The ERG report: the implications for Northern Ireland

 

The ERG report is intended to prove that the ‘issue’ of the Irish border is possible to resolve with minimal disruption.

1. As such it asserts that the Irish border issue should not therefore be allowed to ‘frame’ the Brexit negotiations.
2. Its starting point is that the problems associated with the post-Brexit Irish border have been exaggerated and that they ignore the realities of the border as it exists today.
3. To make this case, it does not address the details of the challenge itself nor does it suggest any particular novel means of managing the border. Instead it seeks possibilities in the continuity and expansion of existing practices.

The ERG report is intended as an alternative to ‘Chequers’.

1. This is on the presumption that, were it not for the Irish border ‘issue’, the UK Government would not consider it necessary to be in close customs and regulatory arrangements with the EU.
2. The intention of the report is to remove the Irish border as an ‘issue’ thus freeing the UK to determine its own customs and regulatory regime.
3. That said, it is worth noting that there are a number of areas in which the report agrees with Chequers/the White Paper:
   1. Both seek to avoid physical infrastructure at the border.
   2. There should be no hard border on the island of Ireland or between Great Britain and Northern Ireland.
   3. There could be specific SPS arrangements for the island of Ireland, with the island constituting a ‘common biosecurity zone’ (as described in the ERG report).
   4. The ambition is a Free Trade Agreement between the EU and UK with no tariffs.
   5. The global trend towards electronic means of improving efficiency in customs facilitation can be positively exploited for the post-Brexit UK-EU borders.

The ERG report contains several working premises which are empirically weak:

1. That because the existing border differences are managed with ‘no discernible disruption’, there is no reason that this situation could not continue.
   1. This ignores the conditions and systems entailed in common UK-Ireland EU membership that make the border appear so frictionless.
2. That the existing legal and operational frameworks in UK and EU can continue after withdrawal to ensure minimal disruption.
   1. This does not accept the consequences of UK being a non member-state and outside the legal and institutional frameworks of the EU.
3. That a ‘hard border’ means physical infrastructure alone.
   1. The ‘hardness’ of a border is determined not by its visibility but by the measures one has to take to legally move goods across it.
4. That the Joint Report commits the UK only to have an ‘invisible’ border, i.e. with no customs facilities at the border [see below].
5. That the movement of goods is the sole issue of concern, primarily the movement of goods from Northern Ireland into the Republic of Ireland.
   1. The goods coming from abroad into the island of Ireland via Great Britain are not considered, although this is a major concern for the EU.
6. That the movement of goods across the Irish border is primary a single transaction, with a product moving from A in Northern Ireland to B in the Republic of Ireland.
   1. Instead, many goods crossing the border are intermediate goods and are within complex supply chains.[1]
7. That it is possible for ‘equivalence’ to be recognised as sufficient for the movement of agricultural produce across an EU border. This is in no way possible.
   1. The EU has strict terms for the movement of agricultural goods – hence checks between Switzerland (in EFTA but outside the EU) and its EU neighbours.

The ERG anticipates several changes for the management of the Irish border after Brexit:

1. It will be a customs border.
2. There will be a need for customs declarations for goods crossing the border.
3. There will be an increase in administrative burden on cross-border traders.
4. There will be an increase in physical checks away from the border.
5. There will be an increase in checks in ports.
6. There will be on-site checks by ‘mobile teams’ of inspectors; these will be away from the border (on both sides of it) at the exporters’ premises or the importers’ premises in the country of sale.

To meet its objective of having the border remain free of physical infrastructure at the same time as being outside the EU’s Customs Union, the ERG report recommends the following:

 

1. All traders across the border would face an increase in administrative procedures.
   1. It says there will be ‘additional declarations’ for all companies but suggest they be incorporated into existing system used for VAT returns.
   2. This completely disregards the reality that customs declarations are quite a different type of document requiring far more detailed information.
2. Trusted trader-type schemes for larger companies
   1. It acknowledges that this scheme would allow ‘simplified procedures’, rather than no procedures at all.
   2. It acknowledges this will be costly and thus not worth doing for smaller companies (which account for 80% of trade across the border).
3. Existing technology will enable any customs formalities to be carried out electronically
   1. No description is given for this ‘existing technology’ but it appears to refer solely to the use of electronic procedures for submitting VAT returns.
4. ‘Any physical checks (of which few would be needed) can be carried out elsewhere.’
   1. For checks on regulatory compliance, it proffers the possibility of ‘pro-active inspections by trading standards’ at the point of sale and by sectoral regulators across supply chains. These will presumably become more significant and cover more goods over time as the UK and EU diverge.
   2. For customs, it proposes inspections at exporters’ and importers’ premises or at the point sale: ‘If customs want to inspect the goods, mobile teams can do so when the goods are declared as they are loaded or unloaded.’ This will mean inspections in both Northern Ireland and the Republic of Ireland.

