Backstops and Broomsticks

Introduction

Coming up to the Halloween deadline has Boris Johnson (BJ) managed to sweep all before him, pull a fast one on the EU and pull a unicorn out of a pumpkin? Has he finally understood that the Irish border was the wicked problem in the Withdrawal Agreement? The one that couldn’t be finessed or dismissed? Not just a trifling political artifice. Has he come up with a brilliant trilemma-busting strategy?

In early July 2016, about a week after the Brexit Referendum, I was at a meeting in University College Dublin. Amid the general surprise that the UK had voted for Brexit, there was universal agreement that as land border was impossible; there would have to be an Irish Sea border, should a hard Brexit go ahead.

At the height of the Troubles, the land border was impossible to seal, even with 27k military personnel and an estimated cost of £40-60bn per annum. Reintroducing a border has been likened to reintroducing apartheid to South Africa.

When the Border was agreed in 1921, under the threat of “Immediate and Terrible War“, Michael Collins signed the Treaty but predicted it would be signing his death sentence, which sadly proved the case.

No Taoiseach could possibly agree to the reintroduction of a hard border. The strength of feeling is little comprehended in the UK and despite valiant efforts from many Irish commentators, some of the best UK ones were very slow to appreciate this (or even still do not do so). Chris Grey of BrexitBlog is an honourable exception.

The other group which feels as strongly, but in the opposite direction (no sea border) are NI Unionists. Historically the Unionists have wanted a hard land border. The UUP are said to have wanted a wall, the DUP a wall with razor wire and machine-gun towers, and Alliance a wall strewn with Laura Ashley soft furnishings.

Many in the DUP still actually want a hard land border and support Brexit in the hope of making this happen (though they don’t state this publicly). The UUP having aped a DUP lite position, maybe moving towards a more pragmatic solution. Alliance now skews more Nationalist than Unionist.

The strength of feeling is evenly matched, but the power has shifted since 1921 when the UK was vastly more powerful than IE. This is still the case in terms of hard power, but sending gunboats is no longer possible. In terms of soft power, IE has not only the EU26 behind it but also the American Congress and is more potent than the UK on this issue. The introduction of a hard border, or indeed anything which threatens the GFA makes a US trade deal impossible.

There is little love of a sea border (outside a very small fanatical Republican circle). It is simply the necessary outworking of Brexit. There is genuine regret that it came to this, as eloquently expressed by Tánaiste Simon Coveney.

There has also been a sea border under four Prime Ministers: Churchill, Atlee, Eden and Macmillan. It is not unprecedented.

The big losers are the DUP, but like a Shakespearean or Greek tragedy, this was pre-ordained from the decision to leave both the Single Market and Customs Union. It is even more knife-twisting as the DUP were one of Brexit’s most ardent cheerleaders. All the more poignant because they were repeatedly warned this was an inevitable outcome.

The New Northern Ireland Protocol

After much drama last week a new NI settlement has been agreed, which does indeed place a border down the Irish Sea. The new protocol seems to have been the result of months of behind the scenes work in Dublin, in close liaison with Brussels.

The EU was never happy with the UK wide Backstop, far preferring a NI only one. The UK wide backstop was a very major concession, which, I for one, was surprised they ever agreed. The new protocol is actually better from the EU’s perspective than May’s.

Jim Grace (@mac_puck) has commented as if the EU had given the UK £10k and received £50k cashback. It has also been compared by Elaine Blackledge (@templaine) to a man going into DFS, buying a sofa with cash and at full price and thinking he had got a bargain.

The Backstop has become a Frontstop. The Irish are effectively happy, as their major goal of no hard border on the island of Ireland has been achieved. The new arrangement is less favourable than May’s deal but it allows Britain to diverge very substantially from the EU. In truth, the Irish would far prefer in the UK stayed in the EU and failing that, as close an agreement as possible (Norway+). They, however, wish the UK well in its experiment (even as they think the likelihood of success is vanishingly small).

The New protocol has been usefully summarized in one image by Dr Katy Hayward and Prof David Phinnemore (Fig. 1).

Fig.1 IE/NI Protocol

There are two major issues worth highlighting. NI remains part of the UK customs territory, but there is a complex arrangement for goods flowing from GB to NI. The EU customs code will be applied, but duties on goods remaining in NI can be reimbursed. This adds extra cost in terms of paperwork.

