Friday, October 05, 2018

Why the EU should soften its stance on the “Irish backstop”

Published on CapX


After the Conservative Party conference, the Brexit negotiations have picked up pace. EU diplomats are reported to be more optimistic a deal can be reached, with some of them even thinking they are “very close”.

This optimism is thanks to ever stronger indications of a possible fudge for the Northern Irish border, which I described in my previous CapX piece and which was first brought to light by The Telegraph’s Peter Foster, in the middle of the Summer. The UK government is, however, still working out the details of its backstop proposal. 

Apart from the precise role of the EU’s top court, the so-called “Irish backstop” is the main reason why there still isn’t a deal on the divorce part of Brexit, which will be agreed in the “withdrawal agreement”. This is a fallback arrangement that aims to avoid a hard border in Ireland in case there is no deal on the future relationship between the UK and the EU on January 1, 2021, at the end of the so-called “transition stage” during which Britain would keep full access to the EU’s market in return for becoming a full rule-taker.

The British government agreed last December on the principle of having a backstop, but the content of it still needs to be agreed. In February, the EU proposed creating both a customs border and a regulatory border between Northern Ireland and the rest of the UK. Again, this is a fallback option. It’s not meant to be used, but in case there is no FTA between the EU and the UK, it will regulate trade between the UK and the EU from 2021 on, together with WTO provisions.

Britain has been open to discussing regulatory checks within its territory. After all, there are already regulatory differences between Northern Ireland and mainland UK, due to devolution. The UK government has however been very clear that it was opposed to carving up the UK’s customs territory. Trade policy and tariffs will be a central UK government competence after Brexit.

The UK government’s insistence on the integrity of a UK customs territory , something which is shared by the Labour party, surprised the EU this Summer and EU leaders were also surprised to hear Theresa May repeating in Salzburg that the UK could not agree a customs border within the UK.
At an Open Europe event at the Conservative Party Conference, Brexit secretary Dominic Raab specified that if there would be regulatory checks in the Irish Sea and that there could not be new regulatory barriers. He thereby echoes the Democratic Unionist Party, which he wants to grant an effective veto by giving the Northern Ireland Assembly, where the DUP has a blocking minority along with the other Unionist parties, a say on the matter.

Can a regulatory barrier in the Irish Sea be fudged? Perhaps. One could think of a scenario whereby some Labour MPs would  abstain, making up for the no-votes of Eurosceptic Tories and perhaps the DUP. But this is unlikely.

Theresa May is reportedly thinking about pushing the legislation through Parliament at the beginning of December. That vote will be shaky almost regardless of what the final deal looks like, but a customs barrier in the Irish Sea would make the Parliamentary arithmetic even more challenging.
The UK’s proposal, outlined in the Chequers agreement in June, is for the whole of the UK to remain under the EU’s customs regime after the transition stage, but only for a limited period. This would create a new deadline by which a deal with the EU needs to be reached to avoid customs checks on the Irish border.

In the meantime, and during the transition stage itself, Trade Secretary Liam Fox would be able to negotiate trade deals with third countries, even if those deals could then only enter into force at the end of what could be called the second transition stage for customs only. It’s a compromise. But one that recognizes the time needed to adapt customs systems and negotiate trade deals, including securing the continued trade access Britain enjoys thanks to trade deals concluded by the EU.
The EU isn’t biting yet, however. The good news is that the Irish government and some in the EU are open to the whole of the UK remaining under the EU’s customs regime. That isn’t that surprising given that will be the case during the first, agreed on, transition phase.

The bad news is that Ireland and EU negotiator Michel Barnier refuse to put a time limit on this arrangement. And they don’t want any “second transition stage” written in the withdrawal agreement. They would rather it were included in a non-binding declaration on the future relationship.  For now.
However, we should be optimistic about the prospect of a deal, simply because EU member states will follow Ireland's lead on the "Irish backstop", which is the biggest missing piece. Ireland would pay a high price for a no-deal outcome.

