Summary
The Irish border and the framework for future trade and customs arrangements remain the two main obstacles to a negotiated Brexit. For the EU the UK’s departure from the single market and customs union will inevitable mean new controls on imports from the UK. While on the island of Ireland the EU wants necessary checks to be carried out away from the border, the very notion of such checks falls short of PM May’s desire for continued ‘frictionless trade’. Meanwhile the DUP opposes any concessions which treats Northern Ireland differently from the rest of the UK and is willing to block the UK annual budget on this issue. The EU for its part will not accept UK access to the single market if UK tariffs and regulations vary from those of the EU since this would give UK companies a competitive advantage in the EU. At the 17th October EU Summit Prime Minister May offered ‘nothing new’ on the Irish border issue, with EU leaders deeming progress insufficient to warrant the convening of a special EU summit in November. Negotiations are now likely to drag on into December and possibly into 2019. EU officials however continue to be believe an agreement can be reached. Against this background ACP countries may need to step up preparations for a ‘no-deal’ Brexit. This should include: fast tacking preparations for the conclusion of ‘UK-only’ trade deals based on the existing EU EPAs; opening discussions with the EC on the future of EU bilaterally negotiated TRQs for bananas and sugar and the scope for minimising disruptions of ACP triangular supply chains under a ‘no-deal’ scenario.
Setting the Current Unresolved Issues in Context
As the Guardian 10th October summary of the state of play in the Brexit negotiations set out how there are now essentially ‘two primary points of contention…the Irish border and the framework for future trade and customs arrangements‘, with these two issues being closely connected (1).
The state of play in both these areas was neatly summarized in a speech by Michel Barnier to the closing session of the of Eurochambre’s European Parliament of Enterprises 2018. He emphasized the importance of the maintenance of the integrity of the EU single market to EU businesses describing it as an ‘ecosystem of standards, certifications, rights, regulations, supervision and jurisdiction that we have constructed together’. This it was held provided the context to the negotiations with the UK (2).
The Withdrawal Agreement and the Irish Border Issue
On the issue of the Irish border as a result of the UK’s decision to leave the customs union and the single market Chief Negotiator Barnier is clear ‘there must be checks on goods travelling between the EU and the UK – checks that do not exist today’. While the EU proposes to carry out these checks in the least intrusive way possible’, ‘customs and VAT checks and compliance checks’ will all be necessary (2).
In regard to customs and VAT checks the EU proposes to use ‘the existing customs transit procedures to avoid doing checks at a physical border point’. It is argued ‘companies in the rest of the UK would fill in their customs declarations online and in advance when shipping goods to Northern Ireland’. This would then give rise to a situation where the only ‘visible systematic checks between Northern Ireland and the rest of the UK would involve scanning the bar codes of the lorries or containers’. This action could be taken on ferries or at transit ports. According to Chief Negotiator Barnier ‘these arrangements already exist within EU Member States… for example between mainland Spain and the Canary Islands’ (2).
In terms of regulatory checks on industrial goods this it is held ‘could be carried out by market surveillance authorities’, with there being no need for this to happen at the border between Northern Ireland and the Republic of Ireland.
The major problem area in terms of regulatory checks is for ‘health and phytosanitary checks for live animals and products of animal origin’, with EU rules being clear ‘such checks must happen at the border because of food safety and animal health reasons’. To a certain extent how ‘such checks already exist in the ports of Larne and Belfast’. However in future this will need to cover 100% rather than only 10% of live animals and animal derived products as is presently the case. This will require a significant scaling up of the checks which take place but is not seen as any great change in principle. For the EU it is imperative that ‘in the future the island of Ireland will and must remain a single epidemiologic area’ (2).
While both the EU and UK have ruled out a ‘physical border on the island of Ireland’ goods will still be arriving into the EU single market from Northern Ireland. As a consequence there will need to be ‘administrative procedures that do not exist today for goods travelling to Northern Ireland from the rest of the UK’. While the EU is committed to making these procedures ‘as easy as possible and not too burdensome’, new arrangements of some sort simply cannot be avoided since goods from the UK will be entering the EU single market in a context where the UK no longer wishes to be a part of that single market (2).
Chief Negotiator Barnier sees the EU’s proposed arrangements for resolving the Irish border issue as carrying distinct advantages Northern Ireland since it will enjoy ‘continued access to the Single Market for goods and continued benefits from the EU free trade agreements’ (2).
Tis being noted Chief Negotiator Barnier has highlighted how the EU’s proposals on the Irish border were ‘just a safety net, a backstop’, since the future trade relationship framework could potentially address many of the challenges faced, mitigating the need for checks. For example this could take the form of a UK-EU veterinary agreement which would mean far less frequent inspections of live animals being necessary. Or if a customs union between the UK and the EU were agreed (à la arrangements with Turkey) this would eliminate the need for customs checks.
