This article was first published in ‘Briefings for Brexit, and we re-publish with their kind permission.
The author of this article is Harry Western
Suggestions that the ‘backstop’ trade arrangements in the EU withdrawal agreement are somehow advantageous to the UK are wide of the mark. They would create a trading environment worse than a UK exit based on WTO rules.
In recent weeks, some UK government sources and government-friendly organisations have been trying to argue that the trade arrangements created by the proposed withdrawal agreement (WA) and especially its Northern Ireland ‘backstop’ are not so bad and even advantageous to the UK.
The arguments advanced in favour of this idea are varied, including:
- The backstop arrangements will allow ‘frictionless’ trade in goods between the UK and EU
- Under the backstop arrangements, the UK will be freed from a lot of EU regulation
- The backstop will free the UK from the common agricultural and fisheries policies and end free movement of people between the EU and UK
- The WA leaves enables a permanent trade arrangement between the UK and EU that allows the UK to have an independent trade policy
- The backstop in the WA, as a UK-wide arrangement, prevents Northern Ireland (NI) from being partitioned from the rest of the UK (unlike earlier versions of the backstop).
- The backstop will be very unattractive for the EU who will instead move quickly to a permanent trade arrangement
Unfortunately, none of these arguments stand up to serious scrutiny.
‘Frictionless trade’. The backstop creates a ‘bare bones’ customs union between the EU and UK (with, importantly, NI staying in the EU customs union). This means no tariffs or quotas on trade between the EU and UK. But it most certainly does not create ‘frictionless’ trade as the UK will be subject to a full range of non-tariff barriers (NTBs) to trade, which in many cases would be larger than tariffs.
There are two particular problem areas. The first is that all goods shipped between GB and NI and GB and the EU will need to be accompanied by a paper movement certificate stamped by the customs authority. This archaic, pre-digital system will impose significant costs and delays, being especially onerous for smaller firms dealing in multiple small-sized consignments. Indeed, this system could be costlier that the situation facing firms from outside the EU trading on WTO terms.
The second relates to agricultural trade, where NTBs are potentially very high given the EU’s very restrictive SPS regulation system. Based on the existing WA text, there would need to be extensive border checks on agricultural products moving between GB and NI and GB and the EU because the WA contains no mechanism for minimising these. New Zealand and some other EU trade partners have agreements with the EU to reduce inspection rates to low levels (e.g. 1%) but the UK would not have this under the WA.
In principle, the UK could erect similar NTBs against EU agricultural produce. But this would be self-defeating. Such barriers would drive up UK food prices and hurt UK consumers and because the UK would be locked into a customs union with the EU, there would be no scope for the UK to switch to lower-cost non-EU suppliers. So, the backstop arrangements ‘bake in’ the EU’s huge agricultural trade surplus with the UK and hobble UK farm exporters as well.
And although they would keep tariffs on EU-UK trade at zero, the backstop arrangements threaten to drive tariffs up on a portion of the UK’s trade with the rest of the world. This is because the customs union created under the backstop is an asymmetric one. The UK would drop out of the free trade agreements in force between the EU and non-EU countries like Korea and Mexico so UK exporters would face higher tariffs exporting to these markets, but these countries would retain zero-tariff access to the UK via the UK’s continued customs union with the EU. In principle, the UK could negotiate separate free trade deals with these countries to maintain tariff-free access for UK exporters but these countries would have no incentive to agree such deals.
So, far from delivering ‘frictionless trade’, the backstop trade arrangements only deliver a very modest benefit, saving average tariffs of 2-3% on industrial goods. They would lumber UK firms with a clumsy and costly movement certification system, potentially hit farm exporters very hard, and remove tariff-free access to a host of non-EU countries. And the UK would be obliged to pay £39 billion up front to the EU for this.
Regulation: Far from freeing the UK from EU regulations, the WA, if passed, would mean the UK remained subject to vast swathes of EU regulation – with no say in shaping those regulations. Under the so-called ‘level playing field provisions’, the UK would remain subject to all existing and new EU competition rules, and subject to a host of regulations on taxation, the environment, labour and social standards. This would greatly limit the UK’s ability to enhance its global competitiveness through better regulation.
Moreover, the UK authorities have said that if the UK entered the backstop they would not use the limited regulatory freedom it allows. This is because under the backstop, NI would be subject to essentially all EU single market rules on a dynamic basis – so unless GB also followed these rules, a regulatory border would appear between NI and GB. The NI backstop therefore creates a backdoor to the UK remaining subject to all single market rules, indefinitely.
The WA also creates a dangerous situation in the defence industry, which employs over 100,000 people in the UK. The WA limits the UK’s room to use state support to assist defence industries, while not limiting EU governments in the same way – potentially leaving UK defence industries at a significant competitive disadvantage.
CFP/CAP: Fisheries and aquaculture are excluded from the customs union created by the backstop. However, the EU has made clear that it seeks a deal on fisheries very soon after the WA is agreed and is also clear that such a deal must include arrangement for EU access to UK fishing grounds that are similar to now. It has explicitly linked progress in future trade talks to such an agreement.
On agriculture, the WA again creates an unbalanced position in which UK farm support is limited to levels that could be those prevailing several years earlier in the EU while no reciprocal limits are placed on the EU. So UK farmers, already hobbled by high NTBs if they wish to export to the EU, would also potentially be faced with competing at home with heavily subsidised products with the UK authorities unable to match such support.
An independent UK trade policy: The UK government claims that the political declaration of the WA explicitly recognises the UK’s goal of having an independent trade policy, that is, freedom for the UK to negotiate its own free trade deals and set its own external tariffs.
To be continued with Pt 2 in tomorrow’s INDEPENDENCE Daily