…And Teslas for All – the latest plan to break the Brexit deadlock could lead to some interesting opportunities for Northern Ireland residents

Following the meeting between Boris Johnson and Leo Varadkar in England this week, hopes have risen for a deal between the EU and the UK over the vexed issue of post-Brexit customs arrangements for Northern Ireland.

The previous proposals made by the British government to replace the Irish backstop were that Northern Ireland would align with single market regulations on agri-food, but that Northern Ireland would leave the EU’s customs union, meaning that there would be checks on goods both east-west and north-south. There was also a provision that the Northern Ireland assembly would have to approve renewing the arrangement on a cross-community basis every four years or it would lapse, an arrangement that would effectively give the DUP a veto. It was widely panned by most of Northern Ireland’s political parties and business groups.

However, it is understood that the British government have conceded the impossibility of enforcing a customs border between Northern Ireland and the Republic, and are considering alternative proposals, as well as a consent mechanism that doesn’t hand so much power to the DUP.

Whilst details of the proposed new arrangements are under wraps for now, there have been suggestions that the arrangement will be along the lines of what Martin Sandbu wrote about in the Financial Times in September.

Essentially, when goods enter Northern Ireland from Great Britain (but not the other way round) the importer will have to submit a customs declaration and/or rules of origin documentation. Also, tariffs would have to be paid if the UK’s new trade policy involved lower tariffs on imports from third countries than the EU.

However, if the goods are consumed in Northern Ireland, or re-exported out of Northern Ireland, then Northern Ireland residents will receive a rebate on any tariffs made.

To take an example, if a bottle of American wine is imported from Great Britain to Northern Ireland, and the UK government reduces its tariffs on American wine to 0%, then the EU tariff would need to be paid on the bottle (in the region of around 15p per bottle). The wine can now be exported to Ireland or anywhere else in the EU without the need for further checks.

However, if this bottle of wine is to be consumed in Northern Ireland, then the individual who purchased it can apply for a refund for the 15p.

From a data and systems perspective, as well as from a reporting point of view, this would be extremely complex. There would need to be a means of tracking the “tariff content” of all goods entering Northern Ireland from Great Britain. For example, there would be no tariff rebate on Chilean wine, which can already enter the EU without tariffs. A technological solution (smartcards, for example) would involve maintaining a database of the tariff content of all goods entering Northern Ireland, and could impose financial and administrative burdens on retailers.

The alternative, of requiring individuals to submit an itemized list of tariff rebates, would impose a substantial and frankly very strange reporting requirement on individuals.

It is worth remembering that the total tariffs currently being paid by Northern Ireland consumers are very low. Currently, the UK government collects around £3 billion per year in tariffs (it sends 80% to the EU and keeps 20% to compensate for the costs of collecting it). Of goods imported from outside the EU, Northern Ireland imports comprised 1.3% of the UK’s total imports of £219 billion in 2018. Therefore Northern Ireland’s total tariffs paid on non-EU imports was in the region of £37.5m.

This isn’t much. If, for the sake of argument, that after Brexit the UK reduced its total tariffs by 50%. The total tariff rebate owed to Northern Ireland individuals in a year would be £19m, or a little over ten pounds per person. This is less than 0.1% of government spending in Northern Ireland, or one quarter of Harry Maguire.

Of course, this suggests that non-EU imports won’t increase after Brexit. There is one area in particular where imports could well increase substantially: cars.

Currently, the EU charges a 10% tariff on cars imported from the United States. The British government may well agree to drop tariffs on cars imported to the UK to 0% after Brexit. Consider a top of the range Tesla Model X (with “ludicrous mode”), which retails for $124,000 in the US. Under the possible proposals, if this car was imported to Northern Ireland it would be subject to a tariff of $12,400. However, the purchaser would then receive a $12,400 rebate from the government.

Now that you’re the proud owner of a new Tesla, it’s time for a road trip. How about Amsterdam? The Netherlands is the third largest market for Tesla after the United States and China. When you get there, buyer’s remorse sets in, and as the car has paid the EU duty, you decide to sell it. Even after knocking a couple of thousand off the price, and allowing for the cost of the ferry and your flight back to Belfast, your trip to the sunlit uplands will have netted you a few thousand pounds.

Or maybe the government decides that you have to own your car for a year before you sell it. The arguments over the depreciation rates of Teslas on Reddit would make our own local political disagreements seem tame by comparison, but it could be argued that the depreciation could be in the region of 10% per year.

Your trip to Amsterdam won’t be as profitable, but seeing as the depreciation and the tariff rebate will be roughly similar, you will essentially have paid nothing for the use of the vehicle for a year.

The government may well find a way of closing this particular opportunity. But there will be countless other opportunities for regulatory arbitrage if Northern Ireland finds itself in Schrödinger’s custom territory, both inside and outside the EU.

“Tesla Model X 90D (36386962700)” by Jakob Härter is licensed under CC BY-SA 2.0