The Brexit negotiations are not fitting in with business planning timescales.To put it mildly. With less than six months before the UK is due to exit the EU, the negotiations are still in a swirl.
The crunch point in this phase of the talks has clarified itself – what customs and regulatory arrangements would be needed after Brexit to guarantee there would not be a hard border in Ireland. In particular, whether the North and the UK are part of the same customs territory after Brexit – and how they will relate to the EU – are central issues.
This is vital for Irish businesses trading with any part of the UK. Right now they don’t even know what will happen at the end of March, never mind in the long term. My bet, as things stand, is that they will not know for a while yet either. This raises the prospect of a period of rising business and economic uncertainty in the months ahead.
What is needed for the UK to depart in March in an orderly fashion is a deal on the withdrawal agreement. Here the much-discussed Irish Border backstop is the main outstanding issue.
The EU proposal for the backstop involves the North effectively staying in the customs union and single market
UK prime minister Theresa May is reportedly preparing a compromise proposal to try to break the deadlock, though it remains to be seen – given Conservative infighting – what is finally tabled. As well as problems in her own party – and from the DUP – May will face scepticism in Brussels.
Flow of goods
For Irish businesses the free flow of goods across the Border and to and from Britain rests on two things. First, the UK is a member of the EU customs union, which commits all countries to free trade in goods. Second, it is in the single market, the complex set of rules and regulations which allow free movement of goods, services, capital and people across the EU.
The EU proposal for the backstop – the guarantee of no hard border no matter what the outcome of future trade talks – involves the North effectively staying in the customs union and the single market.
May is putting forward another plan – or rather it is being floated, and it remains to be seen how it survives the initial fire. This would involve the entire UK staying in a customs union with the EU beyond the transition period until a new trade deal is completed between the EU and UK.
Membership of a common customs union would ensure no tariffs applied on trade between the EU and UK, and would solve part of the Border problem. The rest, it is suggested, would be solved by checks on the application of single market rules – in areas like food safety, for example – as goods move from Britain to the North.
The EU will want to keep the pressure on the UK. And the UK side is lurching from one chaotic episode to the next
But before full details are even known already the red lines are being underlined. The Brexiteer lobby says staying in the customs union would be a betrayal of the Brexit vote, and it would severely limit the UK’s ability to do trade deals with the rest of the world.
The DUP says there can be no new checks between Britain and the North, even for regulatory compliance.
Pick and choose
And the EU side will not want the UK to pick and choose, to be able to stay in the customs union while staying out of the single market, and, in particular, wanting to erect new controls on migration.
Some of these red lines will have to be fudged or, more likely, broken to find a way forward. Talks next week will be key ahead of an October summit of EU leaders. It remains hard to see a way forward.
Researchers at the Centre for European Reform in London suggest one compromise might be that the UK signs up to the EU’s version of the backstop for the North – as a kind of last resort – but that both sides agree that the UK as a whole might remain in the customs union for a temporary period as trade talks progress, with a sign-off needed for this after Brexit. But even fudges now threaten the red lines.
Were the UK to remain in a customs union with the EU it would remove one threat for Irish business importing from and exporting to the UK – the threat of tariffs and customs delays. However, with the UK leaving the single market regulatory checks would still be needed at Irish ports and airports, and delays might be threatened.
The problem for the Irish Government is that while UK membership of the customs union would suit us, the rest of the EU believes the UK should not be allowed to pick and choose. And as we rely on the rest of the EU for support on the backstop, Ireland has to tread carefully.
Two messages
For Irish businesses there are two messages.The first is that these talks are likely to go on for a while yet – it could be the end of the year or even into 2019 before there is any clarity.
The second is that a “no-deal” Brexit and severe disruption in March remain a serious risk.
Ideally negotiators should find a way to avoid the kind of economic standstill this threatens towards the end of the year – as everyone waits to see what happens. But politics always runs until the 11th hour. The EU will want to keep the pressure on the UK. And the UK side is lurching from one chaotic episode to the next.
A full-on crisis with no deal looming may be where it goes. Whether both sides can then find a way to step back from the brink will be the question.