However welcome the signs of flexibility on the Irish and EU side, it’s important to consider why the current EU stance on the “Irish backstop” is not reasonable and should be softened:

Carving out a part of the UK’s customs territory only makes Brexit even more complicated

The key problem is that the EU genuinely seemed to think that offering to carve up the UK’s customs territory was reasonable. Why did the Irish government not warn its EU partners not to do this?
Sure, the Canary islands aren’t a part of the EU’s customs territory, and parts of Austria were part of the EU’s customs territory before the country joined the EU, but these examples don’t feature the same sot of political sensitivities as Northern Ireland, where a part of the population fears one day ending up in a united Irish republic as a small minority.

Some on the EU side seem to realise that their offer was less than reasonable. But an insistence that the EU is not asking to carve up the UK’s customs territory will be unpersuasive as long as it flies in the face of the facts.

For example, the chairman of the Brexit committee in the Irish Senate has stated "we don’t want to see any border in the United Kingdom" and Polish MEP Danuta Hübner, a member of the European Parliament's "Brexit Steering Group", wrote that EU proposals for the backstop “have nothing to do with potential emergence of a new border in the Irish Sea.”

A customs border in the Irish Sea border may well violate the Good Friday Agreement
Irrespective of Brexit, to isolate Northern Ireland from the UK’s customs regime could be a breach of the peace accord reached in the 1990s. Theresa May is among those that have made this point. So the UK government and Parliament should not impose a customs border in the Irish Sea even if they want to, given that the consent of a majority in Northern Ireland is required.

A customs border in the Irish Sea is undemocratic

Fundamentally, there is also the issue of democracy: Northern Ireland’s population would fall under the EU’s trade regime, including possibly higher tariffs than the ones negotiated by the UK, without enjoying a democratic say in EU trade policy. That would be taxation without representation. 

A permanent backstop would hand the EU a veto over UK regaining trade policy

If indeed the whole of Britain would stay under the common customs regime in case there is no deal by 2021, but then permanently, unless an EU-UK trade deal is concluded, it would mean that the UK would only be able to let trade deals concluded with the US, China, Indonesia India or anyone else enter into force under the condition that there is first a trade deal with the EU.

The EU – or basically Ireland -- could hold up this EU-UK FTA by claiming that it wasn’t good enough to avoid a hard border in Ireland. Surely, Ireland must realise that requesting a veto over the UK regaining trade sovereignty is an excessive demand. And yet, it is the key issue now holding up a deal.

Reuters reports today that there is a "plan in the making" where by "the EU would get assurances that the emergency Irish border fix would be indefinite" but it isn't clear to what extent the British government is engaging with this, let alone how it could get through Parliament.

A permanent backstop might violate the EU’s own treaty rules

Under Article 50, the EU is only allowed to agree a treaty with a member state that is leaving the club to sort out the aspects of the divorce. A future trade arrangement needs to negotiated on another legal basis.

As part of designing a transition, sorting out some trade aspects is possible, but it needs to be temporary, as otherwise it could no longer be seen as being part of the divorce aspect but of the future relationship. It is far from clear that Barnier and his colleagues could justify an interminable Irish backstop under the terms of Article 50 if it creates permanent arrangement for trade flows between Northern Ireland and the EU.

To take the British proposal off the table makes customs checks more likely

The British government has suggested a solution, dubbed the “facilitated customs arrangement” or “FCA”. This would avoid customs checks, therefore solving the Northern Ireland problem but would also avoid a heavy burden on big manufacturers like Airbus, Honda or BMW that continuously ship parts and supplies back and forth from the UK to Europe’s mainland.

The solution involves the UK government collecting EU-level tariffs on any good entering the UK. It would then send the receipts through to the EU. British companies could then claim back some of the tariff paid if they could prove that the product they imported has not gone to the European Union and if the UK tariff is lower. Given that we’re only talking about tariffs and not about regulatory checks – where the UK would also be happy to align – there is no risk that if this system doesn’t work in an optimal way that there would be unsafe products entering the EU.

