Once Theresa May said ,at her party Conference in Birmingham in October, that she was insisting on immigration controls, on rejecting the jurisdiction of the ECJ, and on making trade deals with non EU countries, a hard Brexit became inevitable.
MAY SAYS SHE WANTS A STRONG EU
She said in her recent speech that she wants the European Union to be strong and successful, without the UK.
It was important that she say that. It set a good tone and it differentiates her position from that of Donald Trump, who, like Vladimir Putin, wants the EU to break up.
Mrs May says she wants the EU to stay together, but for that to happen, there can be no question of a country, including her own, being offered better terms by the EU, for leaving the EU, than it would obtain if it stayed in the EU.
That is not “punishing” anybody, it is common sense.
Mrs May set out her goals, but not all the pitfalls on the way.
FINAL DEAL WILL HAVE TO BE RATIFIED BY THE PARLIAMENTS OF ALL EU STATES
The eventual Free Trade agreement she wants with EU will not be finalised in Brussels. It will have to be approved by the 27 or more Parliaments within the EU. The difficulties Ukraine and Canada have had getting their Agreements approved show how unpredictable that may be. Convincing Michel Barnier to agree may be the least of the UK’s negotiating problems!
She said that, on leaving the EU, the UK will retain all the then existing EU rules for goods and services, but will then change them, as necessary afterwards. This implies a gradual hardening of the border in Ireland, as UK standards begin to diverge from EU standards.
MORE BUREAUCRACY INEVITABLE
To the extent that the UK diverges from EU standards, the UK businesses will have to apply two sets of standards, one for the UK market, and another for the 45% of UK exports that go to the EU. More paperwork, not less!
Once the UK has left the EU, goods coming into the EU (including into Ireland) from the UK will be subject to checking under “Rules of Origin” requirements, in other words to check that they do not contain an undue amount of content that is not from the UK at all, but from elsewhere.
For example, there will have to be checks that UK beef burgers do not contain Brazilian beef. These “Rules of Origin” checks will involve a lot of delays, and yet more bureaucracy, which will be especially onerous for small firms.
One study estimated that the need to apply “Rules of Origin” checks could reduce trade volumes by 9%.
PROBLEMS FOR RETAILERS
The UK decision to leave the Customs Union will create big problems for the Irish retail trade. Many retail chains treat Ireland as an extension of the UK retail market and have built their distribution chains, the network of warehouses, and their logistics on that basis.
Now transiting goods destined for Ireland through the UK, or from Ireland via the UK to continental Europe, will become much more complex. Customs inspections, paperwork and even road use costs may arise. These problems could be mitigated by new customs agreements, but this will not be easy. These problems will be particularly acute for food products, which are perishable.
New ways of getting goods in and out of Ireland, avoiding the UK , may have to be devised. Ireland will need to redirect its transport infrastructure towards the continent and away from UK routes which will require investment in new infrastructure at ports like Rosslare and Cork.
HALF IN, AND HALF OUT, OF THE CUSTOMS UNION?
Theresa May was remarkably unclear about the sort of relationship she wants with the EU Customs Union. She wants bits of it, but not all of it.
In attempting this unusual feat, she will run into difficulties with the World Trade Organisation (WTO), a body of which the UK now wants to become a fully independent member.
The WTO works on the basis of non discrimination, or the so called “Most Favoured Nation” principle.
As I understand it, any concessions that the EU Customs Union grants to the UK, as a non EU member, would have to be extended to all the EU Customs Union’s trading partners, unless the concessions cover “substantially all” trade between the UK and the Customs Union. If this is so, Theresa May’s formula will be unworkable. The UK will have to be either ” substantially in”, or “substantially out”, of the Customs Union.
Any concessions the UK might get to allow it to be partially in, or partially out, of the EU Customs Union for a given product or service, will have to be purchased at a price from the EU and from the other members of the WTO. The whole process will be dragged out by other countries seeking an advantage in an apparently unrelated field.
It will drag on, and on.
HOW IRELAND SHOULD APPROACH THE BREXIT NEGOTIATIONS, WHEN THEY START
Theresa May’s commitment to the Common Travel Area (CTA) with Ireland is welcome, but the CTA is an understanding rather than an enforceable legal agreement. The extent to which it gives legally enforceable right to work in either jurisdiction will be tested in the negotiations. Spain will seek similar rights for Spanish workers working in Gibraltar.
How should Ireland approach the negotiation of UK exit from the EU?
Obviously, Ireland has more to lose in this than any other EU country.
But Ireland needs to be clear in its own mind that it is in the EU, and intends to stay there.
Ireland has prospered in the EU, in a way it did not prosper before it joined and when it was dependent on the British market. Ireland has prospered thanks to foreign investment, which came to Ireland on the explicit assurance that Ireland would remain in the EU and that firms located in Ireland would have full access to the EU single market.
