Shift to softer Brexit good for Ireland but big problems remain

It was clear from the outset that a so-called soft Brexit would cause a lot less damage to the Irish economy than a hard version. This is because it would mean less disruption to trade between the UK and Ireland, and to business supply chains. And so, while there are huge questions remaining after the latest plan from the UK government, the direction it points in will be welcomed in Dublin.

Free trade between the UK and EU in goods and agricultural products after Brexit, which the UK says it wants, would remove many of the threats to Irish trade, which could lose heavily from tariffs, bureaucracy and delays. However Brussels has already rejected parts of this plan, in earlier drafts from London, and there are is still a yawning gap between the two sides and many questions to be answered.

There is no way that the EU side will sign up for a lot of what the Chequers document proposes.The key question now is whether the EU negotiators judge that London has moved far enough to provide the basis for talks. Is that a UK opening position which can provide the basis for talks ?

One plus for Ireland is that the document does seem to commit the UK to signing up to a backstop to ensure no trade Border on the island of Ireland, even if the talks on a wider free trade deal fall through. The document says that the UK believes the backstop would not need to be brought into effect – because a wider deal will render it unnecessary – but nonetheless the UK will sign up to it in the withdrawal agreement. This would turn a commitment made last December into a legal text.

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As outlined by the European Commission, the backstop envisages special customs and regulatory arrangements in the North, which would then require customs checks on goods moving between the UK and the North, anathema to the DUP. More tensions surely lie ahead here as both sides scope out the options.And Irish officials will be looking for clarity here on what exactly London is prepared to commit to in the legal text of the withdrawal agreement on the backstop issue.

The other key issue for Ireland is the future of trade between the UK and Ireland– which will depend on a wider UK/EU trade agreement. The EU will have problems with much of what is contained in the latest document, but the key question is whether there is enough movement there to allow a withdrawal agreement to be finalised and for the talks on a future relationship to get underway in earnest. If this happens then the big economic danger to Ireland of the UK crashing out with no deal next March would be removed.

If the talks continue, then a transition period, a kind of stand-still, will come into force next March, meaning most current rules and arrangements for trade will be unchanged until December 2020.

Brussels chief negotiator, Michel Barnier, has welcomed the statement from Chequers and said he awaits a detailed White Paper from London, due shortly. But he will know there are problems.

Free trade across the EU is based first on the single market, which ensures free movement of goods,services, capital and people through common rules and regulations. The UK paper, while not referring directly to the single market, does say it wants to align rules and regulations for trade in most goods and agricultural products via a “common rule book” with the EU. For Ireland, this would be one step to avoiding a hard Border and in freeing trade with the UK.

But the European Commission and some of the the EU member states, notably France, will see this as an attempt by the UK to opt in to part of the EU single market, but not all of it. The UK wants to opt in to part of the single market on goods, but go its own way on services and also introduce new migration controls.For the EU side, you are either in or out of the single market – and there will be accusations that the UK is trying to pick and choose.

To try to mollify Brexiteers, the document also says that new single market rules and regulations would have to be signed up to by the UK parliament before being incorporated into UK law. This, too, looks unworkable. What happens if a new rule is rejected? How would this affect trade and the need for border checks? And who will oversee these rules and the role of the European courts also looks set to be a troublesome topic.

The other key requirement to avoid border checks is a common customs area, which the EU achieves through a customs union, which means no customs duties – known as tariffs – apply between states. Here again, Theresa May is proposing a half-in/half-out solution which moves in the right direction from an Irish viewpoint, towards a softer Brexit, but has aspects which Brussels will reject.

A key part of the EU customs union is that all countries charge the same customs duties on goods coming in from outside the EU. Theresa May is proposing that the UK and EU would form a commons customs area, but that the UK could set its own tariff levels with non EU countries. The commitment to tariff-free trade will be welcomed by Brussels. But the idea of the UK maintaining free access to the EU, while operating different tariffs with third countries will be problematic.

Brussels has already rejected part of this plan as unworkable. This was the suggestion that the the UK would collect EU tariffs on goods entering its territory but destined for EU markets and pass them on to the EU. And the UK’s idea that it can strike its own trade deals with other countries like the US while remaining in a customs union type arrangement with the EU will be seen as more evidence of the UK wanting to have it every way.

Will Brussels and the member states engage on the basis of this plan with the intention of negotiating away the problems? Or, after a polite period of reflection, does they just reject it?

For Ireland, provided the backstop is signed up to for the Border, our interests will very much lie in keeping the talks going. In particular it is vital for us – and indeed for the UK economy – that the transition period comes into play next March, to avoid a big economic disruption. For now, the political fall-out in London and reaction from Brussels and EU capitals in the days ahead will be closely watched. The UK has moved, but is it far enough?