Brexit Bites, 23 March 2018

Mar 22, 2018

A breakthrough in the Brexit talks was reported this week with the EU and UK reaching agreement on the draft Withdrawal Agreement. However a solution to avoiding a hard border on the island of Ireland remains outstanding.  In the second of our series of getting back to Brexit basics, we look at common Brexit terms and explore the difference between the Single Market and the Customs Union and a hard and a soft Brexit. 

A Brexit breakthrough?

A breakthrough in the Brexit talks was reached in Brussels this week when David Davis and Michel Barnier told reporters that the EU and UK are now working off the same Withdrawal Agreement.  In what was described by the EU chief negotiator, Michel Barnier as a “decisive step”, both sides reached agreement on the financial settlement, citizens’ rights and a transitional period.

The European Union Summit takes place in Brussels today and one of the items on the agenda is to sign off on the Withdrawal Agreement and talks are likely to be able to move on to the much coveted future relationship. 

On the issue of the border on the island of Ireland, it was agreed that Northern Ireland would be subject to a “backstop” arrangement unless a better solution to avoiding a hard border can be agreed.  This repeats the mantra of the deal reached back in December of avoiding a hard border. Since then, the EU has consistently said that there cannot be backsliding on this agreement. 

Speaking at a press conference, UK chief negotiator David Davis said “we agree on the need to include legal text detailing the ‘backstop’ solution for the border between Northern Ireland and Ireland in the Withdrawal Agreement that is acceptable to both sides.”

The transition period which is seen as critical for the smooth ongoing operation of many businesses will run until 31 December 2020.  During that time, the UK will have to continue to obey EU rules but will largely have no influence on making the rules.  On citizens’ rights, it was agreed that UK and EU citizens who arrive during the transition period will have the same rights as those who arrived in the respective countries before Brexit and the Common Travel Area between Ireland and the UK will continue in existence. 

The issue of how to keep the Irish border open however continues to loom and a further set of talks to work through this task has been scheduled in April.  The next EU Summit will take place in June and progress will need to have been made by then particularly given the ticking clock. 

Back to Brexit Basics

In the second in our series, we look at some common terms that crop up time and time again in the Brexit debate starting off with the legislation that triggered the UK’s departure in the first place; Article 50. 

What is Article 50?

Article 50 of the Lisbon Treaty is the legal agreement, signed by all EU members, which gives any EU member the right to leave the EU. The article outlines the procedure for doing so while also instilling a two year time limit in reaching an agreement, unless all members agree to extend it. It’s only five paragraphs long.

What is a hard and soft Brexit?

The terms relate to the UK’s relationship with the EU post Brexit. A hard Brexit could see restrictions on the free movement of people and trade as well as physical infrastructure at the border between Northern Ireland and the Republic of Ireland.  A soft Brexit would be seen as free movement of people and goods.

What is the Single Market?

The Single Market was completed in 1992 and represents what the EU stands for. It essentially allows all Member States to act as a single entity.  It’s based on four freedoms; free movement of goods, services, money and people within the EU and its objective is to boost trade, increase employment and lower prices by eliminating tariffs, quotas and taxes on trade.  The Single Market also removes certain non-tariff barriers to trade by having common regulation on packaging, safety and standards.  The aim is to create a level playing field and a single market across industries by standardising regulations, work hours, health and safety among other things.

A recent example of how the Single Market operates is the EU vacuum cleaner regulations which ban the manufacture or sale of vacuum cleaners across the EU with motors more powerful than 900W. The EU Single Market rules also limit how noisy the cleaners can be and stipulate other minimum durability requirements.

In terms of free movement of people, the Single Market allows German people to live in the UK and Britons to live in Spain.  But there are limits on the number of Turkish people or Russian people that can live in the UK.

The Single Market extends to Norway, Iceland, Liechtenstein and Switzerland despite these countries not being members of the EU.  

What is a Customs Union?

A Customs Union is a group of countries that have agreed to allow free trade between themselves and charge the same import duties as each other to other non-member countries.  Once goods have cleared customs in one country, they can be shipped to other countries in the Customs Union without further tariffs being imposed. There are understood to be 15 Customs Union worldwide. 

Turkey is in a Customs Union with the EU (the Turkey-EU Customs Union) but is not a member of the EU.  A Customs Union means Turkey and the EU can trade freely with each other without customs checks at the borders. Turkey must charge the same customs duties to countries outside the EU as the EU does and there are limitations on Turkey being free to strike its own trade deals.

What is the difference between the EU Customs Union and the Single Market?

The EU Customs Union generally only covers free trade, while the Single Market allows free movement of goods, people, services and money. Some countries outside the EU are in the Single Market but not the EU Customs Union. For example, Iceland is a member of the Single Market but not the EU while Turkey is outside the EU Single Market but inside the EU Customs Union.

What happens if the UK leaves the EU’s Customs Union?

Unless the UK agrees a free trade agreement with the EU, UK imports into the EU will suffer the EU’s common external tariff which could range from 1 percent right up to in excess of 50 percent depending on the good.  There would also be checks at borders with the EU and this causes issues for Ireland and Northern Ireland.

What is a free trade area?

In a free trade area, there are no tariffs or quotas on goods or services which move freely. Parties to a free trade agreement are free to make their own trade deals with other countries. The objective is to increase trade of goods and services with each other.

For example in September last year, the EU and Canada reached agreement on free trade under an agreement entitled Comprehensive Economic and Trade Agreement (CETA). It’s estimated that this agreement will save EU businesses €590 million a year which is the amount they pay in tariffs on goods exported to Canada.  CETA removes duties on 98 percent of products that the EU trades with Canada.

What if the UK leaves the Customs Union and does not agree a free trade agreement with the EU?

If this happens, trade between the UK and the EU will operate under World Trade Organisation (WTO) rules which means tariffs and quotas may apply.

The EU countries will have to treat the UK in the same way that it treats all other WTO members in that position, such as USA or Russia.  This means that EU tariffs would have to apply to imports from the UK. Ireland would apply the EU tariffs to imports from the UK.  It would be against the WTO’s principles for the EU not to place tariffs on UK imports after Brexit if there was no free trade agreement in place.

The same is true on the UK side.  If the UK wants to apply any tariffs on any country, these will also have to apply to the EU if there is no deal.

Tune in next week for more information on the WTO and how the rules work in practice.

Read all of our Brexit updates on the dedicated Brexit section of our website.