The only risk would be that the EU would lose some money, something the UK government could simply insure the EU against, for example by promising it would financially compensate for any losses as compared to the current income. Either way, we are not talking about huge amounts.
Unfortunately, the EU dismissed this proposal almost without consideration. Brussels claims that it can’t outsource its customs to third countries, even if in 2009 it agreed to trust a non-member’s (Switzerland’s) customs checks as equivalent . Again, Ireland hasn’t  been very helpful here.
Another argument is that the EU doesn’t want to change its own rules, for example the “Union Customs Code”, which can take a while, simply because a member is leaving. That argument overlooks that Brexit is more than a member leaving the club.

It resembles more something like a break-up of the EU club, as the UK economy is equal to the 19 smallest economies of the European Union. Just like in a divorce, it may not be very fair for an abandoned partner to have to make changes to his or her life, but it’s an inevitability. (In this case, both parties are to blame for the breakup.

If “FCA” is no longer an option to avoid customs checks between the EU and the UK, the only alternative is “maximum facilitation” or “max fac”. That basically entails employing technology to minimize disruption. It’s something that surely can go a long way, but it won’t be perfect.

In Switzerland, big companies seem to be able to deal with customs bureaucracy, but smaller firms find it more difficult. Perhaps the Irish government should look again at FCA. All of this is, of course, still separate from the possible need to align regulations in selected areas for the UK to keep market access and avoid regulatory, non-custom related border checks with the EU.

***

It is important that a hard border in Ireland is avoided, but how responsible is it for the EU to make all kinds of unreasonable demands that unnecessarily complicate an already challenging Brexit negotiation?

It is high time for the EU side to accept that the backstop to avoid a hard border in Northern Ireland cannot be a backdoor to keeping the UK under the EU’s customs regime. Lack of flexibility is only making no deal more likely, and the first victims here would be along the Irish border.

Britain has made some imperfect suggestions to avoid customs checks. These entail that the EU will need to make some internal changes as a result of Brexit. If the EU doesn’t like that, it should regret not having listened to longstanding British complaints about the EU’s direction, which are only  becoming more mainstream on mainland Europe. 

Thursday, September 13, 2018

Sweden’s election shows chaotic migration policies endanger the liberal order


Published on EUObserver

As expected, the national populist Sweden Democrats made another breakthrough in Sunday’s Swedish parliamentary election. Their advances were less than some expected, but that is due to the fact that mainstream parties have been taking the issues of immigration and crime more seriously. This mainstream strategy earlier proved a success in Belgium, the Netherlands and Austria.

Still, not less than 41% of Swedes voted for a different party in 2018 as compared to four years ago, and the 17 percent support for the Sweden Democrats may cause the end of the so-called “bloc politics”, whereby a centre-right and centre-left bloc of political parties struggle for power. It’s even possible that new elections would need to be called within three months. Swedish politics is very non- adversarial. For example, the budgets of the outgoing minority government composed of social democrats and greens were being supported by three centre-right opposition parties. The centre-right Moderate Party does not want to continue to do so but then it isn’t keen on joining a “grand coalition” with the social democrats or seeing its “blue bloc” splinter either. The SD’s growing importance is upsetting a lot.

That this is all due to Sweden’s open door immigration policies, which for a while saw 10.000 asylum seekers per week entering the country of 10 million inhabitants, is well-known.  A record 163,000 asylum seekers came to the country in 2015, the highest per capita of any European country. This followed hundreds of thousands in previous years.

Sweden however decided to shut its doors in November 2015, when green deputy Prime Minister Asa Romson cried at a press conference, as she announced the U-turn, commenting: “We simply cannot do any more”.

Interestingly, even a lot of immigrants would be voting for the Sweden Democrats, which made efforts to attract them, a strategy which paid off, according to government agency Statistics Sweden. In a way that’s not surprising: immigrants are the ones living in the neighbourhoods plagued by increasingly violent gang crime. The numbers of murders involving firearms have more than doubled since 2014, to 43, whereas Norway, a country half the size of Sweden, only saw one homicide. This year alone, 10 murders happened in Rosengård, a district of the city of Malmö, where almost all crime suspects—and victims—are of foreign origin. It should perhaps be no surprise that the SD became the biggest party in the districts around Malmö.

