Belfast Telegraph

Economy Watch: Rows over a Brexit backstop hampering real talks progress

 

By Conor Lambe, Danske Bank chief economist

At the end of this week the EU's political leaders will gather in Brussels for the next meeting of the European Council. During these summits, the leaders of the EU27 countries assess what progress has been made on Brexit since they last met.

Some months ago, there were relatively high hopes that a backstop solution to avoid a hard border in Northern Ireland would be signed off at this meeting. But, unfortunately, that now appears almost impossible.

Generally speaking, avoiding a hard border in Northern Ireland will require a number of things, including an alignment of customs practices, VAT rules and product standards.

The UK government believes that finding a way to avoid a hard border can be achieved during negotiations on a new, long-term, relationship between the UK and the EU.

However, both sides have agreed to include a backstop in the Brexit Withdrawal Agreement so that if the issue isn't resolved during the future trade talks, mechanisms will come into force that will avoid a hard border on this island.

Both the EU and the UK have put forward suggestions for how this backstop should work, but each side has rejected the ideas of the other.

In March, the EU proposed that the backstop should see Northern Ireland effectively remaining within the EU's single market for goods, customs union and VAT area.

This would achieve the desired effect of negating the need for border infrastructure on the island of Ireland. But it would almost certainly mean that a border would need to be created down the Irish Sea. This is unacceptable to some politicians in Northern Ireland and to the UK government.

Earlier this month, the UK government published an alternative backstop proposal which would see the whole of the UK entering into a temporary customs arrangement with the EU.

The government's paper noted that an agreement on regulatory standards would also be needed to avoid a hard border, but no proposal was included in the document.

The government said this customs arrangement should be time-limited, that it was not the government's preferred option and it would not be expected to run past the end of 2021, by which time a new trading relationship should be in place.

However, the EU rejected this proposal on the basis that a number of key questions were unanswered, regulatory controls were not discussed and that it contained a time limit.

It's clear that there is frustration across governments, businesses and individuals at the lack of progress on avoiding a hard border.

But why is it proving so tough to reach agreement on this issue? The answer, in my opinion, involves considering both the potential long-term trade relationship between the UK and the EU, and the backstop.

With regards to avoiding a hard border as part of the new relationship with the EU, the problem arises when one considers the complexities of international trade alongside the UK government's red lines.

Cross-border trade is a technical and complicated beast. Issues such as tariffs, rules of origin, product standards, VAT and excise rules, food and animal health standards and transport regulations all serve to make the border problem a technically difficult one to solve.

That's why remaining within the structures the EU has already created to deal with these issues is the best, and perhaps the only way, to keep the Northern Ireland border invisible.

The difficulty is the government's red lines which require the UK to be outside the jurisdiction of the European Court of Justice, to have control over immigration from the EU and to no longer send substantial sums of money to Brussels, some or all of which may be breached if the UK opts to remain in some EU structures.

Given this apparent incompatibility, there is no clear end point in sight with regards to how the UK and the EU will trade and interact in the future, and so additional significance is being attached to the backstop.

Despite it now being more than two years since the referendum, the UK has yet to set out any meaningful, realistic and detailed plans for how it sees trade and border arrangements with the EU operating in the longer-term.

While technology has been mentioned, with regards to wider EU trade and Northern Ireland specifically, I'm yet to see any convincing details on how a technological solution could work in practice.

Can technology help to manage borders? Yes. Can it remove the need for all border checks? No.

Without even a preliminary idea of what the landing point might be, it is only prudent to find a satisfactory backstop given there is a very real possibility that it may end up being enacted, at least on a temporary basis. That being the case, neither side is prepared to give much ground at this stage.

It's also worth mentioning that special arrangements in Northern Ireland could become a factor during the wider trade negotiations.

Despite the December agreement saying that commitments with regards to Northern Ireland will not pre-determine the wider UK-EU relationship, the EU will be weary of bending too much on the backstop. That's why, for example, the EU negotiators are sticking to the view that the backstop can only be for Northern Ireland and not the UK as a whole.

After this week, the next European Council will take place in October. Clearly, time is running out and so the UK government must now accept that it's impossible to please everybody all of the time.

A hard Brexit where the UK places too much distance between itself and Europe would not be good for anyone and it would make keeping the border in Northern Ireland invisible an extremely difficult task.

The government needs to realise this and take the tough decisions that are needed to minimise the damage that Brexit will do to the UK and Northern Ireland economies.

A clear indication that the UK will pursue a softer form of Brexit, coupled with an understanding of the responsibilities and obligations that entails, may make it easier to engage meaningfully with the EU on the backstop and find a solution that everyone can live with.

Belfast Telegraph

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