Incidentally, the UK also did better economically in the 43 years since it joined the EU, than it did in the period before it did so.
There has been a lot of abstract commentary in the Irish media about the stance Ireland should take in the Brexit negotiations. Some have suggested that Ireland detach itself from the common EU negotiating stance. This would be a big mistake, because in trade negotiations size matters.
While the negotiations will be conducted by the European Commission, they will be intensely scrutinised at every meeting of the European Council, where Ireland will be represented by the Taoiseach. No move will be made without intense Irish involvement on the EU side.
Irish Embassies in every EU capital will be vigilant. Ireland will need to deepen its understanding of the fears and hopes of every one of its 26 EU partners, understand their history, and speak their languages. It is by framing Ireland’s goals in terms that the other 26 can see is in their interests too, that Ireland will maximise its success in the Brexit negotiations.
As Brexit is a British initiative, it is proper that, as the first step, Britain should accompany its application to leave the EU, with a detailed prospectus setting out how its proposed relationship with the Customs Union might work, specifying how its proposals might be reconciled with WTO rules.
It is better that the UK identify any legal, practical , and logistical difficulties, for itself and by itself.
In that way, it will own the problem, and own the solution.
It is not for the EU to tell the UK what to do, because that would just allow the UK to blame Brussels for the bad news, and blame others for problems that are INHERENT in what the UK itself is now looking for.
IN ANY NEGOTIATION, SIZE MATTERS
Of course, Ireland can continue to work with the UK on common problems. To the extent that bilateral discussions with the UK can smooth the overall path of the wider negotiations, that would be welcomed by Ireland’s EU partners.
But Ireland would have to be entirely transparent with its EU partners in regard to any discussions it might have with the UK, on any subject that was part of the overall EU/ UK negotiations. That is vital.
On issues of importance to Ireland, the extra leverage Ireland will have, as a member of the EU team, will help Ireland get a much better deal than it could ever get, as a smaller country negotiating on its own, with a much bigger UK.
In any negotiation, size matters!
IRELAND MUST BECOME HYPER COMPETITIVE
Now that it is clear that we have to prepare for a hard Brexit, Ireland should adopt an aggressive strategy to improve its overall competitiveness.
That is how we will attract new business to Ireland, and withstand the destructive currency gyrations that unfortunately will be part of the Brexit process.
Ireland must become hyper competitive. The right action agenda for the government is to be found in the “Competitiveness Challenge”, presented to the government last month by the National Competitiveness Council.
In his foreword to the Report, the Taoiseach said “We need to continue our effort to control and reduce costs-whether for property, legal services, finance or energy”
As the Report points out, Ireland has the 5th highest productivity in the OECD, after Luxembourg, Norway, the US and Belgium. To overcome Brexit, we should aim now at first, not fifth, place on this table!
When the UK leaves the EU, we will still be competing with them, and they will be freed of the discipline of EU state aid rules, and thus able, if they wish, to compete unfairly with us. Comparing Ireland with the UK, on the World Bank Rankings, the Competitiveness Council Report says that, for a business wanting to
+ get electricity, Ireland is in 33rd place, while the UK is in 17th place in the world
+ get a Construction permit, Ireland is in 38th place, while the UK is in 17th place
+ enforce a contract, Ireland is in 90th place in the world, while the UK is in 31st place (our case clearance rate in our courts is the worst in the EU)
+ trade across borders, Ireland is in 27th place, while the UK is in 13th place
+ get Credit, Ireland is in 32nd place , while the UK is in 20th place.
The remedy to each of these problems is different. It will usually involve action by several government Departments. So a “whole government” approach will be needed, with a narrow focus on dramatically improving Ireland’s competitiveness position in every area where our costs of doing business are too high.
The Taoiseach, and his office, are in an ideal position to drive this because he has unique authority to clear away road blocks caused by disputes between Departments.
PAY AND TAX POLICY MUST TAKE HARD BREXIT INTO ACCOUNT
Making Ireland hyper competitive, so as to withstand a hard Brexit, would provide a unifying agenda for the New Politics, going beyond the Programme for Partnership government, which after all agreed when Brexit seemed unlikely.
If the national aim is to be hyper competitive, that must influence public sector pay claims. It strengthens the case for setting up a “Rainy Day Fund” to meet unexpected fiscal eventualities, and the case for a strong Independent Parliamentary Budget Office. We will not be able to afford to narrow our tax base. We should not spend today, what we are unsure we will actually earn tomorrow!
We will not be able to afford any work disincentives in our tax and income support systems, nor to have so many households where no one is working, an area where Ireland is worse than any other EU country.
The clarity we now have from Theresa May’s speech about the direction Brexit will take, is the signal we needed for a comprehensive plan to make the Irish economy hyper competitive, starting now, even before the UK writes its Article 50 letter.