Saturday , May 25 2024

Backstop revisited

The new Prime Minister has taken the stance that negotiations for withdrawing from the EU can not start until the EU removes the back stop. The main players in the EU insist that the Withdrawal Agreement (WA) can not be re-opened, therefore the backstop can not be withdrawn. What does it all mean?

In context, the mechanism for leaving the EU was summarised in Article 50 of the Lisbon Treaty. A two year period was allowed, to negotiate the terms of leaving the EU, since extended. The interim result has been the Withdrawal Agreement (WA).

The future long term relationship was to be agreed subsequent to leaving the EU, transitional arrangements being provided for in the WA. The intent for future arrangements has been summarised in what has become known as the Political Declaration.

Crucially, the WA if ratified, becomes an international treaty, therefore is legally binding. The Political Declaration does not carry the same force.

It is now a matter of history that the WA was agreed in November 2018, originally due to come into force on 29th March this year. Despite three attempts to gain UK parliamentary approval, the WA has been rejected, the most cited reason being the backstop.

The WA document summarises the details of the backstop, firstly in Article 182 on page 295 of the 584 page document, then in the separate Protocol on Ireland/Northern Ireland from page 301 to 329, comprised of a further 21 Articles, followed by 10 annexes detailed from page 302 to 474 but let’s keep it simple.

The objective is to agree arrangements to avoid the construction of a “hard border” between both nations on the island of Ireland. Should that not happen, the UK would remain in a “single customs territory” with the EU, Northern Ireland maintaining “full alignment” with the EU Single Market.

As in any agreement, there are many perspectives. The essence of the backstop, at least ostensibly, is to recognise the Good Friday Agreement which officially brought an end to the Troubles.

The EU perspective, in public, is that to “ensure the integrity of the Single Market”. UK parliamentarians who have rejected the WA argue that this creates an internal UK border in the Irish Sea. Furthermore, since there is no firm date to conclude arrangements, that the backstop constitutes a trap. Neither is there a unilateral exit mechanism from the backstop.

A rarely viewed perspective is that of the inhabitants of the island of Ireland. The Good Friday Agreement provides a number of arrangements for cooperation between British and Irish governments. Crucially, anyone born in Northern Ireland can choose to be British citizens, Irish citizens or both.

It goes without saying that they have the right to live and work on either side of the border, or indeed both. As nationals of both, they have the right to free movement across the island. Indeed, some homes or farms might even straddle the border.

In practical terms, we can take an example in the car market. If choosing to buy a British registered car, one choice might be a new Vauxhall Astra on which would be paid for in £ Sterling at a VAT rate of 20%. If choosing to buy a republic registered vehicle, the choice would be an Opel Astra, paid for in Euros attracting a VAT rate of 23%.

The Vauxhall speedometer shows miles per hour, the Opel kilometres per hour. The Vauxhall odometer shows miles, the Opel odometer shows kilometres. Otherwise, both are built to the same international standards under the umbrella of the World Forum for Harmonization of Vehicle Regulations, formally subscribed to by 54 countries.

Supermarket food is typically labelled as to country of origin, whether that is UK, Ireland, EU or more than one country, whether bought in Belfast or Dublin in Sterling or Euros.

If working in both countries, UK taxes are paid on one side of the border, in Sterling, Republic of Ireland taxes are paid on the other side. Record keeping for purchases and sales is a matter of regulation in either country.

Clearly, two separate customs and taxation regimes are in place. If the EU and UK were to agree a Free Trade Agreement (FTA), there is no reason that anything should change.

What about alternative scenarios, specifically the “no deal” or trading under WTO rules?

It may be helpful to choose a different example, in this case Irish whiskey. Bushmills is made in Antrim in the North, Jamesons in Cork in the Republic. The EU would have to impose tariffs on Bushmills, the UK may choose to maintain a tariff schedule so that Jamesons have to pay a tariff on exports to the Republic.

In the interest of adding perspective, out of sales of £31.6 million, £25.6 million was exported to outside the EU.

As with international trade around the world, as goods crossing a land or sea border will ultimately arrive at a destination. Lorry drivers do not carry cash to pay a tariff when that destination is reached, just as cargo ship captains do not, nor is there a person to pay when a container is disembarked.

Electronic payments are triggered from distribution centres or head offices, miles or even oceans away from where the tariff is paid. Anyone who has bought golf tees from China will know that goods can be tracked from point of despatch to point of arrival, via port, customs and courier.

Policing a trade border might be better carried out at the relevant distribution centres. Consider that the internal Irish border measures 310 miles on one side and 499 kilometres on the other with 268 crossing points.

To add perspective, based on latest available data, 1.6% of exports from the Republic go to Northern Ireland, 13.8% to the rest of the UK, largely by air or sea. An economic case to build hard border installations, combined with staffing costs, would seem hard to justify.

The obvious conclusion is that the creation of a hard border would be a political move, there being no desire from either the Irish or UK governments. That leaves the EU. There seems little to justify charging those with dual citizenship tariffs on personal consumption. Smuggling can also take place in coastal waters, lakes and fields.

So we return to the “integrity of the Single Market”. Goods can be policed in other ways. As for movement of people, both the UK and Ireland are currently out the Schengen free travel area. Intelligence on those from outside is shared with reciprocal recognition of visas.

Common travel arrangements between the UK and Republic of Ireland have existed in some form or another since 1923, no fewer than 50 years before both joined the EU. To change that would demonstrate that the EU does not respect the individual nation status of its members.

So who would suffer most from “no deal”?

The obvious answer is the Republic of Ireland. If agriculture were to be subject to reciprocal tariffs, as an example, 80% of Irish Cheddar output goes to the UK. The less obvious answer is that the EU have subsidised the diversion of trade corridors from Ireland to Zeebrugge, Antwerp and Rotterdam, obviously away from the UK but also French ports.

This brings us back to the impasse. The EU seems to insist on a WA that has failed three times and will inevitably do so again and again and again if asked. Any solution means moving away from a focus on process and to the end result.

The people of Ireland can take advantage of dual nationality, British and Irish, or EU. Inevitably, employment in the Republic will decline, without other EU support. A lack of compromise on the issue further jeopardises the EU trade surplus with the UK if the latter strikes FTAs across the world, with further job losses on the continent.

A simple way ahead is to sidestep the bureaucracy for a moment, commit to the end result of an FTA and invoke GATT Article XXIV, allowing current free trade to continue with the most lucrative non EU market for many EU states. That depends on looking after people, not politics.

This post was originally published by the author on his personal blog:

About Rex N

Rex is a freelance writer in medical affairs, economics and sport. A former teacher and examiner of Economics, his interest in European Union affairs took root when discovering the depths of the Maastricht Treaty. He is a committed democrat having campaigned for a popular vote to decide on further integration measures, based on fact rather than spin.

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One comment

  1. The border was a hard border only 25 yrs ago. There are few split properties.

    The EU Customs code allows Ports of Entry to be away from borders, like the red channel at Customs extending from the open border to Belfast, Dublin or a laptop. This allows the self assessment of customs dues (VAT is already subject to self assessment).