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Three Quick Ways to Solve the Irish Backstop Issue

by John Brian Shannon

With less than 50-days until the official Brexit date of March 29, 2019, no Withdrawal Agreement exists to guide future relations between the UK and the EU.

Although no reference to a such a withdrawal agreement appeared on the 2016 referendum ballot it seemed appropriate that UK and EU governments should attempt to create such a legal document in order to facilitate a better future relationship.

Subsequently, the two governments agreed to create a ‘Withdrawal Agreement’ (WA) document and try to have it ratified by their respective houses of Parliament. And while the EU27 hasn’t tried to ratify the agreement, UK Prime Minister Theresa May offered it up for consideration in the House of Commons where it was voted down by a margin of 230 votes in one of the largest defeats in the history of the United Kingdom.

MP’s vote down EU withdrawal agreement in resounding defeat for Prime Minister Theresa May

The 585-page Withdrawal Agreement was diligently prepared by Theresa May and her Ministers and there’s no doubt that the EU side also worked ceaselessly to produce it, yet British MP’s were singularly unimpressed by the ‘backstop’ clause dealing with the Irish border. That particular section of the agreement is 175-pages long, plus 10-pages of addenda. Yikes!

In any event, all parties in the House of Commons voted it down handing in the worst defeat for a governing party in the House in 100-years, thereby stalling further progress on Brexit negotiations.

So, if you arrived here looking for the reason why no agreement exists to guide Brexit with less than 50-days until the official Brexit date, you’ve found it.

The Irish Backstop portion of the WA (185-pages in total) is solely responsible for the lack of a Withdrawal Agreement between the UK and the EU. But the remaining 400-pages would pass in the UK House of Commons in minutes — and would easily pass in all of the EU27 countries too. There’s simply no dispute in the WA, except for the portion that deals with ‘the Irish backstop’.


As ‘the Irish Backstop’ has Failed, What Alternatives Exist?

Until last week, everyone involved in Brexit negotiations was locked-on to the idea of getting the Withdrawal Agreement passed through the House of Commons and then getting it passed in the EU27 parliaments.

And now that it has failed so massively, we are compelled to seek other options and such options to resolve the Irish backstop issue are only limited by our creativity.

  1. The territory of Northern Ireland was created a couple of centuries ago when the ruling Monarch of Great Britain purchased the territory and it thenceforth became part of Great Britain. Therefore, Northern Ireland could be sold or granted to the Republic of Ireland by the owner of NI which would be today’s Monarch of the United Kingdom of Great Britain and Northern Ireland (thereby obviating the need for ‘the Irish Backstop’ and guaranteeing near-instant passage of the Withdrawal Agreement) who would only do so if a majority of Northern Ireland’s people expressed their wish to join with the Republic of Ireland. Which would make for an interesting Northern Ireland-only referendum question, wouldn’t it? Assuming The People of Northern Ireland voted to leave the United Kingdom of Great Britain and Northern Ireland, the ruling Monarch would be well advised to accede to their wishes and let them leave. One important caveat must be in place, namely, that any property and historical buildings, monuments, etc., would need to be disassembled and returned to Great Britain as they are the property of the UK and from a pragmatic standpoint I doubt that statues of Sir Winston Churchill etc., would remain standing for long in a Northern Ireland that would join with the Republic of Ireland. Even the Stormont building in NI could be removed ‘brick-by-brick’ and relocated to Great Britain. If Northern Irelanders voted to leave the Kingdom, no doubt some would want to relocate to Great Britain to maintain their UK citizenship and their relocation to the UK should be facilitated with greatest care, speed, and respect, should that particular set of events ever occur. However, if The People of Northern Ireland voted in a referendum to stay in the United Kingdom of Great Britain and Northern Ireland, the ruling UK Monarch and the UK government are obligated to accede to the wishes of Northern Irelanders and continue to support their full rights of UK citizenship and devolved governance in NI.
  2. Another way around the present impasse would be for all trade between Northern Ireland and the Republic of Ireland to be routed through Liverpool for customs and inspection — by air or ship — instead of having a so-called ‘Hard Border’ between the two Irelands. Items valued under £100. (or some other mutually agreed and arbitrary number) could be exempted so that shoppers crossing the border between ROI and NI by car could purchase small items, etc., without incurring any tax liability or having to pass through a hard border crossing. Unlike every other country in the world, a hard border just isn’t acceptable due to the decades of conflict caused by poor leadership and oversight in the UK and in the Republic of Ireland that led to a horrible, divisive, and toxic power vacuum which led and fed the conflict. Let’s hope that politicians, corporations, and royalty in the 21st-century don’t drop the ball like that again. Ever. And I hope that every one of them that dropped the ball are roasting in Hell to this very day, paying for the fecklessness that caused such misery to hundreds of thousands of people on the island of Eire.