The DUP and ‘Hard Brexiteers’ Stumbling Block
The UK press described Chief Negotiator Barnier outline of the basis on which a ‘hard’ border could be avoided in Ireland as ‘contentious’, since given the current UK government position this would involve Northern Ireland remaining in the EU customs union while the rest of the UK was no longer a part of a customs union with the EU (3).
While EC officials acknowledge the EU proposals would involve ‘administrative procedures that do not exist today for goods travelling to the Northern Ireland from rest of the UK’ they are trying to make the distinction between border checks and regulatory checks in an effort to de-dramatize the issue of the Irish border. However it is far from clear how much success these efforts are likely to enjoy (3).
DUP leader Arlene Foster insists ‘there cannot ever be a border down the Irish Sea’, describing this as a ‘blood red’ line for the DUP. This position glosses over the existing regulatory checks which take place between the mainland UK and Northern Ireland for animal disease control purposes. More fundamentally the DUP is concerned that in the long term Northern Ireland would de facto be excluded from any ‘fabulous trade deals’ the UK might conclude (4).
However at heart DUP concerns are not primarily economic. DUP concerns are much more deep-rooted, touching on any moves which could loosen the ties between Northern Ireland and the rest of the United Kingdom. How deeply held these concerns are, was illustrated the day after Chief Negotiator Barnier’s Eurochambre’s speech. A leading DUP figure Sammy Wilson MP, threatened to vote down the governments annual budget (scheduled for the 29th October 2018) if Prime Minister May agreed to any provisions in the UK/EU Withdrawal Agreement which undermined Northern Ireland’s position in the UK (5). The DUP is not alone on this issue, with press reports suggesting that at least 40 members of the hard Brexit European Research Group (ERG) of MPs are also willing to vote against the budget on this issue (6).
In response Prime Minister May’s spokesperson insisted ‘a defeat on the budget would not amount itself to a vote of no confidence under the terms of the fixed term parliament act’, implying this would not trigger a general election and would not be a resignation issue for the Prime Minister. However press analysis suggests any rejection of the government’s budget ‘would amount to a humiliation for Theresa May and put her position in jeopardy’ (6).
Since the EU has made it clear there cannot be a ‘Withdrawal Agreement’ without an all-weather ‘back-stop’ on the Irish border issues, Prime Minister May increasingly finds herself between a rock and hard place, with time rapidly running out, despite further indications from the EU on possible flexibilities on the final deadline for an agreement beyond the indicatively scheduled 13th November ‘emergency’ EU summit meeting. Delays in reaching an EU/UK Withdrawal Agreement would reduce the time available for ratification of the agreement by both the EU and the UK. However this tighter timetable could make it easier for Prime Minister May to push any final EU/UK agreement through the UK parliament.
The Withdrawal Agreement: Beyond the Irish Border Issue
Beyond the Irish border issue Chief Negotiator Barnier also highlighted how the issue of the governance of the Withdrawal Agreement which essentially relates to the role of the ECJ during the transition period and the handling of geographical indicators, still needed to be addressed as part of the Withdrawal Agreement process (with issues related to citizens’ rights, financial commitments and the UK’s obligations during the transition period having been resolved).
Significantly Chief Negotiator Barnier highlighted how the benefits of a transitional period, including allowing businesses time to prepare effectively for the consequences of the UK’s departure from the EU, would only arise if a Withdrawal Agreement was concluded and ratified (2).
The Framework for Future EU/UK Trade and Customs Arrangements
While the EU was in agreement with many of the non-trade aspects of UK proposals for future relations between the EU and the UK in terms of the future economic partnership there remain major areas of divergence, since UK proposals ‘do not correspond to the European Council’s guidelines’. This being noted there is agreement between the EU and the UK that the ‘future relationship is to be based on a free trade area without tariffs or quotas’, with this constituting an important starting point for the conclusion of a final agreement (2).
Chief Negotiator Barnier highlighted a number of major areas of divergence which it is held ‘contradict the foundations’ of the EU single market. The UK’s desire to retain the right to an autonomously determined independent trade policy while still enjoying full access to the EU customs area is seen as problematical. It is held this would allow the UK to apply lower tariffs than the EU level, with this giving rise to ‘a serious risk of distortion of trade flows’ to the detriment of EU enterprises (2).
