‘Delusional’ UK cannot have its cake and get to eat it, too

The UK government has begun to publish position papers on various issues
relating to Brexit, ahead of talks with the EU recommencing this week, writes Oliver Mangan.

Two of these papers relating to future customs arrangements with the EU and the North, and its border, are of major importance to Ireland.

That the UK says it will leave the Customs Union, when it exits the EU in March, 2019, is greatly complicating the Brexit process.

The UK government has proposed limiting the negative impact of this on trade.

Somewhat ironically, the UK has indicated that it wants to form a new UK-EU Customs Union for a limited time, following Brexit.

Beyond that, the UK has suggested that it could operate a customs regime that aligns precisely with the EU’s regime for goods entering the UK that are destined for the EU.

It would, in effect, collect customs duties on behalf of the EU on these goods, while applying its own tariffs on imports for the UK market.

This sounds fine, in theory, but would prove difficult, in practice, as many UK imports are components used in further manufacturing.

It would be hard to tell which are destined for the UK market and which for the EU.

The UK suggests there could be a ‘tracking mechanism’ for imported goods in supply chains, but this sounds both cumbersome and costly.

The UK has also made some suggestions on how to avoid a hard border and customs posts between the North and the Republic, should customs controls be introduced between the UK and EU.

It argues that small traders, which account for over 80% of all cross-border trade, should be exempted from any customs controls, as this is local trade and cannot be properly categorised as international trade.

Larger traders would be classified as ‘trusted traders’, who would be allowed to avail of simplified customs procedures.

However, it is hard to see why other EU countries with land borders and local trade with non-member states would agree to this. Indeed, they may seek similar derogations for trade with neighbouring, non-EU states.

It would offer a back-door entry for goods into the EU without paying customs duties.

This is particularly true of trade in agricultural products, which tend to attract a high level of EU tariffs and also have to meet stringent EU quality standards.

Customs arrangements have emerged as likely to be the most difficult issue to
resolve, if a hard Brexit is to be avoided and free trade can continue between the UK and EU.

However, by leaving the EU Customs Union, the UK is making this very difficult to achieve.

The UK wants to retain all the benefits of free trade with the EU after its departure, but be able to follow its own rules and to negotiate free trade deals with non-EU countries — the so-called ‘having your cake and eating it’ approach.

Politically, it is difficult to see how this would be acceptable to the EU.

Michel Barnier, the EU’s chief negotiator on Brexit, has clearly stated that by making the choice to leave the EU and the Customs Union, “the UK will naturally find itself in a less-favourable position than that of a member state”.

He also warned that the post-Brexit trade arrangements “cannot be the equivalent of what exists today”.

The EU will also not allow the integrity of the Single Market to be compromised by a lack of border controls.

This is why some commentators have characterised the British approach to the EU talks as ‘delusional’, while also saying their proposals are both unrealistic and unworkable.

Oliver Mangan is chief economist at AIB


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