Let's make it simple: backstop would mean NI under EU rules, probably for good

There is one thing about Brexit everyone agrees on '“ it is fiendishly confusing. Here, Cambridge academic and Policy Exchange economist GRAHAM GUDGIN goes back to basics to explain where we are, and what it means for NI

Friday, 23rd November 2018, 10:09 am
Updated Friday, 23rd November 2018, 11:42 am
Containers and cranes at Belfast port. Dr Gudgin said if, after Brexit for example, the UK opts to start importing hormone-treated beef  now shunned by the EU  then with NI still obeying EU regulations as part of the backstop, it would mean sea border checks to stop it reaching the Province

What does the Withdrawal Agreement say about Northern Ireland? First it is important to realise that what has been negotiated is just the divorce agreement.

This covers citizens’ rights and the payment of £39 billion to the EU. It is not supposed to cover future trading arrangements with the EU but does in fact do so through two things.

The first is a proposed transition period lasting from March 30, 2019 until the end of 2020 or perhaps until the end of 2022. Second is through what is called the Irish backstop relating to the period beyond the transition period.

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During the transition period the entire UK including Northern Ireland will remain within the EU in almost all respects except that the UK will have no representation in Brussels.

The advantage to the UK is that it allows firms open access to EU markets with no border checks, but at the cost of preventing the UK from doing new trade deals outside the EU.

It also prevents the UK from making any changes to regulations covering the production of goods and constrains the UK’s freedom of action in the area of rules governing employment, environment, competition and subsidies to firms and farmers.

For a farmer in Co Down wishing to slaughter cattle bought in Scotland and sell the meat into the Republic, nothing changes during the transition.

There will no new border tariffs or border checks and regulations will be initially just as they are now.

The same applies, for example, to a company fitting imported Italian tyres to buses made in Co Antrim and sold to London.

In all cases if the EU changes the rules, the new regulations must be obeyed even though no-one in NI or GB had any influence in making these rules. If NI firms wish to lobby Brussels they will have to do so through Irish or other EU MEPs.

At the same time consumers will lose the benefits of cheaper food and goods that could have been made available through new trade deals.

In contrast, a failure to agree a transition would result in tariffs for selling goods into the EU, and perhaps some additional checks for regulations.

Tariffs would mainly affect beef and dairy producers, but NI food producers would make offsetting gains through selling into the GB markets lost by Irish producers priced out of British markets by UK tariffs and by an uncompetitive euro.

It is unlikely that border checks would be introduced since customs experts all say that modern customs techniques render them fully avoidable.

Beyond the transition period, that is beyond 2020 and 2022, things get more murky.

Although the long-term relationship with the EU has not yet begun to be negotiated, the UK has made a series of undertakings (described as the Irish backstop) for the post-transition period.

Firstly, the whole UK has agreed to stay in the customs union again meaning no freedom to agree new trade deals.

Secondly, Northern Ireland alone will continue to observe EU regulations on goods, and on employment, environment, competition and subsidies including those for agriculture, and potentially also taxes including profits tax.

Theresa May says that these backstop arrangements are not intended to be used because they will replaced by a long-term trade agreement with the EU.

However, the Withdrawal Agreement makes it clear that any replacement can only be achieved with EU agreement.

Northern Ireland will be compelled to remain within the EU’s customs union and regulatory regime unless the UK can find alternative ways to guarantee an invisible border and continued cross-border co-operation.

The EU has already rejected such alternatives and is likely to continue to do so, hence the backstop is likely to be forever.

Does this matter? Those who prefer to remain within the EU will be content, and business and farmers organisations say they are happy, but consumers are not consulted.

Problems will start to arise if GB starts to have different regulations after the transition.

For instance, if the UK were to allow the import of cheap hormone-treated beef from Argentina, this would need to be kept out of Northern Ireland with Irish Sea checks to enforce this.

The issues would become more explosive if GB left the customs union while NI was trapped inside it by the backstop.

Despite reassurances of no impediments for NI firms selling into GB, in this scenario Northern Ireland firms would face tariffs into GB if Britain decided to adopt different tariffs from those of the EU.

In summary Northern Ireland would remain within the EU without direct representation and with the European court deciding on disputes.

Consumers in NI could be the main losers but firms might also lose out because of lack of access to new free trade agreements with faster growing markets outside the EU.

Dr Graham Gudgin of the University of Cambridge is chief economic advisor to Policy Exchange, London