It is possible that some GB based companies will consider the extra burden too great and will stop shipping to and from NI. According to NISRA in 2017 £2.6bn of goods were imported from IE, £2.2bn from the rest of the EU, but £13.3bn from GB. It not sensible to add complexity to what is effectively NI’s main trading partner.

The other issue is one of consent. This is currently agreed on a rolling four-year basis (unless there is cross-community support, when it goes to 8y). In principle this is fine, but this adds a level of uncertainty, which makes investment less likely.

HMG initially thought trade from NI to Britain would be totally frictionless, but it now seems there may be some paperwork after all.

Effect on the deal on the Northern Irish Economy

Northern Ireland’s GDP is estimated using the Composite Economic Index. This is marginally lower than its peak before the GFC as shown in Fig. 2. Other parts of the UK have recovered (though very weakly). Ireland, by comparison, has done vastly better.

Fig. 2 Quarterly NI economy performance wrt the UK, Scotland and Ireland

In Fig. 2 each economy is tied to 100 in 2016. In practice, IE GDP per capita at c$75k is far higher than that of the UK (c$45k) and NI (c$30k). (Though IE GDP tends to overestimate the size of the economy by c.20%).

Northern Ireland is economically in a very poor state. NI costs more to the UK exchequer than the EU. The block grant is c £10-11bn pa (c.$13.5bn) or $7.5k per capita. The net EU contribution is c.£7.8bn.

NI growth at best is very low and possibly in recession. Major employers such as Harland and Wolf and Wright Bus have a difficult year and the decimated manufacturing base contracting yet further. Though IE growth is unlikely to match the extraordinary 2018 figure of 8.2%, it is still likely to be over 4%.

About the only economic measure on which NI is better than IE is in the unemployment rate, at c.3% as opposed to c.5%. Productivity, however, is much lower in NI. Jobs in NI are dominated by retail and other low pay sectors such as care. It lacks the abundance of high productivity jobs created by the vast quantity of FDI in IE.

Northern Ireland desperately needs a boost. A NI version of the Celtic Tiger.

Celtic Tiger conditions were caused by a number of major factors: two of the most important were snowballing FDI and a large pool of highly qualified graduates in the early 1990’s. Many graduates left Ireland in the ’80s but it was estimated by the mid-1990s that c 200k Irish graduates had returned.

Can this be replicated in NI? Large multinationals need stability but the four-year consent mechanism may cause uncertainty. The fact that it is a pure majority is welcome. Giving a veto to either the Nationalist or Unionist community would be a mistake. The cross-community group, which is likely to increasingly dominate, will decide on economic rather than sectarian grounds.

There are a large number of highly qualified NI graduates in Britain. If the British economy tanks and NI booms, then the conditions may be right for them to return.

If things pan out well, economically given NI’s unique access to both the Single Market and the UK it could be very attractive. A Hong Kong in Ireland as championed by former Tory MEP Charles Tannock is possible.

Another major factor in the Celtic Tiger years was the introduction of the Single Market, removing many trade barriers. The new Frontstop is more troubling as it seems as if non-tariff trade barriers will be introduced between NI and Britain. This will reduce competitivity.

Conclusion

Johnson has not solved the Trilemma (Fig. 3) but dropped promise number two. A far braver and less damaging strategy would have been to drop promise one and go for a Norway+ option. Promise three could only be dropped temporarily under a no-deal, scenario, causing untoward damage to both Britain and NI and poisoning relationships with the EU and the US for years if not decades.

Fig. 3 Johnson’s Brexit Trilemma (D Kelemen)

The new NI protocol is less favourable for NI than the older May one. It does, however, allow Britain to go its own way, towards “Canada Dry”- a Singapore on Thames model.

This is deeply troubling. The carrot believed by the “Free Trade” faction of the ERG of massively better global trade deals is totally illusory. It is, however, a good story, swallowed hook line and sinker by vast numbers of the general public and electorally very valuable. Knowingly acting on what people believe to be true, rather than what is actually true is contemptible and will lead to disaster.

Despite the assurances, there is a suspicion that the UK is heading towards low standards in both environmental and workers rights, as championed by the right-wing libertarians of the ERG. Britain is more likely to resemble Bangladesh than Germany in a decade.