Few of the Northern Ireland-specific challenges that exist have been addressed in this report.

Such specific needs were clearly identified by the then First Minister and deputy First Minister in a letter to the Prime Minister (August 2016) in which they sought assurances that:The border ‘will not become an impediment to the movement of people, goods and services’

1. The ERG report not only expects impediments to the movement of people, goods and services, it introduces new ones.

• The border ‘must not become a catalyst for illegal activity… or an incentive for those who wish to undermine the peace process and/or political settlement’.The ERG report anticipates that there will be an increase in the levels of smuggling.

1. It makes no effort to address the sensitivities of the nationalist community, bearing in mind that the majority of the population in the region all along the border are nationalist.
2. It does not address the likelihood that the issue of border will be exploited for political ends by competing groups in Northern Ireland.

1. Businesses in Northern Ireland, ‘both indigenous and FDI companies, retain their competitiveness and do not incur additional costs’, and that they ‘retain the ease with which we currently trade with our EU partners’
   1. The ERG report anticipates an increase in administrative burden for businesses involved in trade across the border, and this will inevitably mean greater cost in terms of personnel time, potential delays to goods crossing and ensuring compliance.[3]
   2. Although the ERG claim that trade across the border will remain uncomplicated, it cannot in anyway be considered to be equal to the current ease of cross-border trade today.
2. The vulnerabilities of the agrifood sector (tariff and non-tariff barriers, loss of funding, export routes) will be considered.
   1. Although it concedes that agri-food products coming into Northern Ireland from Great Britain may pass through Border Inspection Posts, it simply assumes that the EU would be willing to see free movement of agricultural produce from Northern Ireland into the EU on the grounds of equivalence. All evidence points to this being unacceptable to the EU.
3. Nothing undermines the single energy market on the island.
   1. The ERG report makes no mention of the single energy market.
4. Gaps left by EU funding will be met
   1. The ERG report makes no mention of EU funding.

Furthermore, any ‘solution’ to the Irish border should uphold the commitments made in the Joint UK-EU Report (8 Dec 2017).

1. These commitments are that:
   1. A hard border must be avoided, including any physical infrastructure or related checks and controls.
   2. The 1998 Agreement must be protected in all its parts, and its operation and implementation must continue unimpeded.

• North-South and East-West cooperation must be protected.

1. The constitutional status of NI and the integrity of the UK internal market must be unaffected.
2. Ireland’s EU membership must not be compromised.

1. The ERG report meets only two of these commitments (avoiding physical infrastructure; no direct implication for the constitutional status of Northern Ireland) whilst it risks breaching in full or in part the others:
   1. It will entail checks and controls for goods crossing the Irish border.
   2. It does not address any of the 1998 Agreement which makes the Irish border more than a concern about the movement of goods, e.g. parity of esteem between British and Irish identity, and the protection of rights.

• It also neglects the substantive aspects of current cross border cooperation in the north-south bodies.

1. It would compromise Ireland’s position within the Single Market through the lack of rigour in the application of rules on goods crossing the Irish border.

What the ERG report fails to acknowledge, in broad terms:

1. It fails to address the position for small businesses, many of whom are operating with tiny profit margins. The report leaves their position quite unknown. It makes two different suggestions without considering the implications or the risks.
   1. First, it says that, if below current VAT thresholds in the UK and Ireland, they ‘should enjoy exemptions’ – which is simply a blank cheque for smuggling. Why would these companies take on the costs of compliance and why wouldn’t those wishing to exploit a loophole in an international customs border simply do so through a small business on the Irish border?
   2. Secondly, it says that alternatively, small traders can voluntarily register for VAT as a means of making electronic declarations of their shipments. The question hardly needs asking; why would a company do this?
2. It fails to acknowledge the implications of regulatory divergence
   2. It claims that on point of exit from the EU, UK goods will ‘initially retain all the EU product rules and regulations in UK law so its goods will in fact be compliant’. It does not, however, attempt to say what will happen on day 2.
   3. There are the knotty issues relating to regulatory divergence that are simply ignored in this report. For instance: How is the challenge of managing non-compliance met? How can the UK diverge and establish its own regulatory regime and at the same time expect the EU to be happy that UK goods comply with its standards? How will the EU not only get confirmation that UK goods conform to required standards, but also ensure that this is the case? In the case of there being a dispute about compliance, how is this resolved?
3. It fails to acknowledge the fact that the greater the significance of the customs barrier, the greater the incentive for smuggling. The risks of smuggling are enormously increased by raising divergence between one side of a border and another.
   1. These measures put greater administrative burdens on legitimate, compliant traders and expose them to greater state observation. At the same time as incentivising illegitimate trade, this report has nothing to say about how that would be tackled, other than noting that it is already problem.
4. It fails to acknowledge the costs and complexity of surveillance required
   1. All IT systems are costly to develop. They take time to test, to roll-out and to train. It is not true to assume that a system for customs declaration can simply be an add-on to a VAT declaration form.
   2. If the inspections are ‘intelligence-led’, the expectation is that the UK and EU will have excellent and up-to-date data on the goods being produced and traded across the border. How is this data gathered? What about non-submissions and what about false submissions?
5. It fails to acknowledge the realities of being outside the EU systems that are currently designed to facilitate ‘frictionless’ cross-border movement.
   1. This includes the VIES system which the ERG (wrongly) assumes can be not only continued but expanded upon after Brexit.
6. It fails to acknowledge that law enforcement agencies will not be able to tackle smuggling as they currently do due to:
   1. The much greater challenge of doing so over a customs border at an EU external border compared to its current status.
   2. Plus the fact that they will be hindered in some regard (e.g. in sharing sensitive information) when the UK is outside the EU (unless/until agreed in a future Treaty). It assumes that ‘data-sharing and cooperation between authorities can raise suspected non-compliance or infringement speedily’, without acknowledging that the UK may well be outside these systems of data-sharing.[4]

