Trade Knowledge Exchange > Commentary > THE IRISH BORDER PROBLEM IN BREXIT: THE SEARCH FOR ALTERNATIVE SOLUTIONS

THE IRISH BORDER PROBLEM IN BREXIT: THE SEARCH FOR ALTERNATIVE SOLUTIONS

The resolution of the Irish border question has been presented as one of the trickiest issues to resolve before the UK and the EU can reach agreement on the Withdrawal Agreement between the two. This was underscored at the recent informal EU Council summit at Salzburg, at which the UK described the European Commission’s approach as totally unacceptable, and with the EU saying that the UK’s White Paper proposals on customs and regulation, which in part aim to resolve the border issue, were unworkable. The UK’s proposals have also drawn the ire of those within the Conservative Party who see these as covert ways of keeping the UK within the single market and preventing it from running an autonomous trade policy. In this article, we consider the background to the discussions and an alternative proposal put forward by the European Research Group.

Progress so far and the “Chequers plan”

In December 2017 negotiators for the United Kingdom and the European Union reported agreement in principle on two of the three essential issues that have to be solved in the initial Withdrawal Agreement, namely citizens’ rights and a methodology to determine the UK’s financial obligations on Brexit.  On the third key element, how to maintain an open border between Northern Ireland and the Irish Republic, the report could still offer no more than general aspirations.  Ten months on, and barely more than six months before the legal withdrawal date of 29 March 2019, the Irish problem looks as intractable as ever.[1]

On 12 July 2018 and following intensive Cabinet discussions at the Prime Minister’s country retreat, the UK Government published proposals (known as the Chequers White Paper) for the long-term UK/EU relationship on trade in goods.[2]  These centered on proposals for a UK/EU Free Trade Area (FTA) removing tariffs and frontier procedures for goods, plus a “common rulebook” of standards and regulatory requirements.  This would solve the Irish border problem. For goods in transit through the UK to the EU a “facilitated customs arrangement” would be negotiated under which UK Customs would charge EU tariff rates at the point of import, pay the money over to the EU and avoid frontier procedures on onward shipment to the EU.  Services trade would not be covered.

Brexit supporters condemn the proposal because it would require the UK to continue to observe EU regulations in important economic areas, apparently without time limit.  The White Paper was followed by several high-profile ministerial resignations.  Opponents of Brexit say that the proposal demonstrates the extreme technical difficulty of unscrambling half a century of European legal, industrial and commercial integration, and the folly of the UK’s giving up a seat at the EU negotiating table while still having to accept EU rules. Key elements of the White Paper have been rejected by EU negotiators, including the UK proposal for a facilitated customs arrangement.

Brexiters’ counter-proposals

Even so, the Chequers White Paper remains the only extant proposal for the long-term UK/EU relationship and, in the Government’s words, the only alternative to No Deal.[3]  On 12 September 2018 the European Research Group, which comprises the strongest Brexit supporters within the Conservative Party, published a document setting out counter-proposals.  It argues that procedural aspects of the Irish border problem could be solved by building pragmatically on procedures which are already in operation and by increased use of advanced technology for submission of returns and declarations.[4]  On this basis, continued subjection of Northern Ireland to EU jurisdiction could be avoided (the ERG does not argue the case in detail as regards wider UK/EU trade).

Existing and future border issues

Everyone agrees that a post-Brexit “hard” border on the island of Ireland[5] must be avoided.  Looking for ways of achieving this, the ERG notes that a “very real” border already exists between the two countries in respect of tax, VAT, currency, excise duties and security, but that “it causes no discernible disruption”.  This, however, misses the point that tax, VAT rates, and excise duties are matters that remain within the jurisdiction of individual member states (although the Union may step in where a member state adopts a policy that is blatantly discriminatory against other members). Similarly, security cooperation is a bilateral matter for the authorities of the UK and the Irish Republic, while contacts between the Northern Ireland and Irish authorities in regard to their different currencies are no different from contacts between the UK and the Euro-Zone members more widely.  None of these raises issues of EU legal principle at the border.  The current Irish border problem relates to quite different issues, namely the physical movement, checking and certification of goods and livestock under the EU’s rules for internal and external trade.

