Brexit Briefing No.36 – Customs Partnership Row and rebellions in the Lords

Brussels was relatively quiet this week, mainly because the May 1st Bank holiday fell on Tuesday, which meant that the city didn’t really get going until Wednesday, when the EU and UK negotiating teams met for the latest technical talks.

So it was in the UK where most of the Brexit drama was unfolding. At the start of the week the aftermath of the Windrush scandal was still dominating British politics and led to the resignation of Home Secretary Amber Rudd, who was replaced by Sajid Javid, but by Wednesday Brexit issues were back to the top of the political agenda.

Sajid Javid

The House of Lords supported an amendment to the EU withdrawal bill forcing the government to attempt to renegotiate the Brexit agreement if Parliament votes it down, on the surface reducing the likelihood of a “no deal” Brexit.

The government's main concern will be the reports of unrest on the backbenches about a potential customs partnership with the EU erupting across the front pages on Wednesday morning. Up to 60 conservative MPs are thought to be opposed to the idea. 

The Customs Partnership model (which is one of two options the UK has proposed to try to avoid a hard border in Northern Ireland) would see the UK mirror the EU's customs regime at its borders and collect tariffs on behalf of Brussels for goods which were going onto Europe. If the goods were staying in the UK, they would be reimbursed if the UK tariff was lower than the EU tariff.

Containers

It is an attempt by the British government to solve the problem of the UK being able to have its own trade policy (a clear UK red line) whilst satisfying the EU that the Irish border can remain open.

It is in that context that the British government has made the proposal, to try to break the current deadlock on the Irish border issue. The hope is that it could open the door to a wider customs discussion and potentially an EU-UK customs cooperation agreement that may be able to find a breakthrough between the two positions.

This option though is far more complex than the UK government’s other proposed solution, which is the so called “maximum facilitation” option. This would mean that the UK and EU have independent trade policies but use all means necessary to ensure that there is the minimum friction possible on the Irish border (and by extension at the Channel Ports). This would include electronic and intelligent management solutions and opt outs for small businesses. It would minimise border checks but not entirely eliminate them.

Both options would ensure the UK left the customs union (itself another debate which divides the Westminster Parliament). However the first option would tie the UK to collecting the EU tariff at the border and for many Brexit supporters, that would be tantamount to staying in the customs union. The second option has been continually rejected by both Ireland and the EU.

Ireland Northern Ireland border

Those realities lie behind this week’s drama and the hard truth is that some path that protects both the UK and EU red lines on customs will need to be found soon, because without it negotiations can go no further, and that will mean either no deal, or no Brexit, at least not in March next year.

Neither of those options are palatable to the British government which explains why they are still trying to find a path which can ensure that the withdrawal and transition deal can be approved by the end of this year. The Brexit Cabinet subcommittee met on Wednesday (together with its new member Sajid Javid) and did not reach a final decision but the reality is that leaving the customs union and the “maxfac” option is probably the only one which will command the support of the majority of the parliamentary Conservative party. The challenge for the government is that it probably doesn’t have a majority in the Parliament as a whole and has been constantly rejected by EU negotiators, who have refused to negotiate on those terms as they claim it doesn’t sufficiently take into account the Irish border.

However, customs agreements alone will not solve the border challenges, as Michel Barnier himself recognised this week during a trip to Ireland. There are separate VAT and excise rates for example on either side under the current rules.

Barnier

This all means that it is unlikely that significant progress will be made ahead of June’s Council Summit and that time is running short ahead of the October deadline for a final deal for the transition and the future relationship.

The House of Lords is also causing some challenges for the government’s strategy, as they voted through a series of amendments to the EU Withdrawal Bill. The latest one gave Parliament the power to ask the government to go back to the EU and attempt to continue negotiations if Parliament rejected the final agreement with the EU.

The idea is that this backs up the "meaningful vote" amendment passed in the Commons in December and means MPs unhappy with the final deal can reject it without fear this will lead to the UK crashing out of the EU without an agreement.

Palace of Westminster

Whilst a no deal Brexit remains unlikely, in the scenario of Parliament sending the government back to renegotiate the deal the EU would also need to agree to restart negotiations and it would most likely disrupt the 29th March 2019 timetable for departure.

So yet again this week has shown the complexity of the challenges facing the UK government in negotiating an exit from the European Union, a club not designed to ever be left, despite the Article 50 provisions, and fundamental issues around future customs relations, Ireland and Parliament's role in approving the final exit agreement remain in play, less than 11 months from the scheduled departure date.