Analysis & Comment

Dan O'Brien: 'Risk of a no-deal Brexit not going away'

In January, for the first time ever, the UK accounted for less than 10pc of Irish goods exports. That was what emerged last Friday morning when the State’s statisticians published the latest trade data. The figure shows how the Irish economy has internationalised so successfully over the decades by massively growing its trade with a diverse range of markets.

But they should not be interpreted to mean that a no-deal Brexit would be anything other than disastrous for the Irish economy – imports from the UK still account for a quarter of all goods shipped into the country and Britain provides a vital ‘landbridge’ for products coming from and going to the continent.

The latest trade news came at the end of a week in which even the most Brexit-fatigued could not avoid spending hours watching, listening to and reading about our neighbour’s departure from the EU.

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Despite the many gasps of incredulity at what happened in British politics last week, the week’s three big votes in that country’s parliament events played out largely as expected seven days ago.

The House of Commons rejected for a second time the withdrawal agreement Theresa May had negotiated with the EU in last Tuesday’s ‘meaningful’ vote. The majority against was 149. That was narrower than the majority of 230 against the deal when the first meaningful vote took place in January. But it was still enormous.

In a vote last Wednesday, MPs rejected leaving the EU without a deal by a majority of 43. This was largely meaningless because it did not change British law and it certainly did not change EU law, which sees the UK’s membership of the bloc run out on March 29. If there was anything really significant about the vote, it was its narrowness.

Despite many and frequent claims that there is an overwhelming majority of MPs against no deal, the fact that the vote was much closer than the vote the previous day shows that there is a not insignificant number of Conservatives who either don’t fear a no-deal or actively want that outcome. That reflects public opinion, particularly among Conservative-supporting voters. Yet another opinion poll last week found that more people – 41pc – believed that leaving with no deal came closest to honouring the 2016 referendum. Last week’s YouGov poll found that 35pc of respondents thought leaving on the terms of the Mrs May-EU deal honoured it most closely.

Last Thursday, the biggest majority of the week – 210 – voted in favour of seeking an extension to the Brexit deadline to June 30. That was meaningful, because it gives Mrs May that authority to ask the EU for an extension. That will be a central focus of Brexit drama in the coming days.

But before considering issues around an extension, consider a less-expected development last week – plans by the British government for trade in the event of a no-deal exit. These plans involved a commitment not to change anything on the northern side of the Border on this island for one year and the announcement of new taxes (or ‘tariffs’ in the jargon on international trade) on some goods entering the island of Britain from Ireland and the rest of the EU.

In one respect, the British government plans were at odds with what British sources had signalled repeatedly over many months – that there would be no changes for goods arriving in Britain from the EU, at least in the initial days and weeks after a no-deal exit. This was to be the position, even if the EU were to hit British exports with tariffs when they arrived at the bloc’s external frontier.

This was all based on the ‘continuity principle’. The idea was not to be nicer to the EU than the EU might be to Britain. It was designed to minimise disruption to supplies coming into that country in the immediate aftermath of a no-deal exit.

The plans last week suggested that new tariffs would be applied on some EU goods from the beginning. This contributed to a view in Ireland, and more widely in the EU, that the British were trying to divert attention from their own difficulties or, worse still, isolate Ireland from its fellow 26 EU members. This view is not incorrect. But that does not mean the proposals should be dismissed out of hand, as they largely were, reflecting the degree to which discussion on Brexit has become an echo chamber. In this cocoon, people compete to show who can be most disdainful of the British side in the Brexit fiasco. This is neither healthy, nor helpful, in managing what is a massive damage limitation exercise.

As most people on all sides agree, a top priority is reducing the risk to peace on this island posed by Brexit. The deepest fear is that a remilitarisation of the Border would lead to the re-radicalisation of the nationalist community, which, in turn, could cause the Troubles to restart. That scenario is most likely to play out if British border infrastructure appears, which is then subject to attack by extremists, which in turn requires British security personnel to protect the installations.

Last week’s proposal from London that it would not change the northern side of the Border for a year has downsides. It would, for instance, increase incentives for smuggling. More significantly, it would also create incentives for legitimate businesses to ship goods destined for the British market through Northern Ireland to avoid tariffs at British ports. The big loser in all this would be the UK treasury. Britain was always going to be damaged economically by Brexit. Loss of tariff revenues would add to the bill, but that is insignificant in the grander scheme of things and certainly not an issue the Irish Government cares about.

One aspect of the criticism of the British border proposal was that the World Trade Organisation would not allow it. This is very wide of the mark. The WTO secretariat is not like the European Commission, which has powers to challenge EU members who break EU rules. The WTO civil servants in Geneva carry out technocratic tasks at the request of the member countries. They don’t tell countries to do anything.

It is possible that another WTO member country could claim that by not policing the northern side of the Irish Border, it was being discriminated against, thereby beaching WTO rules. While that could conceivably result in a legal case being taken against the UK, Article 21 of the founding treaties of the WTO allows countries to take measures for reasons of national security, even if other member countries believe those measures discriminate against their exporters. Not putting British soldiers on the Border, and avoiding a return to the Troubles, is very clearly a national security matter for the UK.

If last week was wall-to-wall Brexit, don’t expect any respite this week. Theresa May, if parliamentary procedure permits, looks set to put her deal to the Commons for a third time on Tuesday. To get it through, the DUP will have to buckle and sign up to the principle of taking Northern Ireland out of the UK’s single market, a change of significant constitutional importance.

At the same time, EU leaders will be considering the terms upon which they would agree to postponing the March 29 expiration of Britain’s EU membership. They will have to agree among themselves to prolong the agony and then agree with a British government which has shown itself to have little competence and even less authority.

It is very far from a foregone conclusion that an agreement will be reached. With these two huge obstacles to overcome, it is hard to avoid the conclusion that there remains a worryingly high risk of a no-deal exit in 12 days.

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