    Northern Ireland backstop

    Less than 50 days to go until the official Brexit date of March 29, 2019 and still no solution to the Irish backstop issue. Assuming goodwill on both sides, a deal will be done.

  3. Another suggestion is for new technologies exist that could be used to track and collect tariffs/maintain safety certifications, etc. on goods sold between the Republic of Ireland and Northern Ireland, and between other EU countries and Northern Ireland, and between overseas countries and Northern Ireland — and I believe it’s possible. The amount of information that can be contained in one bar code (a simple bar code!) is astounding. All that needs happen is for each such item to be scanned by a bar code reader. I can only imagine what modern and more sophisticated technologies could accomplish. Perhaps cooperation between the UK and the EU on these new technologies would result in the same scale of technological revolution as the introduction of the bar code and both countries could lead the world in such technologies. Wouldn’t that be great?

In short, if UK and EU leaders want to find a way forward they will and if they don’t find a way forward it’s only because they don’t want success.

IMHO, there’s no reason that political power vacuums should be allowed to occur in the 21st-century. Such power vacuums have proved disastrous in the past. So, let’s decide now to choose that better path, whatever it may look like.

It isn’t the job of citizens, of corporations, of sports teams, nor of any other organization to solve the political problems between or within developed nations, it’s the remit of politicians to solve political problems, therefore, let’s go forward with those sentiments in mind and together, write a much better script for our respective peoples so that everyone gets to live in peace and prosperity.

A Zero Tariff UK Economy

by John Brian Shannon

Think about it for a second. The thing we call Brexit is being held-up by a tiny item called tariffs. It’s ridiculous. (OK, there are some other things too, but for today let’s talk tariffs)

At the moment, the UK is still a dues-paying member of the European Union and is therefore obligated to charge the same tariffs as any other EU country, and such broad agreement on external tariffs, combined with low or no tariffs between members, or even standardized tariffs between members, is part of what makes up what’s commonly called a Customs Union.

When the UK exits the European Union it’s right to assume that the UK will no longer charge the same tariffs as the EU.

In fact, that difference is part of the problem between the EU and the UK in the post-Brexit timeframe, and businesses near the Republic of Ireland and Northern Ireland border may find themselves affected by this change-up.


How Would a Zero-Tariff UK Economy Work vis-à-vis the European Union post-Brexit?

What if the UK decides to embrace an economy where no tariffs are charged?

There would, of course, be people who complain (on the UK side) about a loss of tariff revenue for UK government budgets, while on the Republic of Ireland (RoI) side, businesses located near the border might worry their customers will drive to Northern Ireland (NI) to save 6.5% worth of tariff value on their purchases.

Which are immensely easy problems to solve!


How to Solve a Disparity in Consumer Prices (Due to Tariffs) Across an Uncontrolled Border

