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Dr Graham Gudgin is Policy Exchange’s Chief Economic Adviser. He is a visiting Professor at the University of Ulster and Chairman of the Advisory Board of the Ulster University Economic Policy Centre.

As predicted in Policy Exchange’s recent research note, The Irish Border and the Principle of Consent, the Government seems largely to be getting its way in proposing to use a pan-UK customs union to provide the backstop demanded by Irish Government and the EU.

It was reported earlier this week that a 50 page paper would be shown to the Cabinet yesterday, part of which would propose a customs union between the UK and EU. It contains a get-out clause, we are told, and legal certainty would be provided by including these proposals in the EU Withdrawal Agreement. Elements might remain from the dramatic backstop described in this year’s Draft Withdrawal Agreement, but these may be too mild to frighten the DUP horses.

Even such a proposal may still fall short of the basis for a full agreement, since the Irish Government has yet to finally give up on the so-called Northern Ireland backstop. It is important to recognise that it wants to protect existing cross-border co-operation as much as to secure a frictionless border. Its argument is that existing cross-border cooperative measures stem from the 1998 Good Friday Agreement, and depend on the existence of the EU Single Market and Customs Union. Hence to uphold the Good Friday Agreement, Northern Ireland must remain within the Single Market and Customs Union. By contrast, the National Audit Office says that most cooperation in the important area of health does not depend on the EU.

The EU’s vision of the backstop was set out in its Ireland/Northern Ireland Protocol within the Draft Withdrawal Agreement. This states in stark terms that:

‘The territory of Northern Ireland…shall be considered to be part of the customs territory of the [European]Union… A common regulatory area comprising the Union and…Northern Ireland is hereby established. The common regulatory area shall constitute an area without internal borders’…‘Customs duties…and quantitative restrictions on imports and exports shall be prohibited between the Union and Northern Ireland’.

Theresa May rejected these proposals as soon as they were issued, and they were widely described as an attempt to annex Northern Ireland. Until now, the EU has largely ignored this rejection, and has continued to insist that no Withdrawal Agreement will be signed, and hence there will be no transition period, unless this form of the backstop is agreed. The EU has also largely ignored paragraph 50 of the original Joint Progress Report signed last December, added to it at the last minute under DUP pressure, which said there would be no regulatory border between Northern Ireland and Great Britain.

Most of this may now go. Even so, it may not be possible to drop all of the protocol, since the EU still demands some certainty in the event of no permanent trade and customs deals. The focus of the backstop has always been on regulatory alignment, and the EU now seem to accept that this may entail checks ‘in the market’  – i.e: at the premises of producers and retailers. There still seems to be reluctance to apply this to animals and food, even though standards in Northern Ireland currently match those in the EU and are likely to continue doing so.

The proposed EU:UK Future Relationships Paper is said to include a stipulation that the degree of border openness for the UK will depend on the degree of future regulatory alignment. If UK alignment drifts away from EU standards, for instance on hormone treated beef, border checks may become necessary. While this seems reasonable, and indeed manageable for Great Britain, a problem still arises at the Irish border if no checks are ever to take place.

The idea until now has been that some additional checks could take place at the Irish Sea, but these are not really feasible unless Northern Ireland’s consumers are to be denied such products as hormone-treated beef (which mught well mean cheaper beef). If cheap beef were to get into Northern Ireland legally it would surely cross an Irish border if there were no border checks. Conventional anti-smuggling methods might be sufficient, but would be outside existing EU rules.

There are other problems. A backstop meant as insurance against a No Deal scenario would need to operate in a world with the tariffs that would accompany ‘no deal’. A tariff border in the Irish Sea would be completely unacceptable to the DUP and has never been mentioned. This suggests that the elaborate backstop proposed in the protocol was never intended to apply in a no-deal scenario. The intention is instead to protect cross-border cooperation against detailed EU rules that might apply even under a free trade agreement or with no customs checks on goodsm but with restrictions on cross-border provision of services.

Another difficulty is that any change in cross-border co-operation is clearly constrained under the Good Friday Agreement by a need to obtain permission from the Northern Ireland Assembly. Any backstop proposals on regulations would thus have to be conditional on Assembly approval.

Not all problems with the backstop are solved, but the talks appear to be on a more constructive basis and within striking distance of an accommodation. This may push the remaining issues back to next year’s trade talks, which is where they should always have been.

55 comments for: Graham Gudgin: Are we inching nearer to an escape from the Northern Ireland backstop?

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