More on the Article 50 process

Kevin’s article in the Irish Times is excellent. In the post below I make some of the same points and some others.

The farce on Monday highlighted Theresa May’s political weakness. It has also, yet again, revealed that many of the Brexiteers (and also many commentators) simply do not understand what is going on.

Various UK commentators and politicians have called on the EU to compromise. For example the BBC reported that “David Davis has said the EU must be willing to give ground too if further progress in Brexit talks is to be made.” This seems to stem from a belief that the so called phase 1 ‘negotiations’ are conducted in the usual way of political negotiations, where each side gives in a little, and in the end some clever form of words is found whereby each side can claim they got their way. This is simply not the case here.

The Article 50 process is about establishing what the UK is going to do regarding their financial liabilities, citizens rights (here the UK will also want to establish what the EU intends to do), whether a hard border on the island of Ireland will be necessitated by the future actions of the UK and whether the Good Friday Agreement, an internationally binding agreement can be maintained.

It is important to remember that it is the UK that wants to deviate from the status quo, so it is up to the UK to spell out in detail what it wants to change. The EU will determine if this is satisfactory for them to move to phase 2 where the future relationship between the UK and the EU will be negotiated.

Determining whether the UK proposals on these Article 50 issues are satisfactory is a technical matter not a political one. Either regulations in the UK (or Northern Ireland) will differ or they won’t, either the UK will end up agreeing to tariffs with third countries that deviate from those in the Customs Union or they don’t. If the UK wants to move in a direction where an open border would undermine the integrity of the EU Single Market and Customs Union, then border controls will be necessary.

Whatever is agreed will need to stand up to legal challenge, e.g. when the first lorry load of chlorinated chicken or beef that entered the UK at lower tariffs than are due in the EU, rolls across the border – so some clever form of words won’t do. There can be no compromise or a la carte approach here.

What can be offered to ease some of the unfounded DUP fears, are assurances regarding the status of Northern Ireland as a part of the UK (unless of course, as is provided for in the Good Friday Agreement, a majority decide to change that).

The plea for some give from the EU side reveals another misconception among Brexiteers and that is that the UK is an equal partner in this. Instead it is by a long way the junior partner in the process.

The latest World Bank World Development Indicators shows that the UK is the 6th largest economy in the world. It slipped a place, at least in part due to Brexit, making France the 5th largest economy, but importantly the EU excluding the UK is almost six times larger than the UK in economic terms. The potential losses of a failure to agree a trade deal are also considerably more significant for the UK than the EU – over four and a half times those suffered by the EU (based on Lawless and Morgenroth, 2016, I also have estimates that put this seven times). Of course Ireland is something of an outlier but even here the impact on total trade is less than half that potentially suffered by the UK.

This coupled with the fact that the EU is the UKs largest trading partner, means that walking away from the process is a strategy that would maximise the self-harm to the UK economy, as this would mean that the UK will not get a trade deal with the EU. Of course a trade deal with the EU would be the quickest one to put in place and of course it would also cover the largest share of UK trade so it is also the most important one.

Is the UK edging towards deciding it wants a UK-EU customs union & single market?

I have a piece in the Irish Times this morning, available here.

Brexit and the Irish border

As we get closer to the important EU Council meeting the amount of coverage on Brexit has increased significantly. Of course more noise does not necessarily equate to more content – there is a lot of uninformed opinion around.

There are some fundamental issues that need to be understood.

While we are talking about the border between Ireland and Northern Ireland, we are also talking about a future external border of the EU. That means the issue of the Irish border is very important to the EU and our EU partners and all have the same objectives – to avoid a hard border. Thus, the negative commentary directed at Ireland by Brexiteers and the Brexiteer press, apart from being mostly factually wrong, is badly misdirected.

Of course the impact of a hard border would be felt more by Ireland than in any other Member State (you can find analysis on this here), but the nature of the border is a crucial determinant of the integrity of EU Customs Union and Single Market, and is thus of crucial importance to the EU. This latter point appears not be understood by everyone. To illustrate the significance of the EU external border, and the Irish border will be that post Brexit, it is useful to consider an example:

The UK wants to sign trade deals with other countries, which presumably will give other countries access to the UK market on different terms than are available in the EU. This is why the UK wants to leave the Customs Union. If the UK allows beef from a third country into the UK at a lower tariff than the EU would charge and/or subject to less regulation than applies in the EU (as part of a trade deal), then this beef could enter the EU if there is no hard border. Of course with lower tariffs in the UK than in the EU exporters would move their product through the UK (Northern Ireland) into the EU.

This would mean that the UK would effectively determine EU external trade policy. The EU will not allow such a situation to arise – and neither should Ireland as such a situation is likely to have significant negative impact on Irish businesses and consumers (remember the regulations are there to protect consumers).

This means that the apparent offer by the UK, that there will be no regulatory divergence at least for Northern Ireland, will not avoid the need for a hard border as the issue of different tariffs is not covered by that offer. A hard border will only be avoided if the UK, or at least Northern Ireland, stay in the Customs Union and there is no regulatory divergence – there is no way around this! An offer to avoid regulatory divergence is not enough to move to the next phase of the negotiations.

Even a special status for Northern Ireland, where the border runs through the Irish Sea and where UK authorities ensure that third country products do not end up in the EU market, is problematic as it would be difficult for the EU to enforce the proper policing of that border, given that it is located outside the EU in a sovereign country.

Another important point relates to opinions about the use of existing or yet to be invented technological solution to police the border. A lot of the legitimate routine trade is already processed electronically, and could easily continue to be processed that way. But that does not remove the need to check that what is being transported is what had been declared, and more importantly border checkpoints are there to stop illegal activity. It is hardly credible that criminals are going to be declaring their trade via an online system!? Importantly, once the UK is outside the Customs Union illegal activity will not only encompass the usual things like drug smuggling but will also encompass shipments where the tariffs and duties due in the EU have not been paid or where the goods do not meet EU regulatory requirements. In the event that the UK is outside the Customs Union (tariffs) and Single Market (regulations), Ireland is obliged to police this border adequately, which means physical checks.

This brings me to my next point. It would be very easy for the UK to guarantee that it will not introduce physical border checks, but given the arguments I put forward above, what the UK would needs to guarantee is that the EU will not need to put in physical border check in response to changes introduced by the UK in the wake of Brexit, namely deviations from regulations, tariffs and tariff-quotas.

Finally, there is talk about some form of words being found that would allow negotiations to progress to the next phase. Again given the facts, what is needed are very concrete undertakings that would be legally binding and would avoid the need for a hard border i.e. that the UK will not leave the Customs Union and there will be no regulatory divergence. Without such undertakings the negations should not proceed to phase two. Importantly, this is the point where Ireland holds all the cards, and it would be great mistake to settle for anything less than such an undertaking.

Blogging, journalism, and other writing on Brexit

I thought I would bring together all my Brexit-related writings in one place, so that I can find them more easily: I will be updating the page regularly.

(If any other academics or journalists want to put together similar web pages I’ll happily link to them below!)

Journées de l’Economie

I was at the Journées de l’économie in Lyon last week: this is a popular economics festival at which literally thousands of members of the public show up to listen to people like yours truly.

I was on a Brexit panel on the Wednesday, and tried to explain to a French audience how serious the issue is for us (I start about 30 minutes in, but the whole thing is worth listening to; I thought Jon Henley in particular, who preceded me, was really excellent and made all the points you would have wanted to make yourself); there was a more academic session on a very French topic (“Mutations du capitalisme“) on the Thursday,  at which Daniel Cohen made a couple of points that I thought were very thought-provoking (and also very French).