  1. Offer a rebate to Republic of Ireland businesses located within, say, 100 miles (160 kilometres) of the Irish border and such rebates would be equal to the (tariff portion of the) savings RoI consumers would enjoy by shopping in Northern Ireland. In this way, RoI shoppers won’t bother travelling to NI to save (usually about 6.5%) on the price of imported goods and consequently, RoI businesses won’t lose sales to the (then) zero-tariff regime north of the Irish border. We’re talking about small amounts of money on each transaction — but over the course of a year, especially for small ‘Mom and Pop’ businesses in RoI, it could add up and potentially at least, represent a hardship for those business owners. Who will cover the cost of the rebates? The UK, of course. Why would the UK government want to do that? It’s just one more irritation that the UK government can remove from the negotiating table to simplify Brexit. Such rebates might cost the UK government as little as £1 million per year. Of course, it might cost as much as £20 million per year. But, with so much to gain (a quicker and less hairy Brexit) the UK government could afford to pay the Republic of Ireland those rebates a full 10-years in advance at the beginning of each decade.
  2. For businesses in the EU that import from other countries and are required to charge tariffs on behalf of their government — all they need to do after March 29, 2019 is add the UK to the list of countries they must charge tariffs.
  3. For companies that export from the UK in the case where those goods are shipped to the EU or other countries — there’s no hassle with a UK zero-tariff regime because there are no UK tariffs to add to the final price — no matter where those goods land in the EU or wherever in the world they go after that.
  4. The same is true for goods that originate in America (for example) but are shipped through the UK before being shipped on to the EU. Whatever the price of the item from America + zero tariffs added by the UK = landing in the EU with only the taxes or tariffs that originated in America. The UK adds nothing in the way of tariffs, nor takes anything away from those tariffs. The term for that is revenue-neutral tariffs.

It’s so easy when you know how!


How Could the UK Recover Lost Tariff Revenue and Pay the Proposed Irish Tariff Rebates?

There would be two costs for the Chancellor of the Exchequer to cover:

One would be the loss of tariff revenue which would represent a large annual cost — and the other would be the relatively small cost of rebates to RoI businesses located within 100 miles (for example) of the Irish border.

a. For as long as the UK has been in the EU Customs Union, consumers have unknowingly paid the cost of tariffs on goods imported from outside the EU. In some cases the tariffs involved are quite low, but in other cases EU countries are required to charge up to 18% tariffs on certain goods coming into the EU28. All EU consumers pay an average of 6.5% more for goods imported from outside the EU due to those EU tariffs. But as soon as the UK leaves the EU Customs Union it would no longer charge EU tariffs and the cost of imported goods in the UK would fall by an average of 6.5%. Which is a good thing, except that the Chancellor of the Exchequer would need to cut spending by that total sterling amount or, add 1% (or less) to the national sales tax to make-up for that lost revenue. Most Britons won’t even see the difference. But if you’re a Briton who buys a lot of imported goods you’ll be slightly better off.
b. If you’re a UK business, it’s one less piece of paperwork you have to deal with and one less revenue stream you must collect on behalf of HM government.
c. If you’re the Chancellor of the Exchequer, you’ll lose millions in tariff revenue, but you’ll gain even more from the (less than) 1% addition to the national sales tax. But even more important, you’ll save millions of pounds in spending to oversee, police, and navigate all that tariff collection. Those tariffs don’t get collected by themselves! Nor does every business remember to forward those tariff revenues to the government on time, etc. Nor will the Chancellor be required to keep abreast of competitor nation tariff structures and constantly adjust tariffs for the UK to remain tariff competitive, nor will the Chancellor be required to notify the WTO about tariff changes. Because, no tariffs!


A Word About the WTO

The World Trade Organization (WTO) is a great organization that was created to ensure countries play fair with each other, especially on tariffs and on the dumping of goods at outrageously low prices, thereby harming the country importing their goods. And if you’re a developing country, you definitely want to be a WTO member as the WTO will protect you from larger, more aggressive countries and their powerful transnational corporations.

However, it makes rules in accordance with its membership wishes and some of those rules may surprise you.

WTO rules do not apply to trading partners that charge tariffs lower than the WTO tariff schedule (which was recently increased to an average of 6.55% on a long list of goods) therefore, trade deals can be done more quickly without WTO tariff regulations to complicate things.

The WTO won’t arbitrate between non-WTO members, nor will it intervene where countries charge tariffs that are lower than the WTO tariff schedule. Nor will it involve itself where two countries have a dispute within a free trade agreement previously agreed by both sides — unless requested by one or both parties to mediate disagreements within that free trade agreement.

In short, countries that don’t charge tariffs have no dealings with the WTO, they owe it nothing, and they have no tariff disputes. (Because they have no tariffs to argue about)


Summary

Many things come together beautifully for the UK were the government to decide to operate a tariff-free economy.

