Plan C. If Mrs May’s latest Brexit ‘backstop’ survives the launch stage then it may well fly

After weeks in which the Cabinet appeared to be hopelessly and publicly divided about how best to approach the Customs Union issue, and with it the Irish border question, there are now signs that a domestic consensus is emerging, one that, with adaptation, might prove satisfactory.
The latest version, which might (perhaps charitably) be described as Plan C, involves seeking a solution that is rooted in the application of new technology, but with the safeguard that if this system is not in place in time (by 31 December 2020 – the end of the transition period), then the whole of the UK would maintain the common external tariff aspect of the Customs Union for a ‘strictly time-limited period’, while Britain would seek to win an opt-out from the common commercial policy (the element of the Customs Union which prevents its members securing individually negotiated trade agreements).
This would thus form the so-called ‘backstop’ option for the Irish border, which would only occur if the preferred outcome of a comprehensive free trade agreement between the UK and the EU was not reached either at all or on the current timetable that it is envisaged that it would be concluded by. Theresa May tried the basic principles of this idea on the Irish Prime Minister and a number of other leading actors within the EU at a summit in Sofia last weekend and it was not shot down instantly. In the very strange world that is the Brexit negotiations that in itself counts as something of a success.
Back to basics on the backstop. The Irish border was one of three central elements (along with the UK’s financial obligations to the EU, and the mutual rights of EU-27 citizens in the UK and UK citizens in the EU) that the EU insisted had to be settled as part of an orderly withdrawal, which in turn would open the road to an accord about the final ‘end state’ between the UK and the EU thereafter. It proved to be the most politically contentious element, with the DUP effectively blocking the first attempt at a political version of the withdrawal text before a deal was eventually done at the second attempt in December.
The wording settled on then was as follows. The United Kingdom would “maintain full alignment with those rules of internal market and the customs union which, now or in the future, support North-South co-operation, the all-island economy and the protection of the 1998 agreement.”
As BVCA Insight observed at the time, this was something of a triumph for ambiguity. Not only is “full alignment” not defined (does it mean identical rules? Similar rules? Consistent rules?) but there is no hint as to which of the rules of the internal market and customs union are now or might be in the future the ones that “support North-South co-operation, the all-Ireland economy and the protection of the 1998 agreement.” It takes real skill to devise a sentence of that length which is totally devoid of remotely specific meaning. The UK civil servant who came up with it is wasting his or her talents. They could make more money with a talent for linguistic dexterity like this drawing up LPAs instead.
This ‘Plan A’ was, however, unlikely to survive the move from political language to final legal text. Some more substance would be needed. The EU-27 mooted earlier this year that the answer was for Northern Ireland to stay in the single market and Customs Union while the rest of the UK left them. Even if the numbers in the House of Commons had been different, Mrs May could not have put up with that notion. That the DUP holds the balance of power at Westminster hardens matter further. Hence her quest for another route, the complex concept of a ‘customs partnership’ in which the UK would collect tariffs for the EU as well as itself (Plan B) rather than simple maximum facilitation (or ‘max fac’) that depended exclusively on technology to operate the future trading relationship. This triggered the aforementioned deadlock as many of her colleagues feared that it was so complicated that the UK would be left inside the Customs Union indefinitely (and unable to strike its own deals) while the necessary arrangements were worked out. The latest wheeze is a Plan C, basically rooted in ‘max fac’ but with the safety net of the time-contingent continued Customs Union membership.
There are three reasons to think that if it survives its launch period, this idea might end up flying.
The Irish border is much more of a political issue than it is an economic one
At one level, the Irish border question looks like an extremely challenging one to solve. The 399- kilometre frontier is based on no logical historical or geographical factors whatsoever. As a result, there are an estimated 208 border crossings between Northern Ireland and the Republic of Ireland compared to a mere 137 along the entire border between the European Union and all the non-EU nations located to the east of it. It is, nevertheless, a political necessity to keep the border ‘open’.
Yet, the following is also true. All North-South trade constitutes just 1.6% of the Republic’s exports whereas Republic of Ireland-UK trade involves 16% of Irish exports. There are only about 3,000 lorry crossings between the North and South each day, the vast majority involving a mere two routes. Nor is it absolutely the case, as often argued, that the technology required to deal with the Irish border ‘does not exist yet’. It would be more accurate to state that it exists but it has not been applied to a project such as this at present. The truly complicating factor involving the Irish border is the high proportion of trade that is animal livestock, but that could be dealt with by regulatory understanding.
No one actively likes this latest backstop but relatively few people and institutions loath it either
Neither the UK nor the EU-27 would have that much enthusiasm about seeing Plan C operate for any length of time in practice. Within the UK it would be contended that Brexit had not been delivered properly if it were still in the Customs Union, while the EU was looking for a reserve stance that only left Northern Ireland in the Customs Union, not the entire UK. Major questions are left unaddressed such as the length of any ‘strictly time-limited period’, who would sit in judgement as to whether or not the technology worked adequately and what would happen if it was not deemed to function. As a solution it is hard to like, but difficult to oppose outright and if Dublin can live with it, the EU can.
This could be an asset. It provides an incentive for all sides to reach a free trade agreement in time and avoid a backstop which holds few political charms for anybody. After all, if the backstop were to be too appealing for either the UK or the EU-27 that would skew the negotiations on the end state in its favour. It is this assessment that has led Boris Johnson and Michael Gove to hold off resignation.
But if all else failed and more time was needed for an orderly exit, the backstop could offer it
Despite the paragraph above, this Plan C backstop could have the unstated virtue that, as a highly short-term contingency measure to ease the means towards a coherent shift to an end state, it could serve as a form of life-boat to the Brexit process. The backstop could, if needed, turn into a stop-gap.
That stop-gap is more likely to be wanted not because of any factor to deal with the Irish border, or even serious disagreement over the ultimate free trade agreement between the UK and the EU-27, but because of a different matter relating to the UK’s detachment from the Customs Union. This relates to the somewhat obscure but actually fundamental ‘rules of origin’ dilemma.
How much of a product needs to be ‘British’ for it to be treated as ‘British’ and benefit from a free trade bargain? If goods are flown into the UK from, say, India, finished off in this country and then packed on to a lorry heading for Dover and from there to continental Europe, are they to be considered British or Indian in character? That is a rulebook question and not one for the technologically imaginative. It will end up being the discussion that is at the very heart as to how future UK-EU trade can operate.
Tim Hames
Director General, BVCA