3ab3194936871c81a&uid=247826759&nid=244+272699400

**Irish Times, 6 December 2017. Kevin O'Rourke, Britain wakes up to the reality of free trade. https://www.irishtimes.com/opinion/kevin-o-rourke-britain-wakes-up-to-the-reality-of-free-trade-1.3316849#.Wif3mprUvvk.twitter


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