Not only would Brexit be streamlined, the Irish border situation becomes simpler to settle, relatively small rebates can offset any hardships for RoI businesses located close to the Irish border, CEO’s from other countries would appreciate the ease of doing business in the UK, any losses in tariff revenue for HM government can be offset by a (less than) 1% increase in the national sales tax, and free trade agreements become simpler to negotiate.

The UK wouldn’t need to re-apply to become a WTO member, nor would it fall under WTO jurisdiction in trade matters, nor would the UK need to pay annual dues to the WTO.

And imported goods in the UK would become cheaper by an average of 5.5% roughly speaking (dropping the 6.5% average tariff on imported goods + 1% national sales tax increase on all goods = 5.5% cheaper on imported goods) which can help consumers in regards to their discretionary spending.

The government would save millions of pounds sterling annually because it wouldn’t need thousands of workers to work in the Treasury’s tariff section, adjusting tariffs, comparing tariffs, ensuring tariffs are properly implemented, ensuring that tariff revenue is properly submitted to the government by UK business, dealing with the WTO, and handling lawsuits caused by disagreements over which tariff schedule must be applied on a given product. And many more miles of red tape than that, that the UK government could forget about forever.

Just another list of the benefits of Brexit, my friends! Happy weekend!

How to Create a ‘Win-Win’ Northern Ireland Agreement

by John Brian Shannon

As the official Brexit date of March 29, 2019 approaches the main sticking point to an orderly Brexit now appears to be the lack of agreement between the UK and the EU on whether or not there will be a hard border between the Republic of Ireland (ROI) and Northern Ireland (NI).

But why there exists a sticking point that involves Northern Ireland in the Brexit negotiations is anyone’s guess as there’s no good reason for the EU to treat Northern Ireland any different from the way it treats the rest of the UK. Northern Ireland is a part of the United Kingdom and has been since the year 1800 and such was formalized in a treaty that covered the matter and many other matters between Great Britain, Northern Ireland and the Republic of Ireland in 1922.

Q: What would drive European Union negotiators to want to inflame tensions in the region? How could that possibly benefit the EU?

A: The simple answer is that EU leaders don’t want the UK to leave the union and one way to accomplish that goal is to make Brexit appear to be a hopelessly complicated situation and EU negotiators would thereby hope to win in the court of public opinion. The theory is that UK citizens would then apply enough pressure on HM government to give up on Brexit.

Which has a microscopic chance of succeeding. To wit: Widely published online polls circulate in the UK media say things like; ‘Most Remainers these days just want to get Brexit over and done with’ due to the economic uncertainty surrounding Brexit.

And the Brexit timeline doesn’t seem to faze EU negotiators either — who it must be said — are representing the interests of the EU27 and not the UK, nor of individual Britons. Which puts a different spin on things, doesn’t it?

“Countries don’t have friends, they have interests.” — Sir Winston Churchill

Other items like the Belfast Agreement (read the complete text of that agreement here) also known as the Good Friday Agreement which lists no requirements for a hard border, soft border, or no border… also doesn’t seem to matter to EU negotiators.

And of course it doesn’t. Why would it? The EU’s negotiating teams are working for the interests of the EU27 — as you might expect — and not the interests of the UK nor of individual Britons. It’s preposterous to expect European Union negotiators to work for the interests of any country other than the EU.


Option One: The Question Everyone Asks: Why Not a Regular Land Border Like Every Other Country in the World?

The simplest solution would be to create a normal land border between the UK’s Northern Ireland and the EU’s Republic of Ireland along the entire 310-mile-long boundary between the two countries and everyone on both sides could thenceforth act like adults and there needn’t be any more trouble there than any other border in the world.

Practically every country in the world has a border and rarely are there problems with this modality in the 21st-century.

Maybe it’s time for both sides on the island of Eire (which both the Republic of Ireland and Northern Ireland share) to craft a new agreement that creates a normal, hard border (just as all mature countries do) and thenceforth ‘agree to disagree’ (just as all mature countries do) and ‘agree to agree’ on matters of mutual interest (just as all mature countries do) It seems that 99 per cent of countries manage to do this just fine.

