Published on CapX
The prospects of Theresa May’s Brexit deal have, for quite some time, depended on her government’s ability to amend or in some other way mitigate the so-called backstop set out in the Withdrawal Agreement. Yet, Ireland’s government may well hold firm. The arrangement, which is vociferously opposed by British Eurosceptics, involves the UK remaining under the EU’s customs regime until further notice to avoid customs checks at the Irish border.
Perhaps the UK Parliament will find it sufficient to make it more legally solid that the EU has a “best endeavours” obligation to negotiate an alternative to the backstop which reconciles the absence of a hard border in Ireland with an independent UK trade policy. It’s even possible that the UK government will ultimately sign up to a permanent customs union with the EU, though that would depend on Theresa May reaching out to Labour, which supports something along those lines.
It’s an issue which remains clouded in uncertainty, even at this late stage, and multiple hurdles remain. In Brussels, many realise Taoiseach Leo Varadkar has limited room to manoeuver on this domestically. Many in Ireland consider giving ground on the backstop as the gravest of Irish concessions.
However, there are at least five good reasons why it is in Ireland’s interest to agree to a time-limit to the backstop.
1. The UK effectively already has a “right to unilaterally recover trade powers”, so a time limit would not really be a concession
The current draft Withdrawal Agreement requires the EU to act in good faith and not simply claim that any alternative to the backstop is insufficient to avoid a hard border in Ireland. Who, then, will decide whether this obligation has been violated? What people seem to forget, is that the UK will be a “third country” after Brexit, liberated from the legal regime of the European Union. The phrase “best endeavours” can be interpreted in many different ways. If relations between both sides have become so toxic that a trade deal replacing the backstop customs regime becomes impossible, it is highly unlikely the world’s fifth biggest economy would simply continue to outsource its trade policy to the EU. Britain could unilaterally declare it will start trading on WTO terms in 12 months’ time and ultimately there wouldn’t be much Ireland could do about it. So if Ireland now agrees to a time-limited backstop, it’s not really giving much away, as it hasn’t secured all that much in the first place.
2. Agreeing a time limit offers material gains to Ireland
Even if you do not accept that the UK could wriggle out of its Brexit commitments by simply referring to the “best endeavours” obligation – for example due to the importance of avoiding customs disruption – it remains the case that the benefits for Ireland of a Brexit deal being concluded now are much bigger.
The estimates of how a “no deal” would hit Ireland range from the IMF’s and Irish Central Bank’s four per cent of GDP to the whopping eight per cent forecast by Germany’s IFO institute, which estimates that the damage to Ireland’s economy would be three times as big as to the UK’s.
That’s before we come to the potential damage to the Northern Irish peace process. If Ireland and the UK decided to simply not enforce proper checks at the border, which is not all that unlikely, the EU would have to move the customs and single market checks to mainland Europe, creating “Irexit” in all but name.
But would Ireland agreeing to a time limit pave the way to a deal? The signs are promising that it would.
The DUP have declared that a time limit on the backstop “would be acceptable”, while Jacob Rees-Mogg, the head of the European Research Group of Tory Eurosceptics, has suggested something similar. With the probable abstention of Labour MPs disgruntled about their party’s commitment to a second referendum, the deal should pass the House of Commons. In summary: regardless of the vexed question of whether conceding to a time-limited backstop is a material Irish concession, avoiding a No Deal Brexit clearly has very significant benefits.
3. Setting a deadline forces the EU26 to make an effort to negotiate an alternative
Two kinds of checks need to happen at the Northern Irish border if the UK leaves without a deal: single market checks and customs checks. The Withdrawal Agreement includes a deadline of 1 January 2023, after which it will no longer be possible for the UK to remain in the single market as a non-EU member state. From that point on, single market checks become necessary at the border. There is no such deadline for customs checks. However, setting a time limit for the backstop would create such a deadline. It would be the fourth deadline, after 29 March 2019 and 1 July 2020, by which a decision is due on whether to extend the transition stage. If the current draft deal already has three deadlines, a fourth one surely can’t hurt all that much?
It’s important not to assume that the UK won’t demand its trade powers back at some point. The EU will be negotiating trade access to the UK, which won’t have any say. If the EU agrees a trade deal with, say, Russia, this means Russian companies would get access to the UK automatically, but the UK would need to ask Russia whether British companies can enjoy the same access to its market as EU companies. What’s more, EU trade negotiators would have difficulty telling potential trade partners the UK consumer market was on offer, while those trade partners would be able to hear British complaints about it, making them more hesitant to make concessions. So, the only realistic question is when the UK starts setting its own tariffs. A permanent EU-UK customs union falls firmly into the category of “unicorn”, as the ever-expanding Brexit lexicon would have it.
Ireland really holds the keys now. Were Varadkar to propose that the backstop be activated for a maximum of five years from 2023, it would mean the can being kicked all the way until 2028. This clearly reduces the chances that the UK would break out unilaterally — a scenario that would seriously damage Ireland’s economy. Agreeing such a time limit would also force the EU27 to focus on the deadline, something the Irish government would do well to bear in mind.
4. It’s in Ireland’s interest to keep good relations with the UK
It would be off if, in an effort to avoid a hard border and subsequent souring of Anglo-Irish relations, the Irish government refused a solution that simply kicks things into the long grass – itself a recognition of just how tricky a problem the border has become.
The backstop effectively gives Ireland a veto over when the UK can recover is trade powers. Is it so unreasonable for the UK to concede to being a “trade vassal” for a limited time, but request that it has control over how long that will be or that there is a firm deadline? From an Irish perspective, allowing a No Deal Brexit is like refusing to buy fire insurance, then leaving a cigar smouldering in the corner of the room.
Goodwill from both the UK but also from the EU26 will be needed to sort out the challenge of combining an independent UK trade policy with avoiding a hard border. The obvious compromise is for Northern Ireland to remain in the EU single market, but outside of the EU’s customs union, much like Norway. For this to be a realistic prospect, however, will probably mean waiting until the DUP is no longer propping up a Tory government, even if DUP founder Ian Paisley himself once said: “Our people may be British, but our cows are Irish.”
If the UK were to concede to regulatory checks in the Irish sea, it would mean that any good arriving in Northern Ireland from outside of the EU would have to comply with EU health and safety standards. If both Ireland and the UK decided not to implement overly strict customs checks, the risk would only be that some customs might not have been paid, something the UK could easily compensate the EU for. We’re talking about pocket change, given there is less trade between Northern Ireland and the Republic than with Great Britain. If Ireland refuses to give room on the backstop, it will be much harder to end with a similar fudge.
5. Ireland is not ready for no deal
The fact there is not yet a Brexit deal has already hit the Irish economy. Employment growth and SME investment have stalled. Varadkar himself has admitted the necessary extra customs staff won’t have been deployed by the end of March. There are major opposition questions
It would be a bit unfair to blame the Irish government for making only sketchy preparations for what was long considered a worst case scenario, rather than a likely one. One would hope that reason will prevail and the investments to prepare for No Deal turn out to be unnecessary. At the same time, all parties should do their utmost to avoid such an eventuality happening by accident.
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