The Swedish government denies that this is due to the recent immigration wave but voters don’t seem to be convinced. US President Trump faced a backlash when he claimed in February 2017 that Sweden was struggling with crime and immigration, but ever since several Swedish researchers have been repeating the same line. Prominent economist Tino Sanandaji explained that “until about three years ago it was a taboo to openly criticize migration and its consequences”, but as “the burden on the social system dramatically increased” that has changed.

Claims that the economy has been doing well recently, so it’s odd to see so much disgruntlement, do not tell the whole story. When one looks at the economic growth figures per head, the results are much less impressive. Swedish annual GDP per capita growth in 2017 was the second lowest in the EU.

Sweden was the third richest country on earth in the seventies, but has since fallen back to the twelfth place, with poverty having doubled until 17 percent. After decades of social democratic policies, with ultra-high taxes, a financial crisis at the beginning of the 1990s forced the country to embark on economic liberalization, really going back to its pre-World War I laissez-faire roots. A leftwing government even went on to scrap inheritance taxation and gift tax altogether in 2004. The reforms have been a great success, but the work isn’t finished, as Sweden’s dysfunctional public planning of the housing market proves. 

Add mass-immigration to the mix and it’s not so hard to discover the sources of discontent, especially as 23% percent of non-European immigrants are unemployed, making them even harder to integrate and contrasting with a 4% unemployment of native Swedes. An independent committee within the Swedish Finance Ministry has estimated that the net cost to public finances from most recently arrived refugees would be $8,000 per person annually over a lifetime.

The ongoing success of the Sweden Democrats is yet another reminder how chaotic migration has a great potential to upset society and political dynamics, possibly even more so than economic developments. Whoever cares about the right to migrate and open borders should really keep this in mind. Despite some misgivings now and then, Europeans support uncontrolled migration within Europe, maybe because the flows are all in all limited and because it is easier to integrate Europeans in Europe than non-Europeans. Uncontrolled migration at a global level however, finds very little support. This is a reality which every European politician should heed.