Perhaps this is asking too much of the UK and the EU, or of the people of NI or the ROI… but creating a normal border between the two Irelands would demonstrate to the world that the Belfast Agreement was an important step towards permanent peace on the island of Eire and it would show the world that *forward momentum never stopped* on either side since the 1998 signing of that accord.

Profoundly, a one-page addendum could be added to the existing Belfast Agreement spelling out the frames of reference with regards to a normal land border between the UK and the EU. Problem solved!

Wouldn’t it be wonderful if Brexit turned out to be the impetus for a new and better relationship between Eire’s people?

Think of *those* photo-ops UK and EU negotiators! For the rest of the 21st-century you’d be the darlings of the world media along with Irish people on both sides of the border.


Option Two: The Present Course Leads the UK and the EU Towards Dispute

UK Prime Minister Theresa May has spent the past two-years hopscotching all over Europe trying to create a workable Brexit deal — and in this context ‘workable’ means a Brexit agreement that works well for the UK and its people, for the EU27 nations, and for the EU/EC leaders in Brussels. Very admirable, Theresa.

Apparently, 95 per cent of the Brexit terms and conditions are agreed according to UK PM Theresa May and the only sticking point is agreement on a border/no border between ROI and NI. If accurate, that’s good news!

The UK Prime Minister has said on many occasions that Northern Ireland is clearly a part of the United Kingdom (which is indisputable) and it must remain so following Brexit. As has has Arlene Foster, Leader of the Democratic Unionist Party in Northern Ireland.

So, if EU negotiators were trying to steal Northern Ireland by stealth, they ran into a brick wall when Theresa May and Arlene Foster joined forces. (And hey, there’s nothing wrong with the EU testing the resolve of the UK and NI to see if they are still firmly committed to keeping Northern Ireland in the United Kingdom)

But now that it’s been made clear to EU negotiators that it would be unseemly of them to continue to try to pull Northern Ireland away from the United Kingdom. And classy people that they are, it’s doubtful they’ll continue to try.

The present course that leads the UK and the EU towards dispute with both Irelands isn’t about any of the foregoing. It’s about Theresa May’s plan to keep all of the UK in the Customs Union — rather than what the EU wants — which is to keep only Northern Ireland in the Customs Union.

Which is why some observers question the EU’s motives, as retaining the EU Customs Union for Northern Ireland but not the rest of the UK is exactly the way a country would try to annex a territory or province by stealth.

In fact, there is legal precedent.

In the 1930’s, General Motors Corporation enjoyed very lucrative and exclusive U.S. government contracts to build military vehicles — and was allowed to compete against Ford and Chrysler in the public marketplace. Likewise, Chevrolet (a privately held company) competed against Ford and Chrysler.

By the 1950’s Chevrolet’s booming sales meant they had problems producing enough parts to build the huge volumes of cars they were selling and (incredibly) had pre-sold tens of thousands of them to buyers who were impatiently awaiting delivery of their new Chevrolet vehicles.

Subsequently, senior GM and Chevrolet executives met and came up with a plan for GM to build huge numbers of engines and transmissions for Chevrolet using Chevy designs, standards, and manufacturing practices.

As Chevrolet increased their sales exponentially, it leaned evermore on GM to provide parts for Chevy cars, but by the late 1950’s GM was building thousands of vehicles for Chevrolet in GM factories.

Things came to a head in 1959 when Chevrolet accused industrial giant GM of trying to take-over the much smaller Chevrolet by stealth.

In U.S. Supreme Court later that year, the court found that there was so much cross-over between the two firms — that no one, not even Chevrolet’s own lawyers! — could say for certain what belonged to GM and what still belonged to Chevrolet.

Therefore, the U.S. Supreme Court reluctantly ruled in GM’s favour and General Motors immediately accelerated the integration of Chevrolet into GM to prevent renewed legal action by Chevrolet’s lawyers. Shortly thereafter, Chevrolet ceased to be a separate entity and ‘became one’ with GM.

