Out with the backstop, in with striking trade deals
BORIS JOHNSON has negotiated a different approach to Brexit, doing away with the Irish backstop in favour of an arrangement for Northern Ireland that kicks in at the end of the transition period in December 2020, scrapping Theresa May’s close economic partnership in favour of a more distant relationship based on a free-trade agreement.
The revised Irish protocol
This seeks to set out not a “backstop” that will fall away when “alternative arrangements” can be shown to deliver an invisible border in Ireland but an entirely new future for Northern Ireland.
This requires a complex system of custom declarations for goods from Great Britain to Northern Ireland, effectively creating “red” and “green” channels, depending on type and destination of goods. Significantly, the protocol has a consent mechanism to allow Northern Ireland’s political parties to vote on continuing in this specially aligned relationship with the EU.
Article 4 Northern Ireland in UK customs territory
Johnson deal: This states that Northern Ireland is “part of the customs territory of the United Kingdom”, which was a key demand of Mr Johnson. It stresses that Northern Irish businesses can export alongside GB businesses in future UK trade deals – in short, they are not excluded.
It states: “Nothing in this Protocol shall prevent the United Kingdom from concluding agreements with a third country that grant goods produced in Northern Ireland preferential access to that country’s market on the same terms as goods produced in other parts of the United Kingdom.”
May deal: Left all the UK in a customs union. No ability to strike trade deals for either GB or Northern Ireland, at least until the status of the UK’S relationship with the EU was resolved.
Article 5 How the Irish Sea border will work
Johnson deal: This explains the operation of the new customs arrangements across the Irish Sea that will come into force in order to avoid a return to a hard border in Northern Ireland.
It says that goods going into Northern Ireland from Great Britain will not be subject to tariffs “unless that good is at risk of subsequently being moved into the [European] Union” and that household goods (for example, if you were moving from Manchester to Belfast) will be exempt.
Whether a good is “at risk” is decided by a joint committee that governs the protocol, effectively giving the EU the right to determine which goods pay tariffs. All inputs subject to commercial processing in NI must pay duties.
The joint committee decision will make the “at risk” decision based on the nature of the input or good, its value and the risk it poses to the EU for smuggling and duty-avoidance.
HMRC and the UK Government officials concede there will be lots of work on how it implements the “two channels” system of red and green lanes.
Crucially, the UK will administer the system, a big concession from the EU (Article 12.1), although the EU will have ultimate control of what is designated “at risk”. The DUP deemed this unacceptable, noting that while those goods ultimately destined for the Republic of Ireland would be subject to tariffs, “the reality remains that the EU would have a veto on which goods would be exempt and which would not under the joint committee arrangements.”
May Deal: Since GB and NI were in a “conjoined twin” customs union with the EU, the issue of duties and tariffs at the Irish border did not arise. There would have been some level of checks, but these were still to be determined.
Articles 6 & 7 How NI businesses retain access to the UK market
Johnson deal: This notes that the NI arrangement shall ensure “unfettered market access for goods moving from Northern Ireland to other parts of the United Kingdom’s internal market”.
This essentially says the UK will not create internal checks on NI business, even though there might be a risk of lower tariff EU goods entering GB via NI. This laissez faire approach prioritises the UK union over fraud risk, something the EU considers an internal management matter for the UK.
The protocol also says NI business that gets EU goods certification – it will be “UK (NI)” – can use these certifications to sell into the UK. If they are only selling to GB, they can get Uk-only certification.
May deal: Also promised “unfettered access” for NI business trading with GB.
Article 8 The VAT regime
Johnson deal: This says that Northern Ireland will apply the EU’S regime for VAT, but including Republic of Ireland exemptions. The UK will collect VAT on behalf of the EU. The details will be resolved in the joint committee.
This is not what Mr Johnson requested. He sought to leave the arrangement more indeterminate. The arrangement has also been rejected by the DUP, which argued it would leave Northern Ireland “bound into arrange
‘The reality remains that the EU would have a veto on which goods would be exempt and which would not’
‘The UK and the EU should keep a robust and comprehensive framework for competition and state aid’
ments that the rest of the United Kingdom will not”. The party said this presented the “real danger” that over time Northern Ireland would start to diverge from Great Britain’s VAT and customs regime with democratic consent.
May deal: Contained similar provisions, that the details of the regime would need to be worked out by the joint committee.
Article 13 Adopting new EU laws for NI
Johnson deal: This says that if and when the EU introduces wholly new rules, Northern Ireland can decide whether or not to adopt them to maintain the smooth functioning of the Protocol. If the UK side rejects them, then the joint committee considers other ways round the problem.
If these cannot be found and the new rules are not adopted then the EU reserves the right to take “appropriate remedial measures”.
May deal: Same
Article 18 Democratic consent for NI special arrangement
Johnson deal: This is the major change for Boris Johnson, which is a mechanism to enable all the Northern Ireland political parties to consent to whether or not to continue in the special arrangements for the Province provided for in the Protocol.
