Between the backstop and a hard place

As with much of the UK’s Brexit debate, this week’s row over customs union membership has taken place around six months too late. While MPs and peers argue about the merits of an independent trade policy and cross-border supply chains, there are ominous signs from the European Commission that many in the UK may have simply misjudged Brussels’ position on the matter of the customs union. This could have dramatic implications for the negotiations in the months ahead.

In the UK, MPs sympathetic to a customs union have argued that it is needed to maintain a soft border in Northern Ireland. And while it is true that a comprehensive customs union would help to resolve the Irish border issue – because it would obviate the need for customs and rules of origin checks – this is really only half the story. For a soft border, there also needs to be regulatory alignment on goods as well; otherwise border checks would be necessary to ensure imported products meet the required technical regulations.

This is why trade experts such as Sam Lowe and John Springford at the Centre for European Reform have proposed the ‘Jersey option’ to resolve the Irish border issue – in effect an arrangement involving a customs union between the UK and the EU alongside an agreement to maintain the free movement of goods. But recent reports reveal that the Commission has shot down such proposals: for the EU, the four freedoms are indivisible and the Jersey option explicitly breaks them apart. As EU chief negotiator Michel Barnier said this week, “you cannot have free movement of goods without free movement of people”.

This in effect means that there are only two options for resolving the Irish border. One is a comprehensive customs union alongside full alignment with the single market, covering the four freedoms, as well as other horizontal measures such as employment, consumer and environmental protections and state aid and public procurement rules – i.e. something like the ‘shared market’ proposal, which IPPR called for last December.

The government could seek to negotiate such an arrangement while aiming to meet the UK’s priorities on sovereignty and immigration. The ‘shared market’, for instance, ensures full alignment with the single market alongside a mechanism that allows for the possibility of divergence over time, with proportionate consequences for market access in case of any such divergence. It also includes a compromise on the free movement of people, whereby the UK could seek to negotiate temporary safeguard measures or a Swiss-style ‘local preference’ system. Yet even if this is the most plausible solution to the current Brexit impasse, it would require a major about-turn in the UK government’s current negotiating approach to be delivered.

The other option is the Commission’s ‘backstop’, proposed in their draft withdrawal agreement in February. The ‘backstop’ prevents a hard border by agreeing a ‘common regulatory area’ on the island of Ireland – in effect keeping Northern Ireland within the EU’s customs union and within the single market for goods. This is a special arrangement that the EU is unwilling to extend to the whole of the UK, but has offered for Northern Ireland to resolve the border issue. Under these arrangements Northern Ireland would be in the customs union and single market for goods while the rest of the UK would be outside. This raises the likelihood of new customs controls and trade barriers emerging between Northern Ireland and Great Britain. For many, it would threaten the economic and regulatory unity of the UK. It is hard to see how the DUP in particular could stomach such an agreement.

The UK government is therefore trapped between the backstop and a hard place. If it wants a deal at all before March 2019, it must choose: either negotiate a much softer Brexit – covering both a customs union and single market alignment – or accept differing arrangements for Northern Ireland. There is little possibility of fudging or delaying the decision: the transition deal is part of the withdrawal agreement and can’t be signed off unless the Irish border issue is resolved.

Of course, either option could presumably be accepted as a backstop for now, rather than as the primary ambition of the UK. Indeed, strategically the best bet for the government might simply be to accept the ‘shared market’ as the backstop option, as this should satisfy the EU and keep on board the DUP, while leaving hope for hard Brexiteers to find an alternative solution to the Irish border issue during the trade negotiations.

What does this mean for this week’s customs union vote? No doubt the Commission would welcome the UK shifting one of its ‘red lines’ and would be happy to discuss the possibility of a customs union. But it would be a mistake to think that a customs union would remove the need for the Northern Ireland backstop. This backstop – and the political headache that comes with it – will remain in place unless the UK shifts its position on both a customs union and the single market. Only the ‘shared market’ proposal, or something similar, can resolve the quandary.

This is not to say that a customs union would not be a sensible idea, regardless of the Northern Ireland question. There are many good reasons for the UK to be sympathetic to a customs union – not least the ability for UK and EU manufacturers with criss-crossing supply chains and ‘just in time’ production processes to mitigate any post-Brexit upheaval. But if MPs think a customs union is a panacea for the Irish border question, then they are in for a rude awakening in the weeks ahead.

Marley Morris is Senior Research Fellow at IPPR. He tweets @MarleyAMorris