All-Island Customs Union: No Cure-All for the Irish Border Neither
Charlotte Sieber-Gasser (DCU Brexit Institute)
The “All-Ireland Common No-Custom Area” as suggested by Giorgio Sacerdoti and Paola Mariani on this Blog yesterday has its merits: it liberates the UK from the need to remain in a Customs Union with the EU in order to avoid a hard border between Northern Ireland and Ireland. In this proposed approach basically the so-called backstop would only apply to Northern Ireland and Ireland, and not to the rest of the UK. It therewith clears one of the major stumbling blocks towards Brexit out of the way by opening up a door to a harder Brexit as is called for by a considerable number of British MP’s.
However, both the “All-Ireland Common No-Custom Area” and the original backstop will lead to an increase in border controls within the Irish island and render trade between Northern Ireland and Ireland considerably more challenging than is the case today. Furthermore, while the “All-Ireland Common No-Custom Area” clears one of the political obstacles to Brexit out of the way – it merely moves the regulatory obstacles to the border between Northern Ireland and the UK, instead of solving them. Finally, it is not entirely obvious, why the UK would be interested in a harder Brexit in the first place. And here’s why:
What a Customs Union can and cannot do
A customs union is an agreement between participating countries to lower or remove tariffs on goods traded between them, and to apply common tariffs to goods entering their territory from elsewhere. Thus, a customs union can remove tariffs on goods and it can make it easier for exporters to qualify for tariff-free treatment by removing the need for rules of origin. Removing the need for rules of origin is the major advantage of a customs union compared to a free trade agreement, as the latter requires normally a certain minimum threshold of local value-add in order to qualify for tariff-free or preferential treatment.
A customs union does not remove the need for import/export documents, the need for customs checks, the need for regulatory checks, the need for VAT and excise declarations, the need for permits, aso. It also does not remove barriers to trade in services or barriers to foreign direct investment. And it certainly does not remove the need for passport controls and barriers to free movement of persons.
A Customs Union – all-island or UK/EU – would, thus, render trade in goods (and only in goods) between Northern Ireland and Ireland less difficult than a hard Brexit, but substantially more difficult than is the case today.
What the “All-Ireland Common No-Custom Area” or Backstop can and cannot do
Since obviously a customs union alone would not suffice to keep the border between Northern Ireland and Ireland more or less open for goods trade, both the “All-Ireland Common No-Custom Area” and the backstop require additional regulatory alignment between Northern Ireland and the EU. These include legislation on VAT and excise of goods, legislation on goods standards, sanitary rules for veterinary controls, rules on agricultural production, and state aid rules. With this package of customs union+ rights and obligations between Northern Ireland and Ireland, border controls on intra-island goods trade may indeed be reduced to a minimum (still more than today, though).
However, this additional regulatory alignment does not cover barriers to movement of persons, to trade in services and to foreign direct investment. All of which – unless otherwise solved – require physical barriers. It is assumed that the number of people, services and investment crossing the border between Northern Ireland and Ireland in daily business is substantial. A goods-only regulatory alignment between Northern Ireland and Ireland may therefore have substantial negative economic and political consequences for both sides.
Moving instead of solving regulatory obstacles
In essence – notwithstanding the yet unsolved aspects of movement of persons, services and of foreign direct investment – the “All-Ireland Common No-Custom Area” moves the regulatory obstacles to Brexit in Northern Ireland away from the intra-island border to the border with the UK. In order to protect the rest of the British market and to be able to pursue independent foreign trade policies (free trade agreements, for instance) and in order to protect the EU internal market, both the UK and Northern Ireland would need to establish border controls at their ports. Given that the majority of exports from Northern Ireland are headed to the UK, the resulting hard border between the UK and Northern Ireland would create a new, additional and substantial economic burden on Northern Ireland.
Finally, from an economic point of view, it is unclear, why the UK would voluntarily choose a hard Brexit – which the “All-Ireland Common No-Custom Area” would render politically slightly more easy to achieve – over some form of regulatory alignment and preferential tariff treatment with the EU. The options at the table currently all but hard Brexit include some or even substantial regulatory alignment, as well as preferential tariff treatment. The “All-Ireland Common No-Custom Area” thus provides a slightly better solution for Ireland and Northern Ireland in the case that a hard Brexit cannot be avoided.
Charlotte Sieber-Gasser is a PostDoc Research Fellow at the DCU Brexit Institute