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Why Brexit divorce deal still hangs over EU-UK future-relationship talks

Even as the UK and EU hold intensive talks on their future relationship, the two sides are only beginning to grapple with the complexity of implementing the first part of Brexit: Prime Minister Boris Johnson’s withdrawal agreement signed in Brussels last October. 

The “divorce deal”, which ran to more than 500 pages, enabled the UK’s orderly exit from the bloc by settling Britain’s exit bill, guaranteeing citizens’ rights and preventing the return of a hard border in Ireland.

Much of the implementation work centres on the solution found for Ireland. Michel Barnier, the EU’s chief Brexit negotiator, has made clear that future-relationship talks will stall if the deal on customs checks and other controls is not honoured in full. 

Matters could come to a head in June, when the EU and UK review progress. The withdrawal agreement needs to be an operable reality by the end of this year when Britain’s post-Brexit transition period expires.

What’s the difficulty and why does it matter?

The EU and UK have fundamentally different interpretations of the way the withdrawal agreement’s protocol on Northern Ireland should be implemented.

The divorce deal creates a unique legal situation: the province will remain part of the UK’s customs territory, but subject to EU rules on customs, animal health, state aid and VAT. The agreement places a trade border in the Irish Sea: EU rules and procedures will be applied, but administered by UK officials. 

But the protocol leaves crucial questions up to a joint committee of EU and UK officials to resolve. These include how precisely to determine which goods should be deemed to be at risk of travelling on to the EU, and so face EU tariffs, as well as the thorny issue of how to ensure Brussels can supervise how well Britain is applying the rules.

How far apart are the two sides? 

For the UK, the priority is to ensure minimal disruption to trade between Northern Ireland and the rest of the UK.

Michael Gove, the UK cabinet office minister who leads the British delegation on the joint committee, has said he is seeking “the smoothest possible access for goods”. 

UK officials note the divorce deal pledges both sides will use their “best endeavours” to facilitate trade between Northern Ireland and the rest of the UK, including by avoiding controls at Northern Irish ports and airports when possible.

But diplomats say that while Britain is seeking a “light-touch approach”, Brussels is determined to secure the “full fat” system of checks in the Irish Sea that the divorce deal promised.

For the EU, the integrity of its single market is at stake. That means emphasising to Britain that any goods at risk of flowing into the Republic of Ireland face EU tariffs and the full range of checks.

What’s the EU vision for the Irish Sea border?

One that puts into practice the divorce deal’s stipulation that checks must take place on goods crossing the Irish Sea to avoid the need for a hard Irish land border. This means animal health “sanitary and phytosanitary (SPS)” inspections and firm application of the EU customs code. 

Under the terms of last year’s deal, Northern Ireland will also have a new “dual VAT” system, using EU rules for goods and UK rules for services, complete with the introduction of excise procedures for goods traded between the province and Great Britain. 

Brussels has also sketched out a system for working out which goods should be deemed at risk of entering the EU single market and so face EU tariffs — one largely based on weighing the financial incentives for smugglers to try to cheat. 

The EU wants to establish an office in Belfast from which it can oversee the new procedures, a position the UK has rejected on the grounds it would impinge on its sovereignty.

And the UK version?

The UK has yet to formally table its own version of the new arrangements, but it is clear from ministerial statements that the British are seeking an unobtrusive approach. 

“The proportion of goods that go from Great Britain to Northern Ireland and then go into the Republic of Ireland and thus into the single market is very, very small indeed,” Mr Gove told members of the House of Lords last week.

“We stand by our determined obligation to help the Republic of Ireland and the EU protect the integrity of the EU’s single market. But it is also the case that the protocol holds in balance with that the requirement to ensure that the UK’s internal market operates effectively as well.” 

British officials argue that “Belfast cannot become Calais”, but at the same time the Northern Ireland executive heard this week the government accepted there would be “physical posts at ports of entry” in Northern Ireland. The Cabinet Office later clarified these would be to address “requirements for live animals and agri-food”, which were already handled on an all-Ireland basis before Brexit.

Ultimately, UK officials warn that the EU must not lose sight of the Good Friday Agreement, which ended the decades-long troubles in Northern Ireland, and the overriding purpose of the protocol, which was to facilitate Brexit while maintaining peace in the region.

Where are the grounds for compromise?

It is clear large gaps remain, given how differently both sides appear to interpret the protocol. Mr Johnson irked Brussels during the UK’s general election campaign last year by insisting trading conditions would remain much the same as before. That message is now shifting.

UK officials say Britain will submit its formal proposals in the coming weeks, with talks expected to intensify ahead of a joint committee meeting and EU-UK summit next month.

Experts say future checks could be significantly reduced if the UK secured a tariff-free, quota-free trade deal as part of its relationship with the EU. The negotiation of simplified customs procedures and a veterinary agreement are other possibilities. 

But, at the moment, none of these things are guaranteed. 

This article was first published at https://www.ft.com/content/bd804d91-e498-45b5-9adf-08eab3d9b439

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The Markets Today