In addition while the UK has proposed regulatory alignment in some areas this does not cover all areas, with the UK wanting the freedom to diverge where this was in the UK’s interests. According to Chief Negotiator Barnier such ‘a system of single market ‘à la carte’ would be tantamount to providing the United Kingdom and its companies with a major competitive advantage over companies operating in the single market’. He highlighted how ‘in certain economic sectors where the margins are low, minor divergences in regulations can create a significant competitive advantage for the UK if it remains in the single market for goods while diverging for all the rest’ (2).
It is against this background that the EC has proposed ‘an economic partnership founded on an ambitious free trade agreement’, which it is held could be accompanied by customs cooperation, and regulatory cooperation agreements. It is this type of relationship which the EC wants to see enshrined in the joint political declaration to accompany the Withdrawal Agreement (2). The aim of the EU according to Chief Negotiator Barnier is to ‘maximise the chances of an orderly withdrawal and minimise the costs of Brexit’ for EU enterprises.
However he highlights how ‘even in the event of an agreement, there will be adjustments for many … companies as a result of the UK’s decision’ and ‘it can’t be business as usual’. He was clear ‘Brexit has no added value. It is a negotiation with no positive outcome, a lose-lose game’ (2). In this context it was also noted how the process of Brexit also carries implications for the EU’s relationships beyond the UK.
The Response to Chief Negotiator Barnier’s Outline of Future Relations
In response to Chief Negotiator Barnier’s October 10th speech the UK press highlighted how the EU’s approach to maintaining the smooth flow of goods between the EU and the UK and ensuing no hard border on the island of Ireland would require the UK government to give up plans for its own autonomous free trade deals with countries around the world if internal controls on trade within the United Kingdom were to be avoided.
The situation on the UK political scene is so fraught around this issue that following an unannounced meeting between UK Brexit Secretary Dominic Raab and Chief Negotiator Barnier on the Sunday before the 17th October EU Summit it was announced ‘all negotiations between the EU and the UK have now been put on hold’ (7).
At the 17th October EU Summit Prime Minister May offered ‘nothing new’ on the Irish border issue, with EU leaders deeming progress insufficient to warrant the convening of a special EU summit in November. Negotiations on the Withdrawal Agreement are now likely to drag on into December and possibly into 2019. EU officials however continue to be believe an agreement can be reached, while ‘EU27 leaders stand ready to convene a European council, if and when the union negotiator reports that decisive progress has been made’. (8).
| Comment and Analysis The fate of the existing draft ‘Withdrawal Agreement’ is central to the immediate short term prospects of ACP countries trade with both the UK and the EU. The current provisions of article 124.1 of the ‘Withdrawal Agreement’ states ‘the United Kingdom shall be bound by the obligations stemming from the international agreements concluded by the Union’. This means that until 1st January 2021 (the currently scheduled end date for the transition period) the UK would be required to continue to offer ACP countries the same terms and conditions of access to the UK market as are currently enjoyed to the EU market.This would take pressure off ACP EPA signatory government to rush into new ‘UK-only’ trade agreements and would allow time to ensure any stand-alone long term trade agreement with the UK also addresses issues of key concern to ACP exporters. These include:· the future value of existing ACP tariff preferences in the context of the UK’s desire to pursue an autonomous tariff policy distinct from that of the EU (particularly important for ACP banana and sugar exporters);· the future basis for the application of independent UK SPS and food safety controls (an important issue for ACP horticulture exporters given the new EU Plant Health Regulation and one of particular significance to exporters of citrus fruit given the contentious nature of EU citrus black spot controls).It would also reduce the immediate pressures on EU27 banana and sugar markets, where imports from non-ACP countries are regulated through bilaterally agreed tariff rate quotas (TRQs), the future of which is profoundly uncertain. While the EU and UK have agreed to apportion existing WTO agreed TRQs between the EU27 and UK markets (although this is being challenged by governments of the affected exporting countries), it is far from clear what will happen to bilaterally negotiated EU TRQs. It may well be that the EU retains these obligations in full despite the departure of the UK from the EU. This would de facto increase the commercial significance of these TRQs on the EU27 market by around 20% given the recent volumes of bananas and sugar imports under these quotas which went to the UK market. The finalization and approval of the Withdrawal Agreement would defer any such commercial threat until at least 1st January 2021.Finally the conclusion and approval of the Withdrawal Agreement would defer any disruption of the functioning of ACP triangular supply chains