Alan Dukes, Economist, former Minister for Finance, former leader of Fine Gael

 

The only certainties about Brexit that I can see are that:

  • it will be a negative-sum game for all concerned,
  • the process will be complex and fraught with political, technical and legal difficulties,
  • the UK has relatively more to lose from the process than the EU27, and
  • Ireland has more to lose than any other EU27 Member State.

There are a number of possible outcomes.

  1. One possibility is that no agreement is reached by March 2019 and there is no agreement among the EU27 to extend the negotiating period. The UK “falls off a cliff” and becomes a “third country” as far as the EU27 is concerned. Trade relations between the EU27 and the UK become subject to WTO rules, the EU’s Common External Tariff applies to imports from the UK and the UK applies a new tariff grid (respecting WTO rules) to imports from the EU. The EU CET applies to imports to the Republic from NI, and exports from the Republic to NI become subject to the new UK external tariff regime: there is a hard border and customs services will have to act accordingly. UK financial service providers lose passporting rights into the EU. If the UK Reform Bill is passed (and that now seems to be in some doubt), there will be no new immediate technical obstacles to UK-EU trade in areas covered by single market provisions. Even if the Reform Bill is passed, any move by the UK to depart from measures equivalent to EU State Aid rules (for example, by giving any kind of special assistance to the motor car industry) would certainly be regarded by the EU27 as a measure excluding that sector from “single market” treatment. The UK becomes free to make its own immigration rules in relation to citizens of the EU27. UK courts gain full jurisdiction except in areas in which the UK continues to be bound by pre-Brexit undertakings, which continue to be subject to the jurisdiction of the ECJ. If by then there has been no agreement on the “divorce bill”, a difficult legal and financial negotiation will ensue with, as far as I can see, no settled method of conciliation or arbitration. EU citizens resident in the UK will live with some uncertainty even in the light of Prime Minister May’s recent statement on the matter. They will probably face more uncertainty than UK citizens resident in the EU.

 

  1. The Irish and UK governments will be faced with the problem of finding a way to maintain the Common Travel Area that is compatible with Ireland’s continuing application of freedom of movement within the EU. The Irish and UK governments will have to consider how to maintain the integrity of the Belfast Agreement and subsequent and associated agreements and arrangements. Residents of NI who are citizens of the Republic will continue to have EU citizenship rights (as will citizens of other EU27 Member States resident in NI) but EU27 does not have extra-territorial jurisdiction in these matters. The provisions of the CAP would cease to have effect in the UK. The UK’s departure from the Common Fisheries Policy will inevitably trigger a re-negotiation of that policy, beside which the implications of UK withdrawal from the London Fisheries Agreement will pale in significance. The UK’s withdrawal from the Euratom Treaty will necessitate a very substantial revision of nuclear safety and supervision measures and the negotiation of a replacement arrangement between the UK and EU27. The UK net contribution to the EU budget will disappear, and we can already see some of the issues to which that will give rise. As things stand today, the possibility of the UK “falling off a cliff” cannot be ruled out. In my view, it is the worst of all possible outcomes: for both the UK and EU27, “no deal” is considerably worse than a bad deal although there is no such thing as a good deal on Brexit.

 

  1. Another possibility is that no agreement is reached by the target conclusion date in March 2019 and the EU27 agree to extend the negotiating period. This would prolong the agony and pose a problem as to what to do about British participation in the European Parliament election in June 2019. It can hardly be expected to make the negotiations any easier unless the prospect of a conclusive agreement is in sight. If no such prospect is in sight, the process could become fractious, as an element of negotiation fatigue will almost certainly have appeared and patience will be wearing thin. Logically, an extension of the negotiating period would imply a corresponding extension of the period during which the UK is subject to all of the rules currently applying to it as an EU Member State. The militant pro-Brexit tendency in the UK would be likely to regard this scenario with great suspicion as foot-dragging. All of the problems which I have already enumerated, including the specific Ireland-UK problems, would still have to be addressed.

