May offers new clarity on UK’s Brexit trade-offs
The shape of Britain’s future relationship with the EU has been slow to emerge. Last week saw progress, writes Dan O’Brien
MANY areas of public and private life involve tradeoffs. How cross-border commerce happens is a topical example.
The freer that trade is between countries, the less free the countries involved are to decide their own economic policies. This is to be seen in the pressure Ireland is under from some other European countries over corporation tax. These countries believe that Ireland is trying to have the best of both worlds — fully free access to a market of 500m people while at the same time using tax as a means of stealing a competitive march at their expense.
They want new EU-level laws to narrow the freedom members have regarding the taxing of company profits. While this matter is far from straightforward, it illustrates the trade-offs that arise as economic integration deepens (discussed separately in a short explainer to the right).
Last Thursday, the British government set out its most comprehensive proposals yet on how it envisages trading off freedom over its economic policies, on the one hand, with access to the EU market on the other.
Since the early days of Theresa May’s premiership, the British government has shifted toward giving greater weight to the latter over the former, even if what Britain ends up deciding collectively — or fails to decide, owing to political paralysis and division — is still impossible to predict. While the balance of power has shifted over the past week in favour of those who prioritise continued economic integration with Europe, there has also been greater polarisation. The strains on the UK body politic are immense and growing. Things could yet snap.
But let’s leave the politics to one side and instead consider the core aspects of the White Paper that are of relevance to Ireland economically. Trade in services In some cases, the document gives priority to maintaining integration with Europe over regaining freedom to set Britain’s own standards. It does not do that for services. It says “new arrangements on services and digital, providing regulatory freedom where it matters most for the UK’s services-based economy… while recognising that the UK and the EU will not have current levels of access to each other’s markets”.
Not having current levels of access to the UK market is of major concern for this country because two-way services trade between Ireland and UK stood at €34bn in 2014. Services exports to Britain far exceed the value of all tangible goods shipped to the British market. Further, the value of Irish services exports to the UK is almost double the value of imports from that country, with computer services exports alone reaching €7bn.
The scale and balance of this trade makes Ireland unusual among EU countries. Less access to the British market for tech companies and financial institutions has the potential to hit the Irish economy hard. This has not got the attention it deserves in public discussion. Trade in goods For goods, including much talked about agri-goods, the White Paper makes a different trade-off from that of services. A major change to one of Theresa May’s ‘red lines’, and one that has led to cries of “vassalage” from Brexiteers, is the willingness to commit to adopting EU product standards in the future. This would involve EU rules and laws being copied and pasted into Bills enacted at Westminster. This is what countries like Norway do under the terms of their relationship with the EU.
But the White Paper pushes back against a Norway-style arrangement, suggesting “a clear process for updating the relevant rules, which respected the UK’s sovereignty and provided for Parliamentary scrutiny”.
This could be a deal-breaker for the EU side as it would involve (non-member) Britain having input into the EU law-making process and — in theory at least — the scope to veto European laws that have gone through the full legislative process in Brussels and Strasbourg.
No such arrangement has ever been granted to a nonEU country. It is hard to see the 27 members granting it to the UK, even if finessing the matter would be very positive from an Irish perspective as it would prevent a build-up of friction in goods trade. Customs union The British customs proposals are even more problematic for Ireland. The paper says the proposal would “enable the UK to control its own tariffs for trade with the rest of the world”.
As discussed below, the core of a customs union is the application by its participants of identical tariffs on products imported from the rest of the world. If Britain were to diverge on tariffs, things would quickly become tricky.
Consider, for instance, if Britain were to slash tariffs on Brazilian beef. Cheap South American meat destined for the UK market would inevitably find its way over the Border. And the bigger the price differential between Newry and Dundalk, the greater the incentive there would be to smuggle steak.
Among other things, farmers in the Republic would be up in arms and likely to demand controls were put in place. The obvious place to control for meat illegally crossing the Border is the Border. Resolving disputes Trade-offs form the core of the Brexit conundrum for the British. But not everything involves a trade-off. One area is finding a way to referee whatever deal is agreed.
This doesn’t present an insurmountable obstacle, even for sovereignty-obsessed Brexiteers who despise the EU’s Luxembourg court of justice. Britain, like all members of the World Trade Organisation, agrees to be bound by the rulings of its appellate body — in effect, the world’s court of international trade law. There is no controversy about this in the UK.
Such a court is necessary because in the absence of one, countries could break the rules without consequence. They could, as has often happened in the past, invent sneaky new ways to hinder other countries’ products entering their markets. If there is no independent mechanism to determine what is and what is not a breach of the rules, the whole system breaks down.
The British proposal put forward last week is for a new independent body to be established to adjudicate on any disputes that may arise. In the recent EU-Canada trade deal, such a body was established. It will comprise five EU nationals, five from Canada and five from other countries.
Setting up a similar EUUK panel would not inconvenience the EU side in any fundamental way. It would also allow Theresa May to show that the new deal would be clearly different from EU membership. That could help in the grinding out of further changes to the British position on the really important tradeoffs in customs and services trade. There is a long way yet to go.
‘Cheap South American meat destined for the UK would inevitably find its way over the Border’