which serve UK markets via initial points of landing in a EU27 member state or serve EU27 markets (most noticeably Ireland) via the UK. On this issue of the functioning of triangular supply chains, some of the proposals being advanced by the EC to facilitate trade across the Irish border could be applied to ACP products involved in triangular trade. ACP exporters which enjoy the same terms and conditions of access to the EU and UK markets could potentially fill-in customs declarations on-line, with bar codes on containers being scanned upon landing in the EU prior to forwarding to the UK under special facilitated arrangements in ports of unloading in the UK. This would serve to minimise disruptions of existing triangular supply chains. Once the EU/UK negotiations have been concluded there will be a need to explore what aspects of the arrangements around the Irish border issue could be modified to facilitate the continued smooth movement of ACP exports to the UK along triangular supply chains. However the current impasse in the negotiations which is linked to the fraught political situation in the UK means the prospect of a ‘no-deal’ Brexit cannot be ruled out. This is an outcome which ACP governments now need to start preparing for, with in the first instance this requiring an urgent ‘rolling over’ of existing EU EPAs into ‘UK-only’ reciprocal preferential trade agreements. However it will also require the urgent launch of dialogues with the EU27 on how to address the increased commercial pressures on EU27 markets in the banana and sugar sectors which would arise from a ‘no-deal’ Brexit and how to deal with the potential disruptions of triangular supply chains which would arise under a ‘no-deal’ scenario. For ACP private sector companies which export along triangular supply routes the prospect of a ‘no-deal’ Brexit will intensify the need to find alternative direct export routes to UK markets. Those private sector exporters who can effectively ‘Brexit proof’ their supply chains will potentially gain commercial advantages over those who have taken no such actions. Any continued membership of Northern Ireland of the EU customs union and EU trade agreements potentially carries significance in the poultry meat sector. The poultry sector is a major component of the Northern Ireland economy and constitutes around a ¼ of total UK poultry meat production. According to the DUP MP Ian Paisley, the Moy Park poultry facility is ‘one of Northern Ireland’s largest employers’ employing 11,750 people, with the poultry farms supplying Moy Park accounting for almost a quarter of all poultry farms in the UK. The trade in poultry ‘dark meat’ is of considerable commercial significance to the Northern Irelands poultry industry, with revenues from ‘dark meat’ exports to EU markets and other key global markets being critical to the balance of Northern Ireland poultry exports and the commercial position of the industry (9). Securing access to both the EU market and existing overseas markets served under EU trade agreements is thus important for the Northern Ireland poultry sector, one of the single most important economic sectors in Northern Ireland. Maintaining the status quo for the Northern Ireland poultry industry would reduce any trade diversion effects in the poultry meat sector arising from the Brexit process which might impact on ACP countries. It is this trade in ‘dark meat’ to African ACP countries which has grown so dramatically over the past 10 years. However, as with so many aspects of Brexit it is likely to be the political considerations (linked to Northern Ireland’s position within the United Kingdom) which overshadow such economic consideration in determining the final outcome to the EU/UK Brexit negotiations. |
Sources
(1) Guardian, ‘Where do things stand for Britain as the endgame approaches?’ 10 October 2018
https://www.theguardian.com/politics/2018/oct/10/brexit-where-things-stand-britain-end-game-explainer
(2) EC, ‘Speech by Michel Barnier at the closing session of Eurochambre’s European Parliament of Enterprises 2018’ 10 October 2018
file:///C:/Users/GDC%20Partners/Downloads/SPEECH-18-6089_EN.pdf
(3) Guardian ‘Brexit deal within reach if May agrees on customs union, says Barnier’, 10 October 2018
https://www.theguardian.com/politics/2018/oct/10/brexit-deal-may-must-agree-on-customs-union-says-barnier
(4) BBC, ‘Red lines on the Irish border’, 4 October 2018,
https://www.bbc.com/news/uk-politics-45737229
(5) Guardian, ‘DUP: EU Irish border claim is ‘astonishing confidence trick’, ‘11 October 2018
https://www.theguardian.com/politics/2018/oct/11/dup-eu-irish-border-claim-is-astonishing-confidence-trick
(6) Guardian, ‘Theresa May faces Brexit battle as DUP threatens to sabotage government’, 11 October 2018
https://www.theguardian.com/politics/2018/oct/10/may-brexit-battle-dup-threatens-sabotage-government
(7) Guardian, ‘Theresa May’s domestic vulnerability puts Brexit talks on knife-edge’, 15 October 2018
https://www.theguardian.com/politics/2018/oct/14/brexit-theresa-may-domestic-vulnerability-talks-knife-edge
(8) Guardian, ‘Theresa May signals willingness to extend transition period’, 17 October 2018
https://www.theguardian.com/politics/2018/oct/17/theresa-may-signals-willingness-to-extend-transition-period
(9) Hansard, ‘Leaving the EU: Poultry Producers’, 13 March 2018
https://hansard.parliament.uk/commons/2017-03-13/debates/1703144000002/LeavingTheEUPoultryProducers