During the EU referendum campaign, one of the key arguments of the Remain camp was that it would be impossible to negotiate an exit from the EU which wouldn’t severely harm the UK and that we were therefore better off staying as a member. Now, as we move inexorably towards the door, the thorny issues identified during the campaign are proving intractable and complex. I’ve discussed the legislative situation in previous blogs; I’d now like to briefly set out some of Brexit's key issues that must be resolved before March 2019.
Hard or Soft?
In the language of Brexit, the various options are often characterised as along a spectrum from hard to soft. To draw an analogy with a divorce, the extreme hard Brexit position is a clean break – you divide the assets, settle your bills, move away and delete your partner from Facebook never to be mentioned again. The extreme soft option is closer to a situation where you’ve split up but you’re still living in your ex-partner’s house, paying rent, splitting the bills and pretending to be amicable. Decisions reached over a number of important areas will determine where along the spectrum the eventual Brexit agreement will lie.
The Customs Union
Arguably the most difficult and most impactful of Brexit's key issues is whether the UK should maintain some kind of customs union with the EU. The customs union is an agreement between all EU member states to apply the same trade tariffs to imports coming from outside the EU and to eliminate them entirely for trade within the EU. The agreement brings a range of benefits – when combined with a complex web of regulation and standards it allows frictionless trade within the EU bloc with countries trading on equal terms. it removes the need for time-consuming border checks, and facilitates just-in-time supply chains, where complex manufactured goods such as cars may cross borders many times as they are assembled. It also allows the EU to negotiate trade deals collectively, giving it much greater bargaining power than any single member state.
The UK will leave the customs union when it leaves the EU but a soft option would be to negotiate a bespoke customs deal with the EU to allow frictionless trade to continue. The EU currently accounts for about 43% of British trade while the UK accounts for either 8% or 18% of EU trade (depending on how you calculate it – see here for a good explanation), so it’s important to both parties that smooth trade continues. It’s problematic, however, because if the EU allows us to continue trading with them on favourable terms there will be a price – we would have to pay them a hefty sum and there would be curbs on our ability to strike trade deals with other countries. And it’s unlikely they would give us a deal as good as the present arrangement.
Hard Brexiteers claim that staying in the customs union betrays the Brexit vote as we wouldn’t really be leaving – we’d still be tied to the EU and beholden to their rules and still be contributing financially. They favour leaving the customs union and negotiating a trade deal with the EU, to maintain reasonably smooth trade but retain the freedom to negotiate deals with other countries. Any such deal would take many years to agree, however, and may well leave the UK much worse off.
The government has proposed two possible solutions to the conundrum: a ‘highly streamlined customs arrangement’ (known as ‘max fac’ for maximum facilitation) or a ‘customs partnership’. Max fac is favoured by hard Brexiteers as it proposes using technology and unilateral agreements to eliminate customs barriers. The customs partnership would eliminate the need for barriers by allowing the UK to collect tariffs on behalf of the EU and settle up later. Both solutions have received short shrift from the EU negotiators as impractical and unworkable. The opposition Labour party favours a limited customs union, similar to the agreement enjoyed by Turkey, but the government, under pressure from hard Brexit factions, has ruled that out.
Northern Ireland
Bound up in wrangles over a customs union is the fate of the border between Northern Ireland and the Republic of Ireland to the south. This border represents the only land border between the UK and the EU and currently there are no border checks or barriers – in fact, when crossing the border the only indications that you are entering a different country are cheery signs welcoming you.
Things haven’t always been so friendly, however. Decades of sectarian conflict in Northern Ireland which claimed over 3,600 lives was finally ended by the 1998 Good Friday Agreement. During the Troubles as it was known, British army border checkpoints to stop the passage of arms and fighters were a hated symbol of the conflict. A return to a hard border is therefore seen as unacceptable to both the north and south, because of the impact on cross-border commerce and also because it is seen as putting the peace process at risk. A compromise deal seemed possible last December with the UK and the EU drawing closer, but it was quickly torpedoed by the Northern Irish Democratic Unionist Party (the DUP).
The DUP currently wields a great deal of power in the British government as the Conservatives need their support to pass any legislation (to understand that Greek tragedy, read about the most recent snap election here and the resulting alliance between the Tories and the DUP here). The DUP objected that the deal (which the public never saw) effectively moved the border into the Irish sea by proposing border checks between Northern Ireland and mainland Britain, something they can never accept. The DUP are fierce proponents of the union between Northern Ireland and Britain and will not countenance any weakening of that union (hence “Unionist”).
Since then there has been something of a deadlock, with the EU insisting a clear agreement must be reached before Brexit can proceed and proposing a backstop arrangement whereby Northern Ireland would remain part of the customs union until the issue can be resolved. This has been rejected out of hand by the government. The latest idea being floated is that Northern Ireland could have a dual UK-EU status (dubbed ‘max fac 2’) similar to the way Lichtenstein currently operates both the European Economic Area (EEA) rules and Swiss rules at the same time.
The Good News…
There have been some notable agreements to lighten the gloom. The UK has agreed to pay a divorce bill which could reach £39bn, and which could take until 2064 to pay off according to some estimates. We have also agreed a deal on the rights of EU and UK citizens living abroad and on a transition period during which time the UK will agree to implement new EU directives and the EU will allow the UK to negotiate trade deals.
And the Not So Good…
While this is encouraging, most of the agreements so far have involved the UK backing down and conceding to EU demands which highlights the weakness of the UK negotiating position and doesn’t bode well for the remainder of the talks. Meanwhile, the uncertainty continues to affect UK economic performance.
Next Steps
The repeal bill returns to the House of Commons in June and debates on the Lords amendments will focus around Northern Ireland and the customs union. It’s a key test of Prime Minister May’s authority in the House and the government will need to convince rebellious MPs of both the soft and hard persuasion that its plan is both workable and delivers on the Brexit that the country voted for. For his part, the EU’s chief negotiator Michel Barnier wants to take the broad agreement to the next EU summit of leaders on 28 June. He has also said that the final text of the agreement (which will include details of a myriad of other areas such as fisheries and agriculture) needs to be ready for October to allow time for it to be ratified by all 27 member states before UK leaves, and also for the UK parliament to agree it.
For many, England winning the football World Cup this summer is looking a more realistic prospect than getting a workable agreement in time, and that is a depressing thought indeed!
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