Boris Johnson Is Hiding the Real Price of Brexit

Thursday, 12 December, 2019 - 17:00 Issue Number [14989]

With only a few days left before the UK votes, it’s unlikely many voters will be swayed by the leaked Treasury department documents Labour leader Jeremy Corbyn dramatically revealed at a press conference on Friday. And yet the papers provide a glimpse of the hangover that could follow any “Brexit bounce” should the Conservatives win the parliamentary majority predicted by the polls.

The 15-page internal briefing document, marked “official sensitive,” examines the financial implications of various aspects of Brexit in relation to Northern Ireland. Anyone looking at the volume of trade at stake would be forgiven for thinking these are mere details, the snag-list a new homeowner goes through with a builder. Northern Ireland represents just 2% of the British economy, after all.

But the Northern Ireland trade arrangements are of huge significance because of the sometimes fragile peace achieved by the 1998 Good Friday Agreement. It also has a bearing on the UK’s own increasingly fragile constitutional order. Tory leader Boris Johnson enraged his former allies in Democratic Unionist Party because his Brexit deal creates a de facto trade border between the UK mainland and the province; the leaked memo won’t have improved their mood.

Article 6 of the Northern Ireland Protocol in Johnson’s revised deal says “nothing in the protocol shall prevent the United Kingdom from ensuring unfettered market access for goods moving from Northern Ireland to other parts of the United Kingdom’s internal market.” The second page of the leaked document quotes this undertaking. But it then goes on to list the many possible interpretations of the term “unfettered access.” Does it mean a “lack of restrictions on goods?” Or regulatory alignment between the mainland and Northern Ireland, or the reduction of administrative costs when transferring goods, or the elimination of physical inspections? It’s unclear.

Northern Ireland exports 11.4 billion pounds ($14.9 billion) of goods to England, Scotland, and Wales, 53% of its total external sales. A small group of large companies, accounting for nearly 40% of export volume, will more easily absorb any new costs. But most businesses exporting from Northern Ireland are small- and medium-sized enterprises. Customs declarations and documentary checks “will be highly disruptive to the Northern Ireland economy,” says the Treasury document, suggesting the government act to reduce the burden on smaller traders.

The Treasury assumes that “unfettered access” will mean goods traveling from Northern Ireland to the mainland will be part of a common area for value-added tax, and that there will be no tariffs, quotas or “rules of origin” checks. But it acknowledges that there would be checks on plant and animal goods and customs declarations. There are plenty of question marks (literally indicated as such in the document) on what other trade frictions will exist in the new regime.

As for east-to-west trade — from the mainland into Northern Ireland — much will depend on negotiations with the European Union, which will establish the terms of reference for assessing which goods are “at risk” of landing in the EU’s single market by crossing the border between Northern Ireland and Ireland.

Most alarming, the leaked document says that physical checks and customs declarations going both ways “will be highly disruptive to the NI economy.” The result will be higher consumer prices, which will hit retail jobs. Johnson constantly dismisses the possibility of such frictions, but the Treasury is clear about the danger of Northern Ireland without checks becoming a back door into Britain for goods that avoid import duties or don’t meet origin requirements or UK regulatory standards.

Then there are the so-called “high level” effects. The physical separation of Northern Ireland “has the potential to undermine the coherence of the UK’s internal market and embed a fundamental asymmetry in its functioning,” the Treasury says. Johnson’s best hope at avoiding the checks would be a close regulatory relationship with Europe — exactly what his his predecessor Theresa May’s much-hated Chequers proposals sought. But that would lose him the support of Brexiters and the possibility of a trade deal with US President Donald Trump.

And it’s not just the Treasury that sees the practical flaws in Johnson’s plans. The Financial Times reported this week on a document from the country’s Brexit ministry, which warns that the government may not have the new Northern Ireland trade system ready to go before it concludes broader trade talks with the EU.

None of this has been subject to cross-examination during the election campaign, beyond Corbyn’s belated press conference. Brexit secretary Steve Barclay admitted to the new Northern Ireland trade frictions at a House of Lords hearing in October, but Johnson has denied repeatedly that his deal would lead to any such hassles, frictions or uncertainties.

In some ways, Johnson’s refusal to deal with reality is the bigger problem. With frank discussion and transparency, the public might be prepared for a degree of disruption. But the Tory leader is either refusing to engage honestly with his deal, or he doesn’t understand it. Neither bodes well.

As for Thursday’s election, none of this will keep most English voters awake at night. For some time, the polls have shown that Brexit supporters would willingly see Northern Ireland or Scotland leave the union if it meant getting Brexit done.

Still, the revelation underscores just how much is yet to be negotiated and what’s at stake for Britain’s own union. It’s a reminder too of the trust issues that have always plagued Johnson. How big a problem this becomes for him depends on the size of his majority if he wins. After that, much will depend on the EU, where he’ll have to negotiate the terms of those frictions he denies will exist.

(Bloomberg)