Trade after Brexit: Is smart technology smart enough for Brexit's borders?

23/03/18

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Michael Moore
PwC Senior Adviser for Devolution

@mooremichaelk

In just over a year’s time the United Kingdom will leave the European Union. But while the UK may be leaving the club, it is not leaving the venue and its that looming conundrum, which is shaping the government’s approach to the post Brexit relationship. And the focus this gives to the country as a whole is even sharper when applied to the commitments made in December’s ‘Joint Report’ which ruled out any hard border on the island of Ireland.

By leaving the European Union, we do not, in the first instance, change the underlying economic realities that influence trade on the island, or between it and the rest of the UK. But the economic border between Northern Ireland and the Republic will now potentially include the prospect of new legal constraints, particularly as we can envisage a divergence between the UK and EU on regulation and compliance governing goods or services - or both.

The value of goods exported from Northern Ireland to the south was £2.4bn* in 2016 , with imports amounting to £2.7bn* : one example which brings home the day to day reality of this is the estimate that over a million litres of milk* are moved in both directions across the border every day. Put all this together and it is no surprise that the resolution of the Irish border issues lies at the heart of the Brexit negotiations.

The political task, and the conundrum for Ireland, is to honour the double commitment made in December’s ‘Joint Report,’ to avoid a ‘hard border’ on the island and at the same time keep Northern Ireland within the UK’s internal market. This challenge is made yet more complex by the UK government’s stated intent to withdraw from both the Customs Union and the Single Market. For the UK to be outside these twin arrangements means that goods crossing any border with the EU would need to have duties and VAT applied, meet country of origin criteria and satisfy regulatory standards. Finding a way to do this without physical checks at border points is so far proving elusive.

December’s Joint Report (which contained the double commitment in paragraphs 49 and 50) reflected hard fought negotiations and a political compromise, which was acceptable as a staging post towards the final Brexit agreement. However, when in March, the EU published its Draft Guidelines for negotiating any future trading relationship that would inform the final treaty, it concluded that the UK would not find a technological solution to the conundrum so Northern Ireland would effectively have to stay in the Customs Union and Single Market. And, while this was immediately rebuffed by the Prime Minister and Northern Ireland politicians, creating a dispute which calls into question the status and value of the agreement reached in December, the Northern Ireland Affairs Committee subsequently concluded that, there was “...no evidence to suggest that there is currently a technical solution that would avoid infrastructure between the jurisdictions.

And so matters are finely balanced. In the coming days, European heads of government will once again gather in Brussels to take stock on Brexit negotiations and agree how to take matters forward. There is a daunting list of complex issues to consider and resolve: amongst them Ireland retains a prominent position.

*Source: House of Commons Library Research Paper No. 8042, July 2017

 

This blog originally appeared as part of PwC's Public Sector Matters series - link to original post.

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