The publication of the draft Brexit deal has created a bout of mass confusion and hysteria in British politics. While politicians decry the agreement as paving the way for the UK to become a “vassal state”, businesses have praised the deal as a way of maintaining supply chains and securing frictionless trade. But it seems that few people have in fact read the agreement; both sides are fundamentally wrong about what it contains.
First, it is important to clarify that the main text currently published is the withdrawal agreement, which focuses on the steps necessary for exiting the EU – not the nature of the future relationship between the EU and the UK.
The withdrawal agreement covers the key priorities outlined by the EU at the start of the negotiations: protecting the rights of UK and EU citizens living in each other’s territories; settling the UK’s accounts as it leaves; and ensuring there is no hard border on the island of Ireland. It also critically secures a transition period, where the UK continues to be treated as an EU member – but has no say in decision-making – for at least 21 months after the date of Brexit.
But perhaps the most contentious area of the withdrawal agreement is the Irish backstop. This is an arrangement designed as a fallback position for the UK and the EU if the future relationship cannot guarantee a soft border between Northern Ireland and the Republic of Ireland.
Originally the backstop proposed by the EU was designed to keep only Northern Ireland in the EU’s customs union and single market for goods. But after the UK rejected this proposal on unionist grounds, a new formulation has been developed. This creates a customs union between the UK and the EU, thereby obviating the need for a customs border down the Irish Sea. At the same time, however, it still envisages a separate status for Northern Ireland, where – in order to avoid the need for regulatory checks at the Irish border – it is required to align to a range of EU legislation on everything from VAT rules to the environment.
Many are now claiming that such an arrangement represents a soft Brexit. But this is far from the truth. The backstop proposed is a “bare bones” customs union between the UK and the EU, achieving the absolute minimum required to avoid a customs border down the Irish Sea.
While a customs union maintains zero tariffs and no quantitative restrictions between the UK and the EU – and gets rid of the need for rules of origin checks – there are a range of other non-tariff barriers which it does nothing to ease, from sanitary and phytosanitary checks to product safety requirements. This is particularly the case in heavily regulated sectors, such as motor vehicles, pharmaceuticals, and chemicals.
Could the future relationship resolve these issues and help build a closer trading relationship between the UK and the EU? So far the signs are not promising.
The outline of the political declaration that accompanied the withdrawal agreement is based on a Canada-plus arrangement – ironically the agreement so often touted by those figures now bemoaning the deal. While the outline suggests an ambitious relationship, the baseline for this ambition is a bog-standard Free Trade Agreement, rather than the type of relationship the UK has today with the EU. This would see a range of non-tariff barriers for trade in both goods and services, imposing new costs to business and disrupting cross-border supply chains. In finance – one of the UK’s main areas of comparative advantage – UK-based firms would lose their financial passport and their access to EU markets would be severely restricted.
The one area where the deal does point towards a close trading relationship is with respect to Northern Ireland, which will in effect remain part of the EU’s single market in goods. But this comes at the cost of regulatory divergence within the UK and a border down the Irish Sea.
Of course, the political declaration is non-binding; there is still the opportunity to change direction, even during the transition period. But if the UK government’s red lines stay as they are, then the natural end point is a Free Trade Agreement. While it is to the government’s credit that such a wide-ranging deal has been secured, it should not be interpreted as representing a pivot to a soft Brexit. The trajectory of the UK is still towards an economic rupture with the EU.
Marley Morris is Senior Research Fellow and Brexit lead at IPPR