The ERG quotes a comment to the European Parliament by the former head of the World Customs Organisation that the Irish border issue provides “an opportunity to develop a friction-free border building on international standards and best practices, technology, and insights from other jurisdictions”. It rejects the suggestion in the December 2017 progress report that as a fail-safe the UK would be prepared to “propose specific solutions to address the unique circumstances of the island of Ireland”, or to “maintain full alignment with those rules of the Internal Market and the Customs Union which….support North-South cooperation, the all-island economy and the protection of the 1998 Agreement” (the so-called Good Friday Agreement).  The ERG considers such concessions unacceptable as they would entail differential treatment – a form of border – between Northern Ireland and the rest of the UK.  It rejects outright the EU’s suggestion in its Draft of a Withdrawal Agreement that, even temporarily, the territory of Northern Ireland “shall be considered to be part of the customs territory of the Union”.

How acute is the “Irish problem”

The ERG draws on Northern Ireland statistics published in March 2018 to minimise the importance of the Northern Ireland/Republic border.  It notes that 65% of Northern Ireland’s sales of goods and services are domestic, with a further 20% to Great Britain.  That leaves just 15% for sales to the rest of the world, including only 5% to the Republic.  In the other direction, only 1.6% of the Republic’s imports and exports are to or from Northern Ireland, while the UK as a whole receives 13.4% of the Republic’s exports and provides almost a quarter of its imports.  The ERG also argues that across the world, and particularly in EU countries, the proportion of import goods subjected to physical inspection is extremely low, varying from 1% in Norway and Japan to 4% in the US and UK.

In the ERG’s view, the real issue is how to safeguard existing levels of trade between the UK and the Republic (in the negotiations regarding the future UK/EU relationship).  The ERG recognises that “It is entirely reasonable for the EU to want to maintain the integrity of its market, including its safety standards and its customs revenues.  The UK has no interest in undermining them”.

Essential procedures and suggested solutions to the intra-Irish border

Having thus talked down the importance of the intra-Ireland border issue, the ERG nevertheless recognises that even in the event of some form of tariff-free agreement between the UK and EU there would still be a need for customs declarations, certificates of origin (to determine eligibility for FTA treatment), and checks on product compliance and plant and animal health (which in the case of intra-Ireland trade would de facto be a significant border).  These would apply in intra-Irish trade.  Taking its cue from statements by the Chief Executive of Her Majesty’s Revenue and Customs and the Head of Irish Revenue that no new infrastructure along the intra-Irish border is needed, the ERG looks for “entirely practical” measures compatible with EU law which would minimise or avoid such controls. Specifically:

  • It accepts that after Brexit trade between the UK and EU, and therefore between Northern Ireland and the Republic, will, in any event, be subject to customs declarations (for tariff classification purposes), product compliance certification and checks on plant and animal safety and food health. If an FTA has been negotiated, there will be no tariffs, but goods will be subject to origin certification in order to determine whether they qualify for FTA treatment.  Currently, even within the EU customs union, exports and imports have to be declared for VAT purposes, and compliance rates are high.  VAT returns will continue to be required after Brexit, and the ERG proposes in effect that customs returns by traders in both parts of Ireland could hitch a ride on VAT returns since essentially the same information is required for both purposes.  The UK could negotiate for continued access to the existing EU VAT Information Exchange system.
  • Under the present Registered Exporter (“REX”) scheme an exporter can state the origin of goods on a sales invoice. This could be formalised as a required procedure.
  • Currently, all goods traded between the UK and the EU have to comply with EU safety, environmental and other standards. When the UK leaves the EU it intends to retain the same product rules and regulations, unless and until UK standards begin to diverge. Any difficulties arising from divergence could be mitigated by data sharing and cooperation between Irish and UK authorities.
  • The identity of standards could constitute “equivalence” for the purposes of compliance assessment under a FTA and, linked with the requirement in the WTO Trade Facilitation Agreement for members to adopt risk-management strategies for customs control, could obviate the need for border procedures and delays.
  • Few large firms trade goods across the Irish border, and for them, the extra reporting proposed should not be burdensome in view of the returns which they already have to make. In any case, most reporting nowadays is online and can be supported by securing Trusted Trader status or in some cases the more demanding Authorised Economic Operator status.
  • Product conformity regulation on both sides could be carried out by licensed inspection companies in the country of sale, who would “support businesses in dealing with rules of origin and customs arrangements” and remove the need for inspections at the point of export or import. Customs classification could be carried out by means of a declaration made at the exporter’s premises, accompanied by a transit declaration and a further declaration filed by the importer on receipt of the goods.