The only people likely to benefit are the wealthy, the vulture capitalists, the tax avoiders-evaders and feral bankers.

The Johnson Deal will inevitably lead to “No-Deal” conditions at the end of the transition period, as the trade agreement will take years to agree, far longer than the transition period to the end of 2020 (or even the maximal 2022 with extension).

Why anyone on the progressive end of the spectrum should support this is a mystery and I will be very unforgiving to any Labour MPs who back this version of Brexit.

Whereas NI has a better deal than the UK as a whole, it is less favourable than the May deal. The DUP may regret not supporting it.

It now seems certain that the new “Deal” will not pass through the Commons by Halloween, if at all. The probability of the first December GE since 1918 is getting close to certain.

The future remains uncertain, but it does seem that BJ and HMG are totally out of their depth. Bamboozled by Ireland and the EU. It is as if an amateur pub team is playing Barcelona. In Irish terms, the UK needs to up its game to Senior Hurling (the iconic Irish national sport). Before the trade negotiations, they at least heed to master ground hurling as the new EU Trade Commissioner, Phil Hogan champions.

Comments

  1. Peter May -

    So getting rid of red tape means in fact a whole lot more red tape between Britain and NI. I’m sure Tesco will be delighted and I suspect price rises will result…

  2. Samuel Johnson -

    Prices will certainly rise on both sides of the border.

    Something not generally appreciated in the UK, though people have heard of the Common Travel Area, is the extent to which any NI border depends upon Irish cooperation and goodwill. After all, Ireland could, and would like to, join Schengen tomorrow. It doesn’t because keeping the NI border open and frictionless is a priority.

    What many fail to apprehend is that the UK border is, perforce, the border of the Common Travel Area, and in Ireland is policed by the Irish. Recently that has been done under EU auspices using shared EU information systems. However the application of, say, British visa policy at Irish ports long antedates EU membership. It involved the Irish being co-opted into preventing Ireland being used as an easy back door into the UK once the empire changed the rules about which of its subjects were entitled to entry (many with dark skin were excluded and Irish cooperation in this racism is regretted by many even if NI was regarded as a hostage).

    Simon Coveney certainly spoke for most Irish people. Sure there’s some weariness with the DUP & perhaps some schadenfreude at their cynicism and incompetence having finally resulted in a significant own goal, but most people were and are pretty relaxed about the increasingly irrelevant border (pre-Brexit). But 292,000 DUP voters can’t expect to prevail against the wishes and interests of the majorities on the island of Ireland, Britain, or the EU. At best they represent a third of the NI electorate (22% in the last EU elections).

    All the same, much as one would like to see them find a dignified way out of a situation they got themselves into, the fact that they’re expendable (not remotely an equal in the union) should be, and I think it is, a wake up call to anyone who cares about the “precious” union. But that should have been the case from the beginning when it was clear that Ireland was partitioned for instrumental purposes, essentially to keep the Conservatives in power, and before that when it was denied Home Rule. (Not that the Irish ever wanted to be in the union in the first place, of course). Scotland’s inferior deal and demonstrably subordinate position will likely now see it on a trajectory to independence even if Brexit is abandoned.

  3. Johnson Matthey -

    Oh no, I didn’t realise that the EU Trade Commissioner was Phil Hogan. This is a guy that endorses the centralisation of subsidies to large land owners based on land area ( not output of calories or of protein ). As a result he unwittingly supports meat production with its high inputs based on land area over legume and pulse production. Production by small land owners, urban producers and incredibly efficient horticulturalists operating under polywrap or similar gets less or no subsidies despite the benefits they bring.
    But have fun trying to get rid of one of the EU’s thickest Commisioners – democratic methods would involve choosing a new Taoiseach.
    Lest it be forgotten, Phil Hogan also supports protections for the recipients of the subsidies from competition and regulations that prevent agricultural land being more productive.
    If you would like Ireland to be in a position to take land out of food production and used for environmental benefits, or to even see an increase in tree cover in the Republic, then Hogan is not going to be your man.

  4. Samuel Johnson -

    Mr Johnson Matthey seems confused. Phil Hogan is the EU Commissioner for trade, not for virtuous small farmers. His intelligence far exceeds that of the British EU Commissioner, who is no more intelligent or influential in EU affairs than an empty chair and who perfectly represents the collective capacity of the current UK govt.

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