The Border after Brexit: less a backstop, more a loophole?

The UK government this week announced what it would do to restrict trade in the event of a no-deal Brexit.

As expected, it proposes imposing very high tariffs on beef, dairy and other agricultural produce particularly important to Ireland. However, it has also stated that EU exports that end up in Northern Ireland would be exempt.

An honesty-box approach will be applied, with all exports to Britain through Northern Ireland paying the relevant tariffs electronically, rather than at a Border post in Ireland or in a UK port. The clear intention is to blame the EU for any Border infrastructure that has to be put in place.

However, it does not look as if the UK authorities have examined the files on the last time new tariffs were applied on trade between the two countries, under the 1965 Anglo-Irish Free Trade Agreement.

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Even in the much simpler times for trade of the 1960s, and although only two countries were involved in the negotiations, the talks took a year to complete, with lengthy discussions on mind-boggling details.

If the UK, hopefully, moves forward and seeks some kind of trade deal with the EU, those talks will be lengthy and exceptionally complex.

However, there is another very direct lesson from the negotiations on the 1965 agreement that relate to the current UK decision on tariffs.

In 1965 one of the most complex issues was what was referred to as “rules of origin”. These rules determined whether a good passing from Ireland to the UK was actually made in Ireland, or had instead been made in another country. If goods were made in Ireland, then the preferential tariff applied. But if, under the rules of origin, the good was just passing through Ireland, a higher external tariff applied.

Cattle citizenship

In the 1965 agreement it was decided that after nine months’ residence in the UK, Irish cattle acquired British citizenship, and were entitled to a subsidy. This time round the UK does not appear to have specified the rules that will determine whether a good is made in Northern Ireland, and thus entitled to pass freely into Britain.

In 2019 would it be sufficient for cattle with Irish citizenship to spend a month on a farm in the North, and thus become UK citizens, allowing them free movement within the UK?

It’s not just about cattle. Under the UK proposals, Irish milk could be freely sent to Northern Ireland and mixed in with a proportion of Northern Irish milk. What proportion of northern milk would the resulting butter require to allow it to pass freely into Britain?

If Volkswagen sent cars through Ireland to Northern Ireland, and a garage there bolted on a few extras, would that make it a Northern Ireland car? In 1965 the rule was that the relevant good would have to prove domestic value added of 30 per cent. This time around, there do not appear to be any such rules to determine the nationality of Northern Ireland products of mixed parentage.

If the UK were subsequently to decide that rules of origin for goods made in Northern Ireland were necessary to close loopholes, the application of such rules to everything made in the North would impose a pretty intolerable administrative burden on industry and farmers there.

It would be expensive and painful, and could make the backstop look like a picnic. It is precisely because of the complexity of modern trade that traditional customs borders are necessary, in the absence of tariff-free trade.

And that’s just for legal cross-border trade, albeit exploiting the given rules.

Smuggling opportunities

The other major concern about imposing tariffs, without border checks, on goods entering Britain, is the opportunity it would provide for smuggling. While big companies will play by the rules, relying on the honesty-box approach won’t work for smaller operators, nor for paramilitaries.

An open border in a tariff environment would invite a major rise in smuggling, already an issue of major concern for the Northern Irish authorities. We have enough problems with crime north and south already without providing major incentives to the criminal community to diversify their business.

While the House of Commons on Wednesday voted against no-deal Brexit under any circumstances, it’s not off the table yet. If the UK leaves without a deal, pretty soon there would be customs checks on both sides of the Border. The only way to avoid that are the current deal that is on the table, the UK staying in the customs union, or victory for Remain in a fresh referendum.