When is a border not a border

Jan 28, 2019
Sunday Business Post, 27 January 2019

A senior EU spokesperson, Margaritis Schinas, claimed earlier on this week that a no deal Brexit meant there would have to be a hard border on the island of Ireland.  Why was anyone surprised?

A customs union is a political and commercial arrangement.  If it is to work, the borders of the countries of the customs union must be preserved in the same way as any individual country’s borders must be preserved, to secure the well-being of that country's own citizens, culture, interests and government.  You can't lease a plot of land without having established the boundary.  Similarly you can’t license greater access to a market, as a customs union does, without a clearly defined boundary to that market.

The EU is right to view the possible dilution of any part of the customs union boundary with profound suspicion, as border security is fundamental to EU membership.  Accession countries cannot join the EU without undertakings to secure their customs boundaries.  Further, it's a condition of accession to the EU for a country to introduce the EU VAT system, which itself serves as a mechanism to protect EU businesses providing goods and services to consumers within EU boundaries. 

If, for example, Italy were to decide to leave the EU, France, Austria and Slovenia, as the EU countries with land borders to Italy, would be expected to put border customs controls in place.  There is nothing personal towards the British going on here.

This is a reality that cuts both ways.  Remember that the UK in large part wants to leave the EU customs union to do its own trade deals with the rest of the world.  The UK has little prospect of cutting trade deals with reputable trading countries under WTO rules unless it can show that its own customs border is secure.  If the UK wants to broker new arrangements with, say, the US, or Japan or Australia or New Zealand, it will have to show those countries that it can protect its own customs borders. 

It may turn out that the main motive for establishing border controls on the island of Ireland will not come from the EU, but rather from the British themselves.  The only potential succour for any of us embroiled in this sad spectacle is to contemplate what a border really means for customs and tax purposes.  The key point is that a customs border does not have to be along a hard geographical line.  It may be easier to enforce if it is, but perhaps it's not an indispensable condition. 

While the situations are not identical, think for a moment about how we police the income tax system for people coming in and out of the country.  Largely it's done by self-assessment.  Either the individuals themselves, or their employer declares that the person is within the charge to Irish tax when they're here, and pays up accordingly.  There is no one performing income tax residency checks as people enter and exit the country. 

It is an oversimplification to say that similar self-assessment arrangements could operate to police the transit of goods from north to south on this island, but the fact remains that not all of the checking has to be carried out at customs posts at Newry or Strabane or Pettigo.  Judging by the comments of Revenue Chairman Niall Cody at an Oireachtas committee this week, self-assessment declaration arrangements subject to checks seems to be preferred approach of Revenue. 

Much of the checking can be done by advance declarations, and customs checks taking place at factories and warehouses rather than at border crossing points.  Customs is an administrative procedure, and therefore a customs border can be enforced by administrative procedure in many cases.  (There are important exceptions to this, particularly where sanitary or health checking is required.)

On the other hand, the suggestions that are mooted from time to time by politicians that the whole issue can be resolved through technology are foolish.  If it could, it would already have been done.  Consider the checks and controls between developed countries like Norway and Sweden, between the US and Canada.  If technological approaches could be applied to solve all customs surveillance requirements, don't you think they'd already be in place?

One merit of the EU spokesman’s comments has been to focus attention on the real-life consequences of what the former UK Chancellor of the Exchequer, George Osborne, has described as the Russian roulette of a no deal Brexit.  This week's announcement by UK entrepreneur and prominent Brexiteer James Dyson that he is moving his company’s headquarters to Singapore is another such warning as was the announcement that Sony is to relocate its European headquarters out of the UK.  The business community is tiring of waiting for a political solution to problems with borders.

We need to be clearer on the distinction between a customs border and border controls.  No deal Brexit means there must be border controls on the island of Ireland, imposed by the Irish to fulfil our EU obligations.  A free trading Britain also means that there must be border controls on the island of Ireland imposed by the British to facilitate their trade deals.    The controls are a necessary but a dreadfully wasteful application of time and resources both for the public sector and the private sector alike. 

The EU spokesman Margaritis Schinas was right.  In a no-deal Brexit scenario the political process cannot eradicate the need for border controls. 

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland