Belfast Telegraph

Why there will be no easy solutions to keeping trade alive in post-Brexit Ireland

Economy Watch

By Paul MacFlynn

Whether you voted for or against Brexit, one of the most persistent complaints about the Brexit process has been the absence of detail. There have been slogans and speeches but very little substance to back them up. The series of position papers published by the Department for Exiting the European Union, was meant to change that.

Seven papers have been published covering areas such as personal data, judicial cooperation and a dispute resolution mechanism. For Northern Ireland, two of these papers were of particular importance, the future of the border and the future of customs arrangements.

The timing of the publication of these two documents is important.

The customs paper came first. That is because the UK government does not believe that the border issue can be resolved without first agreeing customs arrangements.

The EU disagrees. They acknowledged publication of the customs paper, but were firmly of the understanding that issues pertaining to the future trading relationship between the UK and the EU are to be discussed in the second phase of negotiations.

On this point, the UK government are correct. Deciding the future border between Northern Ireland and the Republic of Ireland without knowing the customs arrangement would be futile.

However, whilst the UK government can be applauded for recognising the centrality of customs arrangements to reserving an open border, their efforts to find a solution leave a lot to be desired.

The UK wants to leave the EU Customs Union so that it can make trade deals with non-EU countries. This is not possible from inside the EU customs union because all members must apply the same tariff on goods that come from beyond the EU.

The UK and the EU could agree to abolish tariffs on goods traded between them, but that won't be enough to avoid customs controls. For example, if the UK agrees a trade deal with the US, then goods coming into the UK from the US may be subject to a lower tariff than in the EU. If there were no customs controls, one could import the good from the US into the UK and then bring it into the EU, thus avoiding a higher tariff.

This is the central conflict for the Brexit negotiations, how does the UK leave the Customs Union but keep an open border on the island of Ireland? The UK government paper seeks to answer this in two ways.

The first is to outline a series of technological innovations which would make the whole process more streamlined. Whilst there are steps that can be taken to ease the process, this only works for those who would seek to play by the rules. Borders are necessary for those who don't play by the rules.

The Norway-Sweden border has fully electronic customs declarations, but it still has to stop trucks in order to check that what has been declared matches what's inside.

The second option is to agree a new customs arrangement whereby the UK would keep the current customs union arrangement for goods coming into the UK that are intended for sale in the EU. One of the suggestions is that goods arriving into the UK would pay either the UK or EU tariff rate, depending on which was higher. If the goods ended up finally being sold in the territory with the lower tariff rate, they could apply for a refund.

To say that this would present UK companies with logistical difficulties is something of an understatement.

This could involve importers in Great Britain having to send receipts of final transactions to HMRC in order to gain a rebate on a tariff for something imported months previously.

If what is imported is used as an input in another product which is then subsequently exported to the EU, the rebate would technically become subject to rules of origin. This is a recipe for disaster.

This is not the only part of these documents where the policy proposals strain the bounds of credulity.

There is a suggestion in one of the papers that up to 80% of trade between Northern Ireland and the Republic could be 'exempted' because it is carried out by small firms. It would be concerning if this proposal represents the intellectual depth of the UK government's response to Brexit.

The UK government document also states that the UK would seek to keep all of the EU's external trade arrangements during the transition period in order to avoid a cliff-edge situation.

This would entail the UK technically leaving the EU Customs Union but acting as if it were still a member.

This sounds almost farcical but it actually represents the only way in which the UK could leave the Customs Union and keep an open border.

The best hope is that what is proposed as a transition deal stays with us for the foreseeable future.

Belfast Telegraph

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