Don’t rely on a good UK/EU Trade Deal

Aug 06, 2020

 

Originally posted on The Business Post, 16 July 2020.

We have been locked for months in a battle against Covid-19, but one thing the pandemic hasn’t put on hold is the ever-closer problem of Brexit which needs our attention now.

Imagine a situation where you are asked to negotiate a new deal with a key supplier. The negotiations are tricky because your supplier also competes with you on other products. Then your own shareholders call in the negotiator for the other side to find out what is going on.

This unlikely scenario was actually played out last month. In recent days, the House of Lords Committee on the European Union published a transcript of a private meeting they held with Michel Barnier, the EU’s chief negotiator on the EU/UK trade deal. The questions were asked in English, the answers given in French and delivered via an interpreter. Barnier’s answers were bleak. No one will win in negotiations about least worst options. Even the best possible outcome won’t help many Irish businesses an awful lot.

The trade negotiations will at best resolve issues of tariff rates and quotas. These are critically important to the agri-food sector because tariffs and quotas affect that sector far more significantly than other sectors. Otherwise most categories of goods, even without a trade deal, attract low or nominal tariffs under World Trade Organisation rules. Goods flowing between the two customs jurisdictions will attract paperwork and still have to be checked at the borders. Goods from Britain coming into the EU will have to be checked the same way as goods, say, from Brazil.

The checking obligations will be costly and burdensome for all Irish industry doing business with Britain or doing business through Britain with other EU member states. The Revenue Commissioners were to hire 500 additional customs officers to do all this checking along with apparently 750 in the Netherlands, 700 in France, and close to 400 in Belgium. This is why survey after survey of Irish business concerns over Brexit highlight delays and disruption rather than customs tariffs as being the main problem.

As Barnier pointed out in his evidence to the House of Lords, the European single market is an even greater asset for the remaining EU member countries because of increasing international trade tensions. It therefore seems highly unlikely that there will be any delays, postponements or concessions on customs checks next year. Border controls are not just about customs duties, but also certifying compliance with EU single market standards and, in the case of agri-foods and the export of live animals, health checks.

The UK will phase in some customs obligations on their imports during the initial six months of 2021. The British side can, of course, do nothing unilaterally about the phasing of obligations on exports. There have been reports of increasing levels of concern regarding security and reputational risks if Britain is unable to police its own borders. Porous customs borders also dilute their capacity to negotiate trade agreements beyond the EU, and Britain continues to pin its hopes on commercial success from a wide range of trade agreements with other nations, notably the United States.

The Northern Ireland protocol, the special arrangement which means that Northern Ireland will de facto be a member of both the EU customs union and the UK customs territory, will also take effect next year, independent of the success or otherwise of the trade negotiations. How this will work is still very much up for debate. A report last month from the University of Liverpool, based on interviews with Northern Irish and British business interests, describes a gathering “contagion of uncertainty”.

This contagion of uncertainty over the operation of the Northern Ireland Protocol also extends right across the British establishment. This week, the same House of Lords committee that had the private conversations with Michel Barnier wrote to the Northern Ireland Secretary of State, Brandon Lewis, demanding to know why he continued to avoid appearing before them to explain exactly what was going on.

Also this week, the UK Revenue and Customs authority, HMRC, invited tenders from interested parties for a service to “identify and support the education of traders” and make electronic declarations for Northern Ireland protocol purposes. That’s cutting it pretty close given that the new rules will come into effect in less than six months. 

The false dawns in March, May and then again in October 2019 marched business to the top of the no-deal hill and then marched it down again. On each occasion, it turned out to be alright on the night, and an extension averted import and export no-deal Brexit chaos. This time, Britain has ruled out any extension beyond 31 December next.

Both border controls and the operation of the Northern Ireland Protocol will be simpler if there is a good trade deal, but a good trade deal will not magic either of them away. We have all been focusing on the problems of the pandemic and its impact right across the island. Yet, disruption for businesses trading post-Brexit is also a serious problem and unfortunately, it deserves our attention too.

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.