Friday, August 31, 2018

Searching for a compromise on the Irish border

Published on CapX

Now that Brexit negotiations have restarted after the Summer break, the scramble to agree a deal by October or later is well and truly underway.
Eighty per cent of the content of the withdrawal agreement has been agreed. The main remaining sticking point is the so-called “backstop” arrangement for the Northern Irish border. This will be activated in case there is no deal on the EU-UK future relationship by January 1, 2021, when the transition period – during which Britain keeps all access to the European single market in return for taking over all EU rules – comes to an end.
The EU’s proposal for this backstop is to simply isolate Northern Ireland out of the UK and keep it under the EU’s regulatory and common tariff regime. This would avoid checks at the Northern Irish border which some fear would endanger the already fragile peace process. Many EU diplomats genuinely believe this was a fair and balanced offer to the UK, pointing at precedents in countries that have a part of their territory under a different customs regime, including, for example, Austria before it joined the EU.
Many in the EU27 were therefore concerned when, in July, an amendment was adopted by the British Parliament which rules out a customs border in the Irish Sea.
Given how hard it is for UK MPs to agree on anything Brexit-related, this is quite telling. Some in the EU may think Britain’s stance is irrational and “ideological”, but, given the fact that a large part of the Northern Irish population fears one day ending up a minority in an Irish Republic, it’s a reasonable insistence.
Importantly, however, British MPs have not voted to rule out a regulatory border between Northern Ireland and Britain’s mainland.
Therefore, perhaps a compromise could take the following form: Britain accepting a regulatory border in the Irish Sea and the EU accepting that at some point there will be customs checks on the Northern Irish border. These will be unavoidable if Britain regains the right to set different tariffs than the EU, at least in the absence of customs checks within the UK.
How likely it is to see such a compromise emerge this autumn?
As reported by Bloomberg, the UK government has have been working on proposals that, according to officials speaking privately, involve keeping Northern Ireland aligned with EU regulations. That would mean putting a regulatory border, but not a customs border, between Northern Ireland and Britain.
Interestingly, Bloomberg claims that Jeffrey Donaldson MP, the Chief Whip of Northern Ireland’s DUP, which props up Theresa May’s government, has “hinted” that the plan could be acceptable. Indeed, he only mentioned “a customs border” as something that would be “unacceptable” to his party. Perhaps this is all over-interpretation, but both UK and EU officials have pointed out that there are already some differences in regulations between Northern Ireland and mainland Britain and that regulatory checks already exist between the two for animal imports, something that EU Brexit negotiator Michel Barnier has been highlighting as well.
Barnier has pledged to “de-dramatise” the EU’s backstop offer by looking at limiting the legal power the EU would wield over Northern Ireland. In particular, this would involve only requiring routine and limited controls and scaling back the powers of the European Court of Justice, which would only be given indirect authority over the UK.
This shouldn’t be that far off what the UK could accept. In its proposals for the future relationship, the UK has suggested an arrangement whereby a joint EU-UK panel would need to refer questions related to EU law to the ECJ and whereby UK courts would need to pay “due regard” to ECJ rulings, even if the UK would be part of a separate jurisdiction.
Even if some kind of “soft” regulatory checks in the Irish Sea were agreed on, the EU would need to concede to customs checks between Northern Ireland and Ireland emerging at some point  — unless it wants to reconsider the UK’s innovative facilitated customs arrangement again.
How likely is a concession on customs checks?
Assuming that different tariffs between Northern Ireland and mainland Britain are a real “red line”, both for the British Parliament and the DUP, demanding to rule out customs checks on the Northern Irish border and thus different tariffs between the UK and the EU is effectively the same as demanding that Britain never recovers an independent trade policy, with the right to set its own tariffs.
Even if Britain did not check that goods crossing the Northern Irish border comply with UK tariffs, surely EU member states would tell Ireland to check if EU tariffs have been paid on goods entering Ireland from the UK.
Irish PM Varadkar may have pledged that not a single one of the 1000 newly hired customs and supervisory officials will be posted at the Northern Irish border, but other member states may ultimately ask him to put them there.
The UK government has proposed a system that is designed to square the circle, combining different UK tariffs with avoiding Irish customs checks on the Northern Irish border. Its facilitated customs arrangement involves the UK collecting tariffs on behalf of the EU for goods first entering the UK but with the EU as their destination.
Many are rightly sceptical about this system, which involves a high degree of trust, but one could think of arrangements whereby Britain promises to financially compensate for the EU in case of unexpectedly low tariff revenues, if that were the concern. There is a precedent here: in 2009, the EU agreed to trust a non-member’s (Switzerland’s) customs checks as equivalent.
Britain also has the second option of a “maximum facilitation” model.  “Max fac” attempts to minimise friction at the border using technology and the imperfect precedents of those other two neighbouring countries that are not a member of the EU’s customs union: Switzerland and Norway.
The head of the Swiss customs service has said that his experience suggests an “invisible border” in Ireland after Brexit is possible. Because only a minority of possibly necessary checks relate to customs matters, this should perhaps be something conceivable for Ireland and the EU.
To convince the EU, the UK could simply suggest that it would apply the same tariffs as the EU for a period after January 1, 2021, meaning no customs checks on the Irish border would be needed for a long time. In effect, as its offer for the Irish backstop, the UK proposed in June that the whole of the UK – so not just Northern Ireland – could remain in the EU’s customs union after the end of the transition.
In a technical paper, Britain suggestss applying a “temporary customs arrangement … between the UK and the EU” that would allow it to sign free trade deals with other countries that would only enter into force when a new, “future customs arrangement” would be introduced, which the UK paper “expects” to be the end of December 2021 at the latest.
This may be a little optimistic, as a lot of work will be needed to adapt UK customs bureaucracy, both for Northern Ireland and the Channel ports, while Britain is likely to need a lot of time anyway to negotiate a trade deal with the likes of India, the United States and Indonesia. Therefore, a longer period may be necessary. Also, many big manufacturers with plants in the UK operate on a “just in time” basis. If there were different tariffs between the EU and the UK, they would need time to make changes to that model.
This would all involve the whole of the UK and not just Northern Ireland staying in some kind of common customs union with the EU for a limited period. Barnier has said he has no objection to a UK-wide customs area “in principle”, also as he’s apparently being pressured to be more flexible on this by “northern trading states”. He has however raised doubts over such an arrangement being “temporary”.
According to Bruno Waterfield, the always well-informed Brussels correspondent of The Times, the current compromise envisioned by negotiators would be for the UK to accept the backstop as drafted by the EU, but the EU also accepting to negotiate a UK-wide arrangement during the transition, so the whole of the UK would be kept under the common tariff regime with the EU until final trade arrangements was ready.
This scheme is being described as the “Siamese twins” of “a bridge for the UK and a backstop for Northern Ireland”. If indeed this were to be the outcome, the UK would remain under a common customs regime with the EU for quite some time, as, again according to Waterfield, the EU has claimed that UK proposals on customs – FCA and Max Fac – require the EU to change its own customs code, which would take “at least a decade”.
Even more troubling is the fact that, short of any other deal with the EU, it might mean that Britain wouldn’t regain its own trade policy. Waterfield adds that “[the EU] and Whitehall both fear that internal Tory politics at [the Conservative] party conference in Birmingham could kill a backstop compromise. [There are] fears that Jacob Rees-Mogg and the European Research Group are “on manoeuvres””.
In any case, some EU flexibility is needed for Britain to recover its own trade policy. Any deal which makes the UK leaving the EU’s common tariff regime dependent on an EU veto won’t be sustainable.

