Many Britons are confused with matters relating to current affairs during this politically perplexing juncture that I like to refer to as the Brexit Befuddlement. To try and decode Boris’ Brexit brain-teaser, it is important to first familiarise ourselves with a few of the terms we hear so frequently that we seem to have become almost immune to them.
What is Brexit and what do all these terms actually mean?
In a nutshell, Brexit is the planned withdrawal of the United Kingdom from the European Union (EU), and consequently out of the European Union Customs Union (EUCU) and the European Single Market (ESM). When goods and services are imported or exported, a tax or duty may be payable upon them. This tax is known as a tariff. States that have decided to abolish these tariffs on goods and services across their borders are known to have established a customs territory with a customs union. These unions have tariffs which they apply on imports into their common territory and are applicable to all states in the customs territory; these tariffs are known as Common External Tariffs (CETs). A relevant example of such a union is the EUCU. This is different to the ESM which can be described as a deeper form of integration that concerns the movement of the ‘four freedoms’; goods, services, people and capital. States in the ESM also benefit from sharing common rules and regulations surrounding animal health, manufactured goods and food safety and other areas.
For over 40 years, the UK has engaged in foreign policy and trade agreements with various other members of the EUCU and the ESM making it a difficult task to unravel these agreements. Fortunately, the UK has until the 31st of December 2020 to hold talks with the EU and come to some sort of a mutual agreement. This is known as the transition period. During this period, the UK would be required to follow all EU rules including the freedom of movement; meaning that UK nationals will be able to live and work in EU countries and vice versa. In addition to this, the UK will be required to pay the EU an estimated £33bn that will contribute to their share of EU budgets and liabilities up to the end of the transition period. This £33bn sum is referred to as the Divorce Bill.
What does the new Brexit withdrawal agreement propose and what impact will it have?
The section of the Brexit Withdrawal Agreement that will have the most impact is the section that concerns the exit of the whole of the UK from the EUCU. While this means that the UK will be able to strike trade deals with other countries without restrictions being imposed upon them by the EU, it also means that the UK will be subject to tariffs on goods and services exported/imported, both to and from the member states of the EUCU. To counter this additional tariff expense, UK businesses will either have to make their EU customers bear the brunt by increasing sales prices to account for the tariff expense, or they will be required to reduce their original pre tariff-price to maintain the same price for the end customer after the tariff has been added. Both solutions are likely to end unfavourably for UK businesses.
The withdrawal of the UK, (or the United Kingdom of Great Britain and Northern Ireland), from the EUCU creates the need for a legal customs border between Northern Ireland and the Republic of Ireland (which will remain part of the EUCU). Despite leaving the EUCU, Northern Ireland will remain in the ESM. This means that in practice the regulatory border for goods and services will be between Great Britain (which in effect constitutes England, Scotland and the Principality of Wales) and the island of Ireland and is one way of avoiding a hard border between Northern Ireland and the Republic of Ireland. This also means that there will need to be regulatory checks on goods moving between Northern Ireland and Great Britain but removes the need for such checks between Northern Ireland and the Irish Republic as they will effectively be part of an “an all-island regulatory zone”; as shown in the map below.
The lack of a hard border at the customs border between Northern Ireland and the Irish Republic opens up the possibility of goods being transported across borders without being checked. The Withdrawal Agreement states that ordinary people will not have their baggage checked and duty will not apply to individuals, but goods that are considered “at risk” will be subject to tariffs. The nature of these “at risk” goods will be decided by a joint committee made of UK and EU representatives. The diagram below (Figure 1), shows the treatment that has been proposed for these goods that are to be transported from Great Britain into Northern Ireland. All “at risk” goods moving between GB and NI are essentially crossing a regulatory border into the ESM and will be subject to tariffs. If it can be proved that these goods have remained in NI, the supplier will be able to claim a refund for the tariff that they have paid. If the goods have moved across the border and into the EUCU, the supplier will not be able to claim the refund and the tariff will have been paid.
Into this mix will be thrown the status of Gibraltar; with regards to their position within the EU, the EUCU, ESM or full incorporation into the United Kingdom. The Kingdom of Spain, is unlikely to accept any resolution short of full integration within its realm.
Overall, the uncertainty of the Brexit situation has a broad set of implications for the EU and the UK in both the short and long-term. With another Brexit extension looming, the future of the UK and the EU seems more uncertain than ever and we can only wait to see what the next steps will be for the United Kingdom.