It’s clear already that the options easiest to negotiate with the EU in the UK position papers on customs and the Irish border are those which cross UK red lines and point to a soft Brexit by any other name.
But this is far from the end of the story. The Institute for Government which has close links with Whitehall warns that free trade proposals will have to emerge first before we know how what sort of runners they really are. “The government’s position papers show it grasps the potential for disruption to trade when we leave the EU,” Jill Rutter, the institute’s Brexit program director, said in an email, reported by Bloomberg . “Until we see plans for the future relationship with the Single Market, particularly for agriculture and fisheries, we will not know the scale of likely border checks and additional compliance costs.”
The Financial Times says the position papers “throw open more questions.”
Under the UK proposal, Irish and Northern Irish citizens would continue to live and work on either side of the border, and UK officials would not check the passports of EU citizens crossing into the UK from the Republic. This would effectively allow people to cross into the UK illegally — something Open Britain, a think-tank campaigning for a “soft” Brexit, says “fundamentally undermin[es] the argument that leaving the EU would involve taking back control of immigration”. But the position paper says immigration could be regulated by “controlling access to the labour market and social security” and that the “no-checks” proposal should be seen in the context of “wider plans for the future immigration system in the autumn”. The statement implies that EU nationals visiting the UK mainland may not be required to have visas if they are not planning to work or claim benefits.
Britain has proposed two possible customs deals with the EU: a “partnership” and a “new arrangement”. Under the partnership, the UK and the EU would not have border checks, but would instead establish a tracking mechanism to trace goods to their final destination in Britain. This would be intended to ensure that products that do not comply with EU regulations are not exported to anywhere in the bloc. But the tracking mechanism is untested, and it remains unclear how it would apply to parts which are ultimately combined in an assembled product that may or may not be exported to the EU. Under the customs arrangement, there would be reduced border formalities. Firms with fewer than 250 employees would be exempt. “Until a future UK-wide customs system is in place, it is difficult to see how any guarantees can be given about the absence of physical borders or checkpoints,” said Josh Hardie, deputy director-general of the CBI. “
To avoid disrupting the trade of food and agricultural products, the UK says one option could be “regulatory equivalence”, where it agrees with the EU to achieve “the same outcome and high standards, with scope for flexibility”. That would appear to scupper any prospect that the UK could loosen regulation — for example, by allowing hormone-treated beef or chlorinated chicken in British supermarkets — as part of a trade deal with the US. Open Britain called equivalence a “bureaucracy-heavy alternative to membership of single market”.
A single wholesale electricity market currently exists on the island of Ireland, with both sides of the border dependent in part on natural gas from the UK. The UK proposes a new framework to “the continuation of a single electricity market”. But the market is subject to the jurisdiction of the European Court of Justice, which Mrs May has said will no longer apply to the UK after Brexit. The UK is proposing a new dispute resolution forum, but has not specified what the forum would look like.
The only way for the U.K. to avoid customs checks and extra costs would be to stay in the single market and customs union, the Institute for Government said in a report. The Institute has close links with Whitehall Other options include staying in the customs union while leaving the single market or negotiating a free-trade agreement, but these would cause disruption to supply chains and would require trade-offs with the EU, the institute said.
The U.K. detailed two proposals to manage the border with the EU in the long run, through either a “highly streamlined customs arrangement” or a new customs partnership under which each side would enforce the other’s customs rules. It also said it hopes to stay in the customs union during a transition phase while beginning the process of trade talks with new partners.
The customs union approach would be likely to come at the cost of an impaired trade policy and the inability to set tariffs, the report said. Copying existing EU free-trade agreements, like the one with Canada, “would not come close to achieving the breadth and depth required to avoid barriers to trade,” it said.
While a conventional free-trade agreement would get rid of most tariffs, it would not solve the problem of customs checks. The U.K. government has suggested it could get around this by using technology to establish which country a product comes from or make importers pay the higher of the EU or U.K. tariffs and claim a refund as necessary.
The only option that would allow Britain to keep the same trade freedoms it has now is maintaining the status quo, the report said. The U.K. government has ruled this out as it would mean continuing to comply with the EU’s four freedoms, which allow for the free movement of goods, capital, services and labour throughout the bloc.
The report also said the sectors most dependent on the EU for supplies, including auto manufacturing, rubber and plastics, will be at risk. Introducing friction to the supply chain between the U.K. and the bloc would increase costs through higher prices for products, changes to business models and ruined produce due to delays, it said.
The think tank called on Prime Minister Theresa May’s government to publish a cost-benefit analysis of its plans to “allow an informed debate about negotiating priorities.” In its customs plan published on Tuesday, the U.K. didn’t include such an analysis but said it wants to “explore” the suggested approach with business to understand the complexities involved.