Monthly Archives: November 2018

Where we might be, or not. Who knows?

 

 

 

 

Brexit, of course.

First of all, a summary of the potential benefits of the Prime Minister’s Draft Withdrawal Agreement:

  • Provides comprehensive “legal cover” for leaving EU, e.g. keep the Eurostar running, UK drivers’ licenses in EU, over-flights by planes etc. etc.
  • Allows for a transition period- 30 March 2018-31 Dec. 2019- in effect UK remains under all the EU rules for a bit longer and so more time for the business community etc. to prepare for the exit.
  • In transition and, indeed, in the period of the operation of the back-stop NI +GB remain in the EU’s customs arrangements and NI remains in the Single Market. Thus ensuring whatever advantages flow from continuity of trading terms and arrangements.

However, there is a range of potential drawbacks:

  • UK continues to pay dues to EU until transition period is over, i.e. at least £39bn, and more if that period gets extended beyond 2020.
  • Could the UK ever exit from the customs union type arrangements?
  • And if the UK, i.e. GB, could leave EU might oblige it to “leave behind” NI (so NI-GB tariff barriers).
  • Checks on GB-to-NI “exports” to ensure compliance with EU Single Market regulations. Could that mean higher costs for grocery imports, for example?
  • NI could become a passive rule-taker, especially in terms of having to apply all EU regulations.
  • UK in general, and NI in particular, would be unable to use Brexit as springboard for global free trade agreements.

In economics and politics, as in life in general, the harsh reality is that we must live with trade offs. We can get more of one good thing only by having less of another good thing. So it is with Brexit and the content of the 580+ pages withdrawal agreement between the PM and the EU.

If, “the deal” can get through Parliament, a big IF, for many people the good news will be the continuity after March 2019 in terms of the UK’s customs and regulatory position relative to the EU. In reality, even if not in name, we carry on being part of both the customs union and Single Market. There are some advantages in this in terms of certainty for businesses at least in the short to medium term.

Unfortunately, the effort to keep NI within both Single Market and EU Customs Union entails multiple costs in economic terms (quite apart from a range of political issues). At some point in the future GB might choose to diverge from EU regulations. Northern Ireland would remain tied to those EU standards and hence a widening gap would open up across the North Channel.

Importantly, Northern Ireland’s total product “imports” from GB are vastly greater than the level of imports from the Republic of Ireland (or RoI/rEU combined).  In 2016, NI imported £11bn of goods from GB but only £2bn from RoI and a further £2bn from rest of EU ie the imports flow from GB three times that of entire EU27. For all the talk of best of both worlds the backstop arrangement increases the cost of doing business with NI for GB based business, and a potential barrier has been set in place that may impact on supply chains and the very significant investment into NI from GB. That may have consequences for consumer choice and consumer costs also.

It seems (and this is the EU’s own interpretation of what they are offering) the whole of the UK would be bound up with the EU’s custom arrangements for as long as the EU wishes that to be so. In these circumstances there would be little opportunity for the UK, including Northern Ireland, to forge new free trade deals with the wider world economy. This is very significant since the EU (excluding the UK) represents less than 15% of the world economy and that share has been shrinking over time.

It is also hard to see how the PM’s proposed deal would allow Brexit to become the decisive moment when there was a re-set of policy making in the UK including Northern Ireland; be that in terms of a global trading policy or a new approach to farming support.

Then there is the threat that a confused and badly managed set of Brexit arrangements will create the set of circumstances which can be used as the all-purpose excuse for every mistake in public policy over the next five or more years.  As if another excuse were needed.

 

Dr Esmond Birnie, Economist