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The main reason why Theresa May’s agreement with EU negotiators was scuppered on Monday was that she had left the constituencies she depends on insufficiently prepared for what was coming. A consensus, in turn, will be hard to achieve until all sides are in possession of the facts about what is actually possible to achieve in the global economy. The trade-offs between the various goals of those who want the UK to leave the EU will not be confronted until everyone admits they are there.
So as the deadline to make an agreement before this month’s European Council meeting draws near, here are some of the key facts.
First, some people in the UK still suggest Britain could simply decline to erect an economic border with the Republic of Ireland (and, some hope, the rest of the EU by precedent) even if it “takes back control” by leaving the EU customs and regulatory regimes. The notion is to “dare” the EU side to set up a border which at best (so the argument goes) it will not do, and at a minimum allows the UK to blame “the Europeans”.
This is ignorant. My colleague Alan Beattie has set out why: as a member of the World Trade Organization the UK is legally obliged to treat the EU no better than all other WTO members — which entails imposing tariffs — in the absence of a free-trade agreement. And even with an FTA, it still has international legal obligations to enforce various other regulatory rules on the border. The “just don’t erect a border” fantasy presupposes the UK as a rogue global citizen.
Second, too many UK politicians still don’t seem to know what function an economic border has. So let’s break it down. When goods cross an international border, three things have to be enforced. First, the collection of any import duties or compliance with import quotas. Second, compliance with rules of origin, which involve preventing third-country goods from being camouflaged as the trading partners’ own production (when the latter are treated more leniently). Third, the enforcement of standards, such as food regulations, which must be met for the products to be legal in the territory they enter.
An FTA takes care of the first by removing tariffs between the trading partners. A customs union takes care of the second by agreeing on the same tariffs against third-party countries (so that no rules of origin need to be checked once the goods are inside the customs union). A regulatory union takes care of the third: when the rules are the same in both countries, compliance checks when goods cross a border are unnecessary.
The UK policy at the moment is to negotiate an FTA but leave both the EU customs union and the regulatory union known as the single market. But you can eliminate the need for an economic border, with checks, only if you have all three. And that presupposes a visa- and passport-free travel area, without which the people crossing the border would need to be checked as well.
Third, this means it is an error to think the Norway-Sweden border or the Switzerland-EU allows frictionless trade. Norway is in a free-trade agreement and a regulatory union with the EU (through the European Economic Area, which is both). But it is not in the customs union, so rules of origin compliance must be checked. And for this a physical border infrastructure is necessary. Switzerland is not in the EEA but in effect harmonises its regulations with the EU’s and is therefore in a comparable situation. (Norway and Switzerland are in the Schengen area of passport-free travel.)
The Swiss and the Norwegian borders are as managed as efficiently as can be, but efficient (given the need for checks) is not the same as frictionless (which means no checks). Chris Giles’s latest column charmingly describes his personal experience of economic activity across the Swiss-French border, and illustrates the economic costs even these most efficient border controls impose — as seen, for example, in the wide spread between car rental prices in the Swiss and French sections of Geneva airport.
None of this is frictionless, let alone free of physical border infrastructure, which the UK has promised it wants to avoid along the Irish border.
Fourth, for good measure, let us add that promising customs and regulatory harmonisation in only some sectors won’t do: border checks would then be necessary to determine if the transported goods fell under the covered sector or not. That’s why if the UK will allow Northern Ireland some regulatory and customs alignment with the EU, it may as well permit it align across the board.
These are simply facts about the world. As Kevin O’Rourke points out, they are borne out by UK-Irish history. It was not until the EU established the single market, a much-maligned set of harmonised regulations and a common court to enforce them, that border posts became unnecessary between the two states on the island of Ireland.
Understanding these facts and knowing this history makes one thing clear: there is a logical contradiction at the heart of UK policy. One can only “take back control” in the sense the UK government defines it by having controls the UK government still insists it has forsworn.
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