Thursday, August 30, 2018

Brexit: What would a 'no deal' mean?



My interview with Euronews

How are the EU27 preparing for a ‘No Deal’ Brexit?

Published on Open Europe's blog and covered by various media, including the Financial Times


Understandably, a lot of the recent focus in the British media has been on UK preparedness for a ‘No Deal’ Brexit but, just as with a negotiated deal, there are many players determining how this scenario could play out. The EU27 as a whole and individual countries are making their own plans as well.
While the impact of a badly handled ‘No Deal’ Brexit would have a greater proportional effect on the UK, the EU also has much to lose from ‘No Deal’, and certain member states, such as Ireland in particular, could be heavily exposed in a ‘No Deal’ scenario.
Below I set out the range of measures (not exhaustive) that governments and firms across the EU27 are taking to plan for April 2019. It must be said that it is not always clear to what extent these measures are being taken to prepare for a ‘No Deal’ or negotiated Brexit, as many are likely to be required under either scenario.
What is clear is that some member states are far more prepared than others and some appear more flexible than others.

Ireland:

  •  Each Irish ministry has been asked to identify the potential impact of a ‘No Deal’ split and what resources would be needed to deal with it.  
  • Infrastructure at ports and airports will be upgraded, in particular at Dublin and Rosslare Ports. The Irish Taoiseach, Leo Varadkar, has specified that “about 1,000” customs and veterinary inspectors will be hired “over the course of the next year,” to post “at ports and airports,” although none of them will be deployed on the border with the North as checks at the Northern Irish border “is not a scenario that we’re going to prepare for.” He added  that “in the unlikely event of a ‘No Deal’ hard Brexit next March, of course it will not be possible to have 1,000 people in place by then, but we will make contingency arrangements to do whatever needs to be done in the unlikely event that should arise.”  
  • The Irish government is drawing up plans to stockpile insulin, vaccinations and other medical supplies because of possible restrictions to import from the UK.  
  • The Irish government has also signed off on a plan to remove all of Ireland’s 200,000 tonnes oil reserves from the UK, “for national security reasons.”  
  • Other measures include setting up a new system on the Irish stock exchange to settle shares and securities, lobby the EU Commission to relax state aid rules, offerbusinesses a ‘Be Prepared’ grant of up to €5,000 and making sure Irish pensioners with a UK pension continue to receive it.  
  • Only 6% of Irish businesses already had a Brexit plan in place this Summer, according to a survey by Allied Irish Banks (AIB). For Northern Ireland, that figure was 5%, despite 70% of firms expecting the UK’s departure from the EU to have a negative impact on Ireland’s economy. The manufacturing, retail and tourism sectors here were the most negative about Brexit. According to another survey, customs and logistics are the single largest Brexit worry for Irish businesses.