And here is the lesson for the United Kingdom:

If UK negotiators are weak and allow the EU to incrementally absorb Northern Ireland into the EU — after a certain point no international court could say exactly what belonged to the EU and what still belonged to the UK/Northern Ireland. Shortly thereafter, Northern Ireland would ‘become one’ with the European Union.

All of which means that the UK cannot afford to lose this battle. The very nature of the UK is threatened, while for the EU it’s merely an opportunity to gobble-up more territory and punish the UK for leaving.

For Theresa May, keeping the entire UK in the Customs Union seems the only way to abide by the Belfast Agreement and prevent Northern Ireland from being assimilated by the EU.

Recent commentary from her MP’s and from those in the UK media have forced Prime Minister May to say her plan is a temporary one — as leaving the European Union and its Customs Union was a major reason why 17.4 million voted to leave the EU.

Therefore, she and the EU have more negotiations ahead to arrive at a permanent solution to the Northern Ireland conundrum.

Will it get done in any reasonable timeframe? No one knows, because all the EU ever says to the British Prime Minister is; “No”, “No”, and, “No”.

So, wish her well no matter which side of Brexit you’re on, because getting a negotiated Brexit that works for both sides is in everyone’s interest.


Option Three: A So-Called ‘Hard Brexit’ is the ‘Emergency Out’ for the UK

If the EU won’t (1) accept a normal border between the Republic of Ireland and Northern Ireland, and (2) if the EU won’t accept the entire UK staying in the Customs Union for a specified time (until a Northern Ireland agreement can be negotiated) then (3) the EU will have triggered the ‘default option’ for the UK — which is to leave without any agreement.

See how it’s all about the decisions the EU makes?

Such a so-called ‘Hard Brexit’ is what Brexiteers have been clamouring for as it best represents their desire for a clean break from the European Union and would allow the UK to begin free trade negotiations immediately following the official Brexit date which would supercharge the UK economy if handled correctly.

Strangely, it also represents the easiest pathway for the EU! The only risk for the EU (at this point no one knows exactly how much risk the EU might sustain in such a scenario) is to the huge trade surplus in goods that the EU presently enjoys with the UK.

But a Hard Brexit would allow the EU to divert its attention to Italy — which for solely economic reasons — might need to leave the EU and the EuroZone for a specified number of years in order to save its stalled economy.

The Hard Brexit option seems to enjoy plenty of support in the UK (except for the Prime Minister and the Chancellor who seem to think it’s the worst available option) but it would be the quickest deal for the UK and it would also allow the EU to instantly pivot to Italy and give 100 per cent of its attention towards creating innovative workarounds for the Italian economy.

Which, if everyone is thinking rightly should make Brexiteers and EU negotiators natural allies regarding a Hard Brexit — especially when framed in the context of Italy — and the sooner Brexiteers and EU leaders realize this, the better.


Place Your Bets!

Option number one (as above) is the best option in my opinion:
The Theresa May 95 per cent Brexit + a normal border between ROI and NI.

Option number two (as above) ranks third place in my opinion:
The Theresa May 95 per cent Brexit + the entire UK stays in the Customs Union for a series of 6-month periods in order to provide the time to negotiate a comprehensive Brexit deal that solves the Northern Ireland conundrum. It’s also the most dangerous Brexit plan by far… re-read what happened to Chevrolet (as above)

Option number three (as above) ranks second-best in my opinion:
The Hard Brexit is the purist’s Brexit — and although it could incur the largest amount of disruption, such disruptions seem wildly overblown (UK agriculture contributes only .52% to UK GDP for example) and a Hard Brexit would gain the UK the most in the shortest amount of time. For certain, the Hard Brexit option must be Theresa May’s ’emergency out’ in case negotiations go bad. And likewise for the EU, the worse it gets in Italy, the more a quick and easy-to-arrange Hard Brexit should appeal to the EU.

Read: The Benefits of a Hard Brexit


Bonus Image

Northern Ireland, UK GDP, Brexit

GDP by sector in the UK 2007 — 2017. Please click on the image to take you directly to statista.com where you’ll find it’s an informative and interactive image — hover your cursor over the image. Graphic is courtesy of Statista.com