Brexit Views 15 May 2018

Post-Brexit customs arrangements are still dominating the current Brexit debate. As we move closer to the June meeting of the EU Council, pressure is mounting on the UK Government to bring forward solutions that will address the border on the island of Ireland. EU negotiator, Michel Barnier’s statement that Brexit talks have made little progress since March and the Tánaiste’s comments that a border backstop must be agreed by June, adds even further uncertainty to the process.

Prime Minister May remains committed to her Customs Partnership and Maximum Facilitation (Max Fac) proposals first put forward in the autumn as the potential solutions to this issue despite the EU already reportedly dismissing both ideas as “magical thinking”. While the PM’s preference seems to be for the highly complex Customs Partnership model which would see the UK collect tariffs  on behalf of the EU and then allow businesses who qualify for a lower tariff apply for a rebate, Brexiteers in her Cabinet are backing the Max Fac model which envisages advanced trusted trader schemes and technological solutions that would allow for frictionless trade to continue.

Both models are flawed, and both fail to meet the standards required to allow the border on the island of Ireland remain as is; a key commitment from last December that paved the way for talks to move forward to the future relationship. Neither deliver on regulatory and tariff alignment, both of which are essential to avoid a border on the island of Ireland.

The Customs Partnership model is especially complex and places a burden on businesses that would be excessive, especially for SME’s who may not have the capacity to go through the relevant processes in order to secure a rebate. It is also difficult to envisage how such a model would work for complex manufacturing supply chains that cross a number of jurisdictions.

The Max Fac model would involve additional administrative burdens for businesses and some infrastructure along the border. In addition it relies on an exemption for SME’s, which account for the vast majority of trade that crosses the border. This would in effect mean Ireland not enforcing customs rules and essentially leaving itself open to abuse and also potentially jeopardising the integrity of the EU’s Single Market and Customs Union  – something that will not be acceptable to the EU. Both models also involve the use of technology that is either untested or does not actually exist and it is highly doubtful that either system could be in place by the end of the transition period in December 2020.

The Prime Minister has now divided up her Brexit Cabinet to examine both proposals and is inviting her backbench MPs to Number 10 to brief them on the two ideas in the hope of building consensus around one of these options.

While this internal Conservative debate is going on, Brexit legislation has come to a standstill in Parliament. The House of Lords finished its report stage of the Withdrawal Bill  on the 8th May with further defeats for the Government on amendments requiring the UK to stay in EU agencies after Brexit and to negotiate the UK remaining in the EEA after it leaves the EU. In total the Government has suffered 14 defeats on this legislation in the House of Lords. The House is to have its third and final reading of the Bill tomorrow before it returns to the Commons for consideration.

No dates have been set for debates on key Brexit legislation including the return of the Withdrawal Bill. It was expected that Brexit related bills such as the trade and customs bills would be brought forward in May but neither have been included in the Commons’ schedule for the next two weeks meaning that the chance of this legislation being debated before the next recess is non-existent with some expecting the debates to be dragged out until the autumn.

The British Irish Chamber has been very open that the only way the border can be solved through a trade framework is through adoption of aligned tariffs and regulations. While the easiest and most beneficial way to business of achieving this is through continued membership of the Customs Union and Single Market, we have also set out an alternative framework in our Big Principles Brexit policy paper that would allow the UK Government maintain many of its “red lines” for Brexit. Compromise is going to be required from both sides if we are to achieve a least-worst Brexit. Both models presented have already been dismissed by the EU and as a Chamber we are concerned by the amount of time that is being afforded to them when there is such time pressure to find workable solutions.

News today that both Thomson Reuters and DPI Legal are opening up offices in Dublin in response to Brexit is evidence that for some time has run out and that current uncertainty has forced them into actioning their Brexit plans. Businesses will not be beholden to politics in order to operate. Without clear solutions on how they can maintain current operating models, businesses will look at alternative options. The Chamber conducted a survey in November 2016, a few months after businesses had come to terms with the referendum outcome and ahead of the triggering of Article 50. On that occasion “Clarity of Brexit Terms” was by far the biggest support that businesses wanted ahead of negotiations. Nearly 21 months on and businesses are no more enlightened than they were then.