This is in effect an “opt out” vote, not the “opt in” vote that the Northern Irish parties were offered in the original Johnson proposals before the end of the transition period, which effectively handed a veto to the DUP on the arrangements ever kicking in.
The removal of any mechanism by which the Northern Ireland political parties could decide whether or not to adopt the special arrangement in the first place was among the key objections by the DUP. The consent mechanism works with the first vote coming “four years after the end of the transition period” – which is scheduled to end in December 2020. It could be extended for two more years. That puts the latest date for the first vote at the end of 2026.
The vote is taken “on the basis of a majority of Members of the Northern Ireland Assembly” and if they elect to remain in the special arrangement, it continues for four years afterwards.
If the vote is to remain on a “crosscommunity” basis, then the arrangement persists for eight more years.
The cross-community vote is defined as a “weighted majority (60 per cent) of members of the assembly who are “present and voting” but also including “at least 40 per cent of each of the nationalist and unionist designations present and voting”.
If Northern Ireland’s political parties ever vote to leave the arrangement then it will fall away after two years.
The joint committee will make recommendations about how to manage the resulting border, “taking into account the obligations of the parties to the 1998 Agreement”. Before doing so, the joint committee may consult the institutions set up under the Good Friday Agreement.
May deal: Left Northern Ireland in the aligned backstop arrangement “unless and until” alternative arrangements proved that it was possible for the province to share arrangements with Great Britain without requiring the return of a hard border.
It was the prospect that this state of “limbo” might never be resolved – or might be resolved by the entire UK remaining in a permanent customs union with the EU that caused Brexiteers to reject the deal, partly on the advice of Geoffrey Cox, the attorney general.
The Political Declaration
The Political Declaration on the future EU-UK relationship has also been substantially revised by Mr Johnson in the light of his determination to seek a much more distant trading relationship with the EU than his predecessor.
In his recent letter to Mr Juncker setting out his original proposals, the Prime Minister said he wanted a future relationship “based on a free-trade agreement in which the UK takes control of its own regulatory affairs and trade policy”.
Leading Brexiteers rejected the May vision, believing it set the UK on a path to a de facto customs union with the EU, removing the ability for the UK to set tariffs independently and strike preferential trade deals with non-eu countries. The declaration reflects this shift in emphasis but retains some commitment to follow the EU’S “level playing-field” rules on environmental, social and state aid regulation that will trouble many clean-break Brexiteers.
The backstop commitment is erased
As a result of the revision of the Irish Protocol, the commitment to replace the backstop with alternative arrangements (Point 19 in the original declaration) has been removed.
A much more distant relationship
In the May deal the UK committed to an “economic partnership” with no tariffs, fees, charges or quotas alongside “ambitious customs arrangements that… build and improve on the single customs territory” set out in the all-uk backstop arrangement.
Mr Johnson’s version excises these commitments and promises to deliver an “ambitious trading relationship on goods” based around a “free trade agreement”, while noting a desire to “[facilitate] the ease of legitimate trade”. This, crucially, is a step away from Mrs May’s ambition to have “as frictionless trade as possible”, but the level playing field with the EU remains.
Like Mrs May, the Prime Minister also seeks a trade deal that is “zerotariff, zero-quota” but as well as “ambitious customs arrangements” in line with the principles set out to Mr Juncker. In practice the Government accepts that will mean checks and frictions, but believes that “making use of all available facilitative arrangements and technologies” can reduce those barriers to trade to a minimum.
However, the EU made clear in 2018 that any UK-EU free trade deal that was “zero-tariff, zero-quota” would have to accept the EU’S level playing field rules – something Mr Johnson is keen to resist, but has accepted in this document.
Paragraph 21 says the two sides will engage in “deep regulatory and customs cooperation” that will be “underpinned by provisions ensuring a level playing field for open and fair competition”. These are set out in Section XIV (Para 77) and actually appear to expand on the May declaration, noting the “robust commitments to ensure a level playing field” needed in the light of the “geographic proximity and economic interdependence” of the UK and EU.
The document specifically notes the areas of “state aid, competition, social and employment standards, environment, climate change, and relevant tax matters”. It adds that the UK and the EU should keep a “robust and comprehensive framework for competition and state aid” and commit to “good governance in the area of taxation” and maintain “environmental, social and employment standards at the current high levels provided by the existing common standards”.
Thanks for all the fish
France and other member states have been adamant that any “zero tariff ” free trade deal must come bundled with access to UK water. Some 75 per cent of Uk-caught fish goes to EU markets, offering the EU a “lever” (as Emmanuel Macron once put) in the future trade deal.
The document states that a new fisheries agreement must be agreed, including “access to waters and quota shares” with a deal date target of July 1 2020, so quotas can be divided up before transition comes to an end.