What the ERG report fails to acknowledge in terms specific to the particular context of Northern Ireland:

1. It fails to acknowledge that requiring customs declarations of all goods being transported across the border will be prohibitively costly for many of the small businesses trading across the border.
   1. This has the effect of putting a serious barrier to trade between Northern Ireland and its most important export market.
2. It fails to acknowledge that smuggling has enormously negative effects on society.
   1. Smuggling undermines legitimate traders and incentivises illegitimate trade.
   2. Smuggling resources criminal activity.

• Smuggling is linked to paramilitarism on the island of Ireland.

1. Smuggling brings a loss of revenue.
2. It increases risk to local consumers and citizens.

1. It fails to acknowledge the sensitivities of the Irish border as an historically and political important symbol and as a totem for the stability of the Agreement:
   1. The current ‘openness’ of the border and ease of trade as seen primarily as a sign of progress and of the success of the peace process.[5]
   2. If there was to be a perceived ‘backwards step’ by putting barriers to trade, this would be seen not only as indicating that the peace process is in trouble but more particularly that the close connections between Northern Ireland and the Republic of Ireland are under threat.
2. It fails to acknowledge the potential security issues.
   1. At the moment, physical inspections of some premises suspected of being involved in smuggling or fuel laundering is intelligence-led and conducted under highly secure conditions. It is not conducted by UKBF officers alone but with PSNI officers, sometimes in Tactical Support Groups prepared for armed resistance.
3. It fails to acknowledge the political sensitivities around the measures proposed.
   1. The suggestion that there be at ‘exporters’ or importers’ premises’, which would be viewed as extraordinary state intrusion.
   2. The legacy of military presence in Northern Ireland and the securitisation of the border has left deep scars. The very idea of border controls conjures up such traumatic memories for many in the border region in particular.

• In particular, it will be seen as an active disincentive for trading with the Republic of Ireland. Some will make a political point about this.

1. Moreover, cross-border traders will be those who are immediately subject to greater likelihood of inspection and state scrutiny. History shows that this will be resented and resisted. This will generate political tensions and the type of anger that can be exploited by those who wish to undermine the peace process.
2. It fails to acknowledge the value of the border as it is currently experienced.

1. The real challenge for the Irish border after Brexit is not avoiding visible change or friction but preserving the conditions which have enabled unionists and nationalists alike to feel comfortable in Northern Ireland’s current constitutional position and also comfortable with extensive cross-border cooperation.
2. The depoliticisation of cross-border cooperation has been a core pillar of the peace process and to economic development in Northern Ireland.
3. Dispersing border controls throughout Northern Ireland is not a simple, risk-free solution. Adding burdens to traders, increasing information gathering on cross-border traders (for ‘intelligence’ for risk assessment), mobilising inspection teams for pro-active checks on sites (including business premises), and turning a blind eye to the consequences of smuggling will all bring economic costs and friction. Moreover, such measures are open to distortion and manipulation by those who wish to undermine the peace process and political settlement.

[1] The InterTradeIreland Cross Border Supply Chain Linkages report found that a very significant share of cross-border trade is accounted for by firms that trade simultaneously in both directions.

[2]A study prepared for Manufacturing NI and presented at the IET conference in March 2018 showed that the cost of administrative processes associated with exporting a good from NI into the Republic of Ireland after Brexit would be £478 per consignment.

[3] Ref. the draft Withdrawal Agreement which has already indicated there will be restrictions on information security and data-sharing even in the transition period.

[4] Katy Hayward, Bordering on Brexit report for the Irish Central Border Area Network, 2017.