Will a Hard Brexit Lead to a Hard Border?
WTO Law and the Backstop
Chloé Papazian (Dublin City University)
On 7 December 2017, the EU and the UK Government concluded in a Joint Report that they should agree on a so-called ‘backstop’ solution for the Irish border to prevent a border between Ireland and Northern Ireland. By exiting both the EU Customs Union and the Single Market, the UK would leave a Union which had entirely removed frontiers between States. The “deep and special partnership” with the EU wished for by UK Prime Minister Theresa May after the UK exit aims at reconstituting the UK-EU relationships that would allow goods and persons to circulate freely between Northern Ireland and the Republic of Ireland. Yet, absent such a partnership, a ‘backstop’ solution would be a necessary condition to avoid a hard Irish border.
This week, on 17 and 18 October, a European Council Summit gathering the EU 27 leaders and the UK Prime Minister has been scheduled to find agreement on the Irish border question in accordance with a common position under which no Withdrawal Agreement can be concluded without a settlement on the backstop. Nevertheless, on the eve of the October EU Summit, the vexed issue of the Irish border has not yet been resolved by a conclusive EU-UK solution.
In March 2018, the EU Brexit Taskforce had, however, issued a Draft Withdrawal Agreement including a Protocol on Ireland/Northern Ireland. According to the EU’s proposal, Northern Ireland would remain part of the EU Customs Union and Single Market for goods should the negotiations fail or should the EU-UK trade deal fall short of guaranteeing an open border between Ireland and Northern Ireland.
The Protocol on Ireland and Northern Ireland stirred significant controversy in the UK. Leaving Northern Ireland within the EU Customs Union and Single Market after Brexit may prompt the establishment of a border across the Irish sea between Great Britain and Northern Ireland, thereby jeopardising the territorial integrity of the UK and calling into doubt Northern Ireland’s place within the UK’s own internal market. Hence, seven months after the publication of the Ireland/Northern Ireland Protocol, the EU and UK views on the form of the backstop still considerably diverge. The solutions explored so far by Theresa May in the Chequers plan and more recently in her proposal to include the whole territory of the UK within the EU Customs Union unless and until an agreement is reached met the strong opposition not only on the part of the EU but also and particularly amongst the members of her own party and cabinet.
At this critical juncture in the Brexit negotiations, it is about time to examine what would happen to the Irish border in the absence of a deal and a backstop agreement. In the event of a hard Brexit, the EU and the UK will trade goods and services on WTO terms. Borders between the two blocs will therefore be governed by WTO law. Rebutting the arguments advanced by some Brexiteers, this brief discussion permits to underscore the necessity and significance of a backstop solution prior to any withdrawal agreement. The WTO Most-Favoured Nation (MFN) Principle would indeed prevent the UK from maintaining an open border between Northern Ireland and the Republic of Ireland. Without a preferential trade agreement between the two blocs, the EU will be under the obligation to treat the UK on the same terms as any other WTO Member and vice versa. In this context, an agreement on an Irish backstop guaranteeing an open border between the North and the South and entering into force immediately after a breakdown of the negotiations is crucial. Yet, the options for designing a backstop solution are limited. Any ‘backstop’ solution would have to respect the integrity of the EU Single Market, as well as the UK’s territorial integrity. It would also have to comply with WTO law. These constraints require both blocs to remain particularly cautious when, and if, they agree on a specific backstop.
1. Trading on WTO terms: the prevalence of the Most-Favoured Nation Obligation
On several occasions, the UK Government emphasized its commitment in the absence of a deal to deploy every effort to prevent the establishment of a hard border between the Republic of Ireland and Northern Ireland. Accordingly, a no-deal scenario, and hence a hard Brexit would not – or should not – entail any hard border. Going even further, some Brexiteers within the Conservative Party have repeatedly argued that in the event of a hard Brexit, the UK will unilaterally decide to leave the border between Northern Ireland and Ireland open. In other words, having exited both the EU Customs Union and Single Market and notwithstanding the absence of a trade deal with the EU, the UK will not impose customs duties nor border controls to goods entering the UK from the Republic of Ireland. Conversely, the Irish government would have to decide, according to these Brexiteers, whether they will levy duties and related charges, and set border checks and related infrastructures for goods imported from the UK. In such scenario, the Irish government would be responsible for imposing a hard border between the South and the North.
