Fintech meet up
Out-Law Analysis | 25 Oct 2017 | 10:04 am | 3 min. read
The 27 other European countries refused last week to allow Brexit talks to progress to trade because not enough progress had been made on the three problems the EU has always demanded be solved as a priority: the rights of citizens; the UK's payment of its bill to the EU, and the Irish border.
Most progress has been made on the rights of EU citizens in the UK and UK citizens in the EU. The Brexit bill issue is thorny but solveable because it is ultimately just a question of money, so a solution is feasible.
But the issues related to Ireland are complex, politically charged and practically challenging. The only land border between the UK and EU is between Ireland and Northern Ireland, and the particular political climate created by the Good Friday Agreement leave London, Brussels, Dublin and Belfast with precious little room for manoeuvre.
Bluntly, no solution has yet been identified which meets the practical and political needs of the EU, the UK, Ireland and Northern Ireland. This is a major problem and no solution is in sight, and that could have serious consequences not only for Brexit but for continued peace in Northern Ireland and harmony between the governments of the UK and Ireland.
The political problems are about retaining Northern Ireland's status as part of the UK, but also recognising Ireland's need for the border between Ireland and Northern Ireland to be an open one without physical or legal barriers. The trade problems are about the movement of goods and people between the EU and the UK once laws diverge on issues such as employment and immigration rights, trading standards, agricultural regulation and quotas and tariffs on goods.
Three realistic options face negotiators, plus a fourth which is more fanciful.
The first is the most straightforward, and it is that the UK stay in the EU's customs union. This would allow common travel across the border to continue, and for goods to pass between the UK and the EU in the frictionless way that they do currently. The problem with this option is that the UK government has specifically said that it will not remain in the customs union. To make such a significant u-turn on a major plank of Brexit policy would be politically very challenging for UK prime minister Theresa May.
The second option is to create a border between Northern Ireland and the rest of the UK. This would allow free travel of goods and people across the Irish border but it would effectively separate Northern Ireland from the rest of the UK. This would be politically unacceptable to unionists in Northern Ireland and would seriously risk destabilising the Good Friday Agreement and the peace that resulted from it. It is made even less likely by the fact that since June's UK election May's government has been dependent on the Democratic Unionist Party (DUP) for its parliamentary majority. The DUP would categorically not accept this option.
The third practical option would be a soft border between Ireland and Northern Ireland where checks of goods would be conducted. This would be a relatively fluid and flexible border but even if this was possible and if checks were rigorous enough to satisfy Brussels that they did not undermine the customs union, the Irish government has said it will not accept a border.
These three options are the best and most practical that have been proposed, but putting any of them into place would be politically impossible or would have serious political and civil repercussions.
In a paper on the customs implications of Brexit, the UK government proposed (16-page / 271KVB PDF) devising an "innovative and untested" system where companies in a supply chain tracked goods and were aware of which complied with EU rules and which did not, and applied different tariffs to them and different export controls based on this factor.
This proposal moves much of the burden of Brexit on to businesses, which businesses would rightly question. It also would involve the creation of a wholly new customs system that was integrated into the systems and processes of all importing and exporting companies in the UK and would be up and running within 18 months. It is extremely unlikely that this proposal would be workable in such a timetable, even if businesses accepted it in principle.
So as Theresa May moves closer to solutions on citizens' rights and the EU exit bill it is essential that discussions intensify on the Irish question. But for now it looks as though no workable solution has yet been found. In this context, another possible outcome might emerge; a classic Euro-fudge where the can is kicked down the road, with an understanding that resolution of the Irish issue should be incorporated into the wider set of discussions, when they occur, about the shape of a future trade deal between the EU and the UK.
Guy Lougher is a Brexit specialist at Pinsent Masons, the law firm behind Out-Law.com
Fintech meet up