Event Report: Brexit, Customs and Trade

Cornelia-Adriana Baciu

On 14 June 2018, the DCU Brexit Institute organized an event on “Brexit, Customs and Trade”. This event featured an opening keynote speech by Michael Russell, Scottish Minister for UK Negotiations on Scotland’s Place in Europe, followed by an expert panel discussion and a closing keynote speech by László Andor, former European Commissioner for Employment, Social Affairs and Inclusion. The programme of the event is available here. The following is a summary of the major discussion points during the event.

Opening Keynote Speech

Michael Russell, Scottish Minister for UK Negotiations on Scotland’s Place in Europe, discussed the implications of Brexit for Scottish-UK relations and the principles for future collaboration. Mr Russell emphasized the need for mutual respect and more clarity in the UK’s political positions. Scotland presented its stance in the strategic paper “Scotland’s Place in Europe”. Mr Russell argued that this type of relationship constitutes an obstacle towards efficient progress. As a crisis of devolution has emerged, many things will have to change essentially to adjust the new post-Brexit reality. Mr Russell does not rule out the possibility of independence to solve a possible impasse post-Brexit. While the MaxFac (“Maximum Facilitation”) customs approach is endorsed by most Brexiteers, this model is rather unworkable and will certainty be costly (it might cost the UK ca 20 billion pounds a year). Pointing out that remaining in the EU would be the best scenario for Scotland at the moment, Mr Russell emphasized the need to explore new collaborative options with Brussels, Berlin and Dublin, inter alia. Also, Scotland might work on a compromise which would allow them to join EFTA. Mr Russel expressed concerns for the losing of EU citizenship by five million Scottish people.

Panel Discussion

Katie Daughen, Head of Brexit Research and Support Services of the British-Irish Chamber of Commerce, emphasized the specific interests of the Chamber to promote Irish-UK trade relations after Brexit. Ireland represents an important market and an important trading partner for the UK. The implications of Brexit for Ireland in terms of trade are likely to have similar proportions as for the UK. The introduction of a border between Ireland and the UK would increase trading costs. According to the OECD, the establishment of a hard border could increase transaction costs to estimated 2% to ca. 20% of the goods value, in addition to the political constraints which a border would generate. The border technology proposed by the UK is either non-tested or does not exist and the UK backstop proposal fails to make specifications related to regulatory standards. Over 60% of the UK trade is with the EU or countries with which EU has trade agreements. With regards to the UK’s envisaged Global Britain project, Mrs Daughen pointed out that many countries might prioritise trade agreements with the EU. Future bilateral UK trade agreements might be dependent on the UK’s readiness to make concessions in various areas. For example, a future trade deal with India might be dependent on concessions on visa policy for Indian citizens.

Massimo Fabio of KPMG Italy addressed the question, what does it mean to establish special relations? Art. 24 of GATT specifies how states can establish free trade agreements (FTA). The first step is to establish free trade areas and solve the issue of duties, which requires certain formalities. For example, within NAFTA there are no duties, but there are formalities in place. Once it is out of the customs union, the UK will be able and free to agree to new FTAs with other countries. One possibility for the UK to address the formalities issue is to implement the “authorized economic operator” status for businesses under the EU Customs Code. For this, the UK will need to set a new customs law which specifies the criteria for getting the recognized “authorized economic operator” status and then allow them to make import-export transactions without formalities. Mr Fabio stressed that the UK position emphasized in its custom proposal contains contradictory terms, as the UK wants to avail of the benefits of neutralising formalities without contributing to the EU budget. The San Marino-Italy customs deal is unlikely to work for the EU-UK, Mr Fabio concluded.

Ólafur Ísberg Hannesson, senior legal officer at the EFTA Surveillance Authority, explained the functioning of the European Economic Area (EEA) and European Free Trade Association (EFTA), by approaching their scope, institutional structure and effect in the EFTA states. Mr Hannesson emphasized that tax harmonization constitutes an important element of EFTA. EEA consists of a two pillar structure and bodies bridging those pillars. There can be variation in the competence of the bodies, e.g. with regards to their competence to issue fines. It is important that the rules and obligations created under EEA are uniformly implemented. The objective of the EFTA Surveillance Authority is to monitor the implementation of the regulations. While EFTA states do not have a right to vote in EU bodies, they have a veto right. Mr Hannesson concluded that EEA rules only apply to products originating in EEA. There are no common EEA-EFTA rules on tariffs and customs from EU thirds countries.

Edgar Morgenroth, Professor of Economics at DCU Business School, talked about the implications of Brexit on trade and the heterogeneity of tariffs. Mr Morgenroth pointed out that the “nothing is agreed until everything is agreed” provision from the December 2017 agreement between EU and the UK might make the ‘backstop’ clause from the March 2018 draft withdrawal agreement conditional. Mr Morgenroth drew particular attention to the fact that deviation in terms of regulation and tariffs might create the jeopardy of illegal activity, e.g. smuggling. On Global Britain, Mr Morgenroth contrasted trade patterns in Ireland, UK and Germany. While Germany globalized rapidly during the 90s, while being an EU state, UK and Ireland did not. Mr Morgenroth reiterated the EU’s higher level of attractiveness versus that of the UK for possible trade partners. The panel concluded with an emphasis on the importance of enforceability of agreements, with reference to the instability of the US president’s political decisions, most recently in the G7 framework.

Concluding Keynote Speech

László Andor, former European Commissioner for Employment, Social Affairs and Inclusion opened his speech with a metaphor comparing the Brexit process with a story from the Hungarian folklore, called “The Clever Girl” (original Hungarian title “Az okos leány”). Mr Andor mentioned the gaps in the UK proposals on future arrangements with the EU, in particular with regards to regulation standards and agreement with EU third countries. Mr Andor pointed out that the technical fallacy of the referendum design proposed by former UK Prime Minister David Cameron – i.e. the referendum was against the status quo instead of providing choices between concrete options – should constitute a lesson learned for EU27. The UK’s rejection of the common Euro currency as well as skepticism with regards to the social dimension created domestic disputes and put the basis for the formation of an Eurosceptic majority in the UK, which eventually led to Brexit. In numerous regards, the referendum campaign on Brexit was misinformed. While the UK was not an exceptional case suffering from EU migration, this perception was created. For example, the assumption that people would come for social benefits is not supported by robust evidence, as data suggest that EU migrants make up only 2.1% of social benefits recipients (non-EU people 4.8% and UK citizens 93%). Mr Andor concluded by presenting three premises for a remain scenario: 1. Dissolution of the current UK government, 2. Majoritarian public opinion against Brexit, 3. New UK government which would support the remaining of the UK in the EU.