This position, however, raises a number of questions. Could the UK really adopt such strategy without any external constraint? Does the absence of an economic partnership with the EU permit the UK to freely regulate its frontiers? The response lies in the WTO rules and the scope and content of WTO Members’ rights and obligations.
Without a EU-UK deal, WTO law will govern the relationships between the two blocs. To be sure, WTO rules do not require WTO Members to raise customs duties and impose controls at their borders. Rather, WTO rules discipline and constrain the manner in which WTO members regulate their frontiers. Each WTO Member must comply with their bound tariffs and quotas included in their respective Schedules of Concessions and Commitments which they have negotiated with other WTO Members; they must also operate their borders on a non-discriminatory basis by treating equally the other WTO Members. This non-discrimination principle, the so-called MFN obligation enshrined in Article I of the GATT 1994, represents a cornerstone principle of WTO law. It obliges one WTO Member to accord the same treatment to the other 163 WTO Members, unless the former has concluded with one or several WTO Members a preferential trade agreement in accordance with Article XXIV GATT 1994. According to Article I GATT 1994, WTO Members must automatically and unconditionally accord to products originating in any WTO Member any trade ‘advantage’, ‘favour’, ‘privilege’, and ‘immunity’ that they have granted to a like product originating in another nation, regardless of whether the latter is a WTO Member. The scope of the MFN principle is broad: it includes customs duties and charges of any kind imposed on, or in connection with, importation and exportation, any method for calculating the measures mentioned previously, as well as rules and formalities in connection with importation and exportation.
Hence, in a no-deal Brexit scenario, the EU and the UK must trade with each other in line with the MFN obligation. The EU would have to treat goods coming from the UK in the same way as any other third-country goods. Likewise, the UK, following a re-negotiation of its Schedules of Concessions and Commitments on goods and a settlement of its regulatory environment with the EU and all other WTO members, would be required to raise duties and conduct border requirements without distinguishing between products originating in the EU or any other nation. Unless and until the UK negotiates new preferential trade agreements with other countries – including the EU – the country will have to trade goods on a MFN basis. As a result, at the land borders with the UK, as well as at EU ports and airports, the EU will apply the same border checks for goods originating in the UK as it does for goods coming from any other non-preferential trade partner. Absent an agreement between the two blocs, goods crossing the North/South Irish border or arriving by sea or air will be subject to EU customs duties, VAT and excise duties, as well as EU rules of origin, EU product safety and quality standards, EU sanitary requirements for live animals and products of animal origin and EU environmental protection and animal welfare rules. By the same token, the UK will have to apply its MFN duties and border controls on goods coming from the EU.
The pivotal non-discrimination obligation enshrined in Article I GATT 1994 therefore casts doubt upon the position of the UK Government and the arguments of some Brexiteers mentioned above. In the event of a hard Brexit, the WTO MFN principle will entail a hard border between Ireland and Northern Ireland. Exceptions such as the national security exception under Article XXI or the frontier tariff exception under Article XXIV:3 GATT 1994 will not apply. Unless and until the UK and the EU conclude a preferential trade agreement such as a free trade agreement or a customs union as authorised by Article XXIV, a hard South/North Irish border will remain. In this context, a legally operational backstop appears particularly meaningful.
2. The Necessity and Significance of the ‘Backstop’ Solution
In a no-deal Brexit scenario, an agreement on a ‘backstop’ reached prior to the breakdown of the negotiations represents the only viable solution to prevent the establishment of a hard border within the island of Ireland. Why does a ‘backstop’ solution constitute the only possible route and what is the role played by the MFN obligation in this context?