 

  1. A third possibility would lie in an arrangement similar to that between the EU and Norway, or that between the EU and the EEA, or that between the EU and Switzerland. To varying extents, these arrangements resolve some of the range of issues regarding trade and the operation of the single market. They also involve, however, acceptance by the non-EU partner of rules which it has no (or little) part in shaping; freedom of movement of citizens of the partners and acceptance of the jurisdiction of the ECJ in matters arising under the arrangement. These are all matters which militant pro-Brexit tendencies in the UK would find objectionable.

 

A variant of this possibility consists of a Norway or EEA or Switzerland type arrangement with a mediation structure agreed between the ECJ and the UK courts. Such legal commentary as I have seen points out that both the ECJ and the UK courts would have serious reservations about such an arrangement, with the ECJ probably holding that it would be incompatible with the European Treaties. I note, however, that a number of existing agreements and the TTIP proposals include arbitration arrangements, although not of the range that seems to be envisaged in this hybrid possibility. This possibility, however, comes up against the difficulty posed by paragraph 8.2 of the UK White Paper on Brexit, which baldly states that: “We do not seek to adopt a model already enjoyed by other countries”.

 

WHAT KIND OF AGREEMENT DOES THE UK WANT?
The real difficulty here is that the UK government has put no flesh on the bones of the kind of arrangement it hopes to secure with the EU27. The introduction to the White Paper states:

“The Government will prioritise securing the freest and most frictionless trade possible in goods and services between the UK and the EU. We will not be seeking membership of the Single Market but will pursue instead a new strategic partnership with the EU, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement”.

Paragraph 8.3 of the White Paper goes on to say:
“That agreement (i.e. the Free Trade Agreement) may take in elements of the current Single Market arrangement in certain areas as it makes no sense to start again from scratch when the UK and the remaining Member States have adhered to the same rules for many years. Such an arrangement would be on a fully reciprocal basis and in our mutual interests”.

There is room to detect an element of doublespeak in this presentation. An “ambitious and comprehensive Free Trade Agreement” leads to fee trade, not “the freest and most frictionless trade possible”: those terms in themselves are relative and suggest some cherry-picking.

Again, an agreement that “may take in elements of the current Single Market arrangement” suggests more cherry-picking and leaves open the possibility of changing the terms of some of the provisions of the UK Reform Bill. Which cherries does the UK want to pick?

The logic of the White Paper implies a “soft Brexit” but much of the rhetoric from UK Government members suggests the objective of a “hard Brexit”. London needs to state clearly where its aim is on that spectrum .

For obvious reasons, the Irish interest is in the softest possible Brexit. I believe that that this is also where the EU27 interest lies. The sooner the UK becomes specific about its trade aims, the easier it will be for the EU27 to start considering the post-Brexit EU-UK relationship. No party to this fiasco has an interest in cutting off its nose to spite its face.

 

NOTHING TO RECOMMEND “IREXIT”
Finally, there is the suggestion that we in Ireland should consider leaving the EU with the UK and building up a new relationship with that country and with the United States in the form of some new kind of North Atlantic relationship. I agree that we should consider this possibility and its consequences – just as I believe that it is useful to consider the consequences before jumping out of an aeroplane without a parachute.

We had trade agreements with the UK from the late 1940s up to our accession to the EEC in 1973, when we finally escaped the more suffocating aspects of the UK’s embrace. Those agreements were considerably more advantageous to the UK than to Ireland and were particularly unbalanced in the agriculture and food sectors. Overall, trade with the rest of EU27 is far more important to us than trade with the UK, although the UK is of particular importance to trade in agriculture and food products. We would want a very “soft Irexit”: it is hardly conceivable that we could achieve more favourable terms from an EU26 than the UK would.

A non-EU UK seeking to cut trade deals with the rest of the world is not likely to be a high-price market for agriculture and food products. The prospect of negotiating a new trade agreement in the North Atlantic area looks rather fanciful when the current NAFTA looks like being the subject of a forced re-negotiation and when the US wants to torpedo the TTIP. In addition, a non-EU UK seeking trade deals with the rest of the world might very well be distracted from concerns with Ireland.

“Irexit” would probably mitigate border and trade problems between the Republic and NI but in a less favourable economic environment: I cannot see that it would make any material difference to the pursuit of the objectives of the Belfast Agreement and associated agreements and arrangements. I therefore see nothing to recommend it.

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