Belgium:

  • The Belgian government has decided to hire at least 141 extra customs officials. The plan is to hire them this autumn and to train them so they are ready by April 2019. Trade unions representing customs officials have accused the government of underestimating the extra workload and being too late to deal with Brexit, claiming that the Netherlands has been quicker on the ball.  
  • The Belgian customs administration has also set up an internal committee which will be responsible for the extra infrastructure and for training the new staff. It has drawn up a list of potential items that may be needed after Brexit, which reportedly includes more luggage scanners, sniffer dogs, manual scanners, drones to survey the coastline, a submarine to examine ships in the North Sea, as well as vehicles, computers, work spaces, and uniforms. There are also plans to coordinate with neighbouring countries, the European Commission, Belgian ports and airports.  
  • Special attention is being devoted to the ports of Zeebrugge and Antwerp, which are big re-exporters of goods to the UK. Together with the Dutch ports they account for the majority of total inbound and outbound traffic with Britain’s ports. The CEO of Zeebrugge, which has 46% of its traffic with the UK, has claimed the port will be ready for Brexit. It is building a digital platform to speed up bureaucratic procedures, and thinks it may be better equipped than some competitors, because it specialises in people-free freight.

Netherlands:

  • The Netherlands was the first to announce it is hiring extra customs officials, up to 930, to deal with Brexit and a possible ‘No Deal’. This is a 20% increase in staff capacity. According to the Dutch government, this is mainly needed in Rotterdam port. The Dutch Food Safety Authority NVWA also plans to increase its staff numbers with 143 people, to implement checks at ports and airports. Especially veterinarians are needed.  
  • The Dutch government is currently drafting a “playbook,” which should be ready by October, to deal with a ‘No Deal’ scenario, following pressure from the Dutch Parliament, which will be briefed on the “playbook” in September.  
  • The Dutch government has prepared a €3.9 million budget to help business with Brexit. This includes the possibility to request a €2,500 voucher which can be used for a “Brexit test,” to check how a company would be affected by Brexit.  
  • The CEO of Dutch employer federation VNO-NCW has stated he is doubtful whether Dutch companies that are trading with the UK are sufficiently prepared for Brexit, warning them at a special meeting that “on Brexit day you are too late.”  
  • The port of Rotterdam, which is the Europe’s biggest port, plans to simulate the worst case Brexit scenario in November, with its Director, Allard Castelein, explaining, “we will do a test whereby we simulate a “real’ Brexit situation. All parties and companies will then feel how it will be…On that day, we hope to discover the problematic issues. Then we still have a few months to prepare ourselves for the real Brexit.” He also warned that “I don’t feel the sense of urgency among government or business to deal with Brexit scenarios.”

Germany:

  • The German customs administration is planning to hire 900 new customs officials in the coming year, to be posted at the ports of Hamburg and Bremen, at major airports, such as Frankfurt or Cologne-Bonn, and at DHL’s hub in Leipzig. It has been preparing for all possible scenarios for months. Action plans to minimise upheaval have been drafted.  
  • Business federations have been urging businesses to prepare, publishing informationabout Brexit, with the BDI, Germany’s biggest industry lobby warning “many companies simply hope there won’t be hard Brexit.” Especially smaller German companies are not well prepared.  
  • Manufacturers, like BMW, are reportedly preparing infrastructure to stockpile parts and training Deutsche Bank has stated it is already prepared for a ‘No Deal’ scenario.  
  • Some firms seem to prepare by simply shifting some production away from Britain. In March, it was revealed by the Chartered Institute of Procurement and Supply, based on a survey of more than 2,000 supply chain managers, that one in seven European companies with UK suppliers had moved part or all of their business out of Britain.

