Graham Gudgin: The Irish backstop is dead, and Brexit can now happen on March 29 based on a series of side deals
Theresa May has pulled off the seemingly impossible and raised her sunken Withdrawal Agreement from the bottom of the parliamentary depths.
If she can persuade Brussels to remove the Irish backstop it looks like Parliament will give its support. Even a cast-iron promise that the backstop is temporary may do the trick.
Unfortunately, Brussels is unlikely to oblige and certainly not before her next parliamentary trial in a fortnight.
In truth, the survival of the agreement is less important for the UK than widely assumed. It does not pin down any long-term trade arrangements.
Even in the short term, the main gain to the UK was a transition period which now looks less essential than was the case when it was first mooted over a year ago.
It is true that there is now a possibility of tariffs from March 30 but for UK firms these tariffs are mostly small and the EU has stronger reasons for avoiding them than does the UK.
The EU exports £55 billion of high tariff goods to the UK (animals, meat dairy products and road vehicles) compared to £21 billion of UK exports of these goods to the EU. This equates to 1% of UK GDP and 0.5% of the GDP of the main EU exporters to the UK.
The Withdrawal Agreement contains positive and uncontroversial features but also includes fatal flaws.
Right from the start – in the December 2017 Joint Progress Report there were ambiguities and contradictions.
Only when the Withdrawal Agreement was signed last November did it become clear what the PM’s strategy had been all along. Her promise to honour the 2016 referendum result extended only as far as legally leaving the EU in March 2019 with control on migration from the EU reverting to the UK. In almost every other respect, the UK was to remain close to the EU, within a customs union and with close alignment to EU regulations.
This closeness satisfied the wish of most UK companies for minimal change in trading arrangements and went a long way towards satisfying the EU and Irish government on the avoidance of a hard border in Ireland.
The fatal flaws were, firstly, the two to four-year transition period. It keeps the UK bound to all EU rules but without any representation in making those rules.
Secondly the potentially permanent ‘backstop’ arrangements to supersede the transition period keeps the whole UK in a customs union but Northern Ireland will additionally retain many of the EU’s single market rules.
The anomalous position of Northern Ireland would lead to increasing regulatory divergence over time and hence customs checks at the Irish Sea, and is anathema to the DUP.
These arrangements also contravene the Good Friday Agreement as Lord Bew has written in the News Letter. Powers which are currently devolved to the NI Assembly are now to be exercised by new bodies in which the EU has a veto. This includes the setting of farm subsidy levels.
Thirdly, no clear long-term trade deal was agreed despite the large payment of around £39 billion to the EU. In addition, claims that the UK is to leave the CAP and Common Fisheries policies are almost certainly exaggerated.
The PM’s claim that the backstop was a temporary insurance policy, unlikely to be used, is irrelevant, since any future agreement with the EU to replace the backstop is bound to have features similar to the backstop itself.
There is little prospect that the Irish government will settle for any new agreement since this would mean giving up the major gains it secured in the Withdrawal Agreement.
The latter meant that Northern Ireland could increasingly become a semi-detached part of the UK unless Great Britain permanently remained in line with all existing and new EU regulations.
The Withdrawal Agreement secured a key aim of the EU, which is to limit the scope for the UK to become more economically competitive than the rest of the EU. Already with its own currency, a UK able to set its own tariffs and regulations could become a competitive threat to the EU and undermine the reason for other countries remaining in the EU.
For this reason, there is advantage in the EU attempting to tie the UK into the EU’s common tariff arrangements and close to EU regulations for goods, labour, environment and state aids as is done in the Withdrawal Agreement and its accompanying Political Declaration on Future Arrangements
With the uber-political and anti-British Martin Selmayer now having more sway over negotiations, the EU is unlikely to give way. This means that the Irish backstop is a dead duck.
The fall-back plan with support across the Tory Party is the so-called Malthouse Compromise. This involves a combination of lesser agreements.
Chief among these would be to take up the Tusk offer (repeated last October) of a free-trade agreement and to clarify in a cut-down Political Declaration that this is the UK’s preferred option. This could allow us to leave without border tariffs even if no transition period is agreed.
More immediately, the UK could confirm a series of side deal offers already made by the EU on aircraft landing rights, air safety certification and road transport licenses. Further side deals would also be needed but many of these are already in preparation.
The Irish backstop would remain an obstacle. The avoidance of new physical infrastructure at the border is easily achieved.
The evidence of Hans Maessen to the NI Select Committee last October makes it clear that the application of existing arrangements within the EU’s Common Transit Convention (of which the UK is now a member) can avoid the need for border checks of any sort.
Some in the EU and Irish government accept that no border checks will occur in Ireland if there is no deal, but for political reasons others deny this.
The EU frequently takes trade talks down the eleventh hour and beyond, and this seems more than likely with Brexit.
Although time is short, there is little need in my own view for much more than a free trade agreement and sensible side deals conferring equal advantage to both sides. Outside a customs union, some border checks will be needed but since modern procedure involves electronic customs clearing and only risk-led checks there is little here to prevent firms from continuing the business in much the same way as at present.
The Irish border can also be managed in this way. The big question for Brussels is whether it is willing to risk no deal.
It would forgo billions of pounds of UK contributions, suffer high UK tariffs on many of its exports and above all face the question of what to do on the Irish border.
The betting must be that it would do a last-minute deal (or series of side deals).
• Graham Gudgin is a Cambridge University economist and former economic advisor to David Trimble. This is based on an article he wrote for Policy Exchange earlier this month, which he has updated for the News Letter