The paper implicitly recognises that the information needed for the various returns and notifications considered may be more than is currently carried, or may be easily carried, by those systems.  The ERG does not, however, consider the extent of negotiation that would or could be required in order for existing systems to be adapted to carry the new and extra information proposed.

The ERG thus argues that administrative difficulties arising from Brexit could be eased by simplification of procedures.  All the relevant notifications and declarations could be made electronically, as in fact most already are.  Very small traders, specifically those operating below current VAT thresholds in the UK and Ireland, could be granted exemptions or, as an alternative, the option of registering for VAT as a means of making electronic declarations of shipments.

It is recognised that differing regimes between the two parts of Ireland could be an incentive to smuggling.  The ERG argues that this risk already exists in the case of, for example, differing tax and excise duty provisions.  It is dealt with by close cooperation between police and customs authorities on the two sides of the border, and this cooperation can be extended to support new procedures for goods trade.

Would this help?

The ERG puts forward practical ideas for using advanced and advancing technology to assist goods trade across the intra-Irish border.  Such methods are already extensively in international use and are encouraged under the terms of the WTO Agreement on Trade Facilitation.  Any increased use must be helpful.

However the proposed use of data prepared and submitted for one purpose (such as VAT returns or invoices) for a different purpose, and probably by a different administrative authority, raises awkward questions about the required coverage, the handling and potentially the confidentiality of such data.  For example, would hitching a ride on existing requirements for VAT returns in Northern Ireland and the Republic satisfy data requirements for customs classification purposes or product compliance? The extent of further data to be incorporated into VAT and other relevant returns for wider customs purposes would have to be negotiated between the UK and EU, and also take account of data privacy laws. Similar issues run through the range of proposals put forward by the ERG.How material are these issues? Prior to the Salzburg summit, Michel Barnier tried to “de-dramatize” the effects of the backstop solution by saying that a number of the administrative processes could  be implemented away from the border (which in the case of the backstop solution would be in the Irish sea). One may legitimately ask, therefore, if that is the case, why the same logic could not be applied if the locus of the border was between Ireland and Northern Ireland, which would in turn contribute to safeguarding the principles of the Good Friday Agreement and meet the UK’s requirements on leaving the single market and leaving the EU’s customs union.

In response, it should be noted that Mr. Barnier also recognised that control related to food, animal and plant health would likely need to take place at the border. This point also raises a further issue: extrapolations from current conditions and practices can be hazardous. Suppose for example that the UK were to sign a deep FTA with a country with significantly different regulatory standards and that was not itself party to a FTA with the EU – such as the United States, as several groups close to the ERG have been calling for. Formalities, including inspections, would need to be significantly increased to stop the leakage of non-preferential or non-compliant goods from Northern Ireland to Ireland.

Underlying this whole debate there remains the fundamental point that any trader in the UK wishing to trade into the EU will have in future, as now, to comply with all relevant EU regulations in force. The ERG proposals offer a beguilingly simple-looking solution to the knotty problems of post-Brexit trade across the Irish border, but these amount to a series of ad hoc and palliative measures in response to problems which the Chequers White Paper, for all its failings and complexity, does attempt to confront realistically. The ERG fails also to take full account of the major issues of principle and constitutional law which concern both the UK and the EU sides in regard to the border question. Even if the UK Government were prepared to adjust the Chequers proposals in the direction of the ERG, there is little sign that the ERG’s palliative approach would be acceptable to the 27 remaining EU member states or the EU administrative authorities. Moreover, the more autonomous the UK’s approach to trade becomes over time – which seems to be a key ambition of the ERG – the less likely it is that ad hoc solutions, based on the current close level of integration between the UK and the EU, will work.

 

[1] See our separate articles on Brexit and the Irish border issue and A backstop solution for the Irish border problem?

[2] See article on The UK Government’s negotiating proposals for goods

[3] See article on What if Brexit leads to No Deal?

[4] The border between Northern Ireland and the Republic of Ireland, post-Brexit: European Research Group, 12 September 2018

[5] This is to be understood in terms of frontier posts, roadblocks and physical inspections of consignments


About the Author

Michael Johnson

Michael
Johnson

Michael Johnson was a senior official of the UK’s former Department of Trade and Industry, where he worked on international commodity policy, UK bilateral commercial relations with developed country markets, and the UK’s input to EU external trade policy. He is in demand as an independent consultant, and has advised governments of more than twenty developing or former Communist countries on trade policy formulation and on trade-related development projects.


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