In the event of a hard Brexit, the UK and the EU will not be legally able to bilaterally decide to temporarily and reciprocally exempt the North-South Irish border from control and requirements so as to avoid significant trade disruptions. The MFN obligation operates as a constraint on the margin of manoeuvre of the two blocs: prior to any potential hard Brexit, they must find an alternative solution which avoids the instauration of a hard border and which is in accordance with the WTO MFN principle. In the case of failure of the upcoming two-day European Council Summit or should there be no preferential trade agreement between the UK and the EU at the end of the transition period, the EU and the UK will be left without any mutual trade preferential relationships. Any temporary and emergency agreement concluded immediately after a hard Brexit between the EU and the UK that would alleviate or eliminate duties, charges and import/export rules and controls would violate WTO law notably, the MFN obligation. Any reciprocal advantage the EU and the UK could concede to each other – even on a temporary basis – to avoid a hard border between the North and the South of Ireland would breach the unconditional character of the MFN clause as a WTO cornerstone obligation.
Hence, the importance of an agreement on the backstop in the event of, and before, a no-deal scenario. As stated by the EU’s chief negotiator for Brexit, Michel Barnier, it is “an insurance policy to avoid a hard border between Ireland and Northern Ireland,” should the EU-UK negotiations fail.
3. Some Words of Caution: The Need of a WTO-compliant ‘Backstop’ Solution
The two blocs often reiterate that a legally operational backstop must fully respect the territorial integrity of the UK, as well as the integrity of the EU Single Market. They, nevertheless, rarely point out that a ‘backstop’ solution would also have to comply with the WTO rules and particularly with the MFN obligation. To what extent does the WTO MFN principle restrain/restrict the form and content of the backstop? Let us look at the latest proposal of Michel Barnier to better illustrate the point.
According to the draft legal text proposed by the EU on the backstop, Northern Ireland would stay within the Customs Union and the Single Market. Most recently, due to a continued opposition from the UK side, Michel Barnier has attempted to improve the proposal in order to ‘de-dramatize’ the extent and array of checks that would need to be conducted between the UK and Northern Ireland, across the Irish sea. The EU Brexit Chief negotiator clarified that most checks would take place in companies’ premises, at airports, ports, and in the market. Additional customs and value-added taxes declarations could be dealt with while the goods are transiting or before being shipped. Importantly though, the backstop should not relax or restrain the UK obligations and rights under WTO law. Indeed, when proposing a de-dramatization of the border checks, the EU should pay particular attention to the MFN obligation. Checks taking place away from the borders should not de jure or de facto facilitate the UK access to the EU Single Market for goods. The checks would have to be equal and no more favourable than the controls conducted, and the documents required at the borders for goods coming from non-preferential trade partners. Vice versa, the backstop should not render more difficult the access of UK goods to the EU market. Any solution agreed by both the EU and the UK on the backstop should not put goods originating in the UK at a disadvantage as compared to goods coming from third-countries.
The cornerstone value of WTO law, the MFN principle, therefore considerably restrains the ability of the two blocs to avoid a hard land border within the island of Ireland. Without a ‘backstop’ solution, any alternative such as an emergency and temporary arrangement between the EU and the UK exempting the North/South Irish border from any customs duty or control would violate the WTO MFN obligation. In this vein, this week’s European Council Summit would constitute the moment of truth for the UK Government and for the Brexit negotiations. The EU and the WTO should urgently reach a compromise on the backstop, bearing in mind that it should also be consistent with WTO rules. Yet, once a solution is found and the Withdrawal Agreement is concluded, the backstop should remain a last resort option and the two blocs should quickly get back to the negotiating table. In a world where preferential trade agreements as permitted under Article XXIV GATT 1994 have become the norm rather than the exception, the MFN clause is today often described as the ‘least-favoured nation’ principle. Hence, since trade is nowadays primarily conducted on a non-MFN terms, and by the same token on preferential terms, the EU and the UK should deploy all means to avoid trading goods under the MFN terms.
Chloé Papazian is a Research Fellow at the Brexit Research and Policy Institute at the Dublin City University. She is finishing her Ph.D. at the Faculty of Law of the European University Institute, Florence, Italy. Her thesis focuses on WTO subsidy law and EU State aid law. She holds a LL.M in European legal studies from the College of Europe. Her research interests relate to WTO law and EU law, as well as international energy and environmental law.