France:

  • The French government has announced it will hire 700 extra customs staff by 2020, on top of the 250 that are being stationed this year at ports in Calais, Dunkirk and Eurostar terminals in France.  
  • French Prime Minister Edouard Philippe has also asked his ministers to prepare “contingency measures that would be necessary…to mitigate the difficulties linked with this unprecedented challenge” of a ‘No Deal’. The measures will be inserted an emergency bill which the French Parliament will be asked to approve and include plans to “facilitate the residency of British nationals already living in France” and to ensure “the greatest possible fluidity of border controls” when the UK leaves the EU.  
  • Also, the French government has been suffering domestic criticism for its lack of preparedness. In July, Xavier Bertrand, the president of the Hauts-de-France region, which includes Calais, issued a desperate warning that there was not enough contingency planning because there is no cross-border communication between French and British policy makers, saying, “I don’t think there is enough awareness. Many politicians think it is all automatic and somebody will take care of Calais.”

Luxembourg:

  • Luxembourg may be small but its role is not unimportant in Brexit, given the presence of a large asset management industry in the Grand Duchy. The country, which has stressed that keeping financial channels with the UK open benefits the EU, is seen as attractive to certain London-based asset management and insurance firms looking to continue to benefit from an EU passport to provide services once the UK leaves the EU.  
  • Asset managers will need to start activating contingency plans by the Autumn according to The Investment Association, a trade body for UK investment managers, Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), has ordered financial institutions in the Grand Duchy to prepare for a ‘No Deal’ Brexit by taking “immediate practical steps to prepare for Brexit” and to inform their clients of the potential risks.

Other countries:

  • In Poland, several ministries have been analysing the potential impact, both on the many Polish citizens living in the UK and on the Polish budget which is vulnerable to a cut in EU subsidies. At the end of July, the government was determining how many additional customs agents will be required and investigating measures to limit the risks to business.  
  • Spain’s government has been running an analysis of the different potential outcomes of the Brexit talks, including the ‘cliff-edge’ scenario, based on input from companies and business groups. It has also been working on a plan to shield its tourism industry from any disruption to air travel and will allow UK citizens to use their existing Spanish ID as a post-Brexit entitlement paper, which is a more flexible arrangement than the one France has in mind. Last month, the Spanish government warned the UK that a ‘cliff-edge’ Brexit must be avoided for Gibraltar, as bilateral talks between Spain and the UK are currently ongoing over this issue.  
  • The Italian government reportedly does not yet have a contingency plan for a ‘No Deal’ Brexit, as it considers this a remote prospect, according to a senior official, who thinks EU-wide contingency planning may be needed instead, in September or October. Business is however getting nervous, as Roberto Moncalvo, president of Italian farming union Coldiretti has warned Italian agriculture “can’t pay the price of Brexit,” estimating that 800,000 Italian farms may be impacted by possible agricultural spending cuts.  
  • The rest of the 27 remaining EU member states have been following quite similar strategies in preparing for a ‘No Deal’ Brexit: identifying different scenarios and developing actions plans (Bulgaria, Denmark, Cyprus, Estonia, Finland, Sweden), increasing customs staff (Belgium, the Netherlands, France and Germany) or not (Portugal, Austria). Some countries (Lithuania) have no specific contingency plans.

The European Commission:

  • The European Commission has been preparing contingency plans that would allow the EU to take unilateral measures to mitigate the risks to trade with the UK in the event of a ‘No Deal’ Brexit. The Commission has published a list of pending legislative initiatives on “preparedness” and has also put up a “Brexit Preparedness website.”  
  • Apparently there are already disagreements over the duration and range of such arrangements. One concern within the Commission is that it may not be able to act as swiftly as the UK. This is because many decisions would require the endorsement of all member states as well as the European Parliament. Moves would also have to be compatible with European treaties and could be challenged in the European Court of Justice (ECJ).

Conclusion:

Some EU member states have already spent a lot of capital and energy on planning for ‘No Deal’, others not that much. Even the governments that have taken a lot of measures to prepare for Brexit, such as the Dutch, Belgian and French governments, have been suffering domestic criticism from business groups for not doing enough.
Ireland has done most in terms of preparations so far, but the admission by Irish Taoiseach Leo Varadkar  that in any case his government will not manage to put in place all of the 1,000 new customs officials and inspectors by March is indicative of the obvious: it is incredibly hard to prepare for a ‘No Deal’ Brexit and many of the EU27 member states will not be properly prepared for it.
The good news is that this might make the lose-lose ‘No Deal’ scenario less likely.