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Police in Belfast, 2013. Photo: Joshua Hayes via a CC-BY-SA 2.0 licence

What no-deal really means for customs on the Northern Irish border (LSE Brexit)

Police in Belfast, 2013. Photo: Joshua Hayes via a CC-BY-SA 2.0 licence

January 22nd, 2019

We still have little idea what the customs arrangements on the border between Ireland and Northern Ireland will be after 29 March. A border control expert explains why the border is so crucial and sets out the scale of the task customs and other regulatory bodies on both sides of the border will face.

If the United Kingdom leaves the EU as scheduled, the EU will treat it as a “third country” – with inevitable consequences for border controls between Ireland and Northern Ireland. The extent of these controls will be determined by the terms of the UK’s withdrawal. While the primary impact will be felt in the area of customs controls, a range of other regulatory controls, including agriculture, marine, health, environmental and plant health may come into play.

In the worst case scenario of a no-deal Brexit, the customs relationship between UK and Ireland could, in theory, be compared with that which exists between eastern EU states and their non-EU neighbours – for example, Hungary and Ukraine, or Bulgaria and Serbia.

The stated position of both British and Irish politicians, as well EU officials, is that there is no desire to see a return to the Irish land border controls which operated before both countries became members of the Single Market in 1993. It has been suggested that an “invisible” border without a physical infrastructure, but relying on technology such as Automatic Number Plate Recognition (ANPR), could operate.

Comparisons have been drawn with the existing Norway/Sweden relationship, which allows for certain simplified procedures for movement of people and trade between these states. However, a critical factor in the free movement of people in this region is that both countries are members of the Schengen area. Article 41of the Schengen Convention provides for cross-border pursuit by police forces. Neither the UK nor Ireland is a Schengen member. In terms of trade movements, Norway is a member of European Economic Area and European Free Trade Association and therefore enjoys certain Single Market trading conditions. Despite this both Norway and Sweden operate controls – including some cargo inspection – along their shared border, with a requirement that trade movements pass through one of the several border customs stations.

Technologies such as ANPR and CCTV are used at these border crossings, but as with a wide range of technologies available to customs, they are seen by practitioners as a means to enhance border controls rather than to replace them.

The presence of any fiscal or economic border provides opportunities for smuggling and other forms of criminal activity. The political situation in NI adds an extra dimension to a land border scenario. Serious organised crime groups continue to smuggle and deal in tobacco, alcohol and prescription medicines. Effective border controls and law enforcement measures will be required to prevent escalation of these activities. The PSNI has outlined plans to recruit and deploy an extra 300 officers to police the border, but the Irish government has said that it has no similar contingency plans to increase Garda numbers in the border area.

Continued on http://blogs.lse.ac.uk/brexit/2019/01/22/what-no-deal-really-means-for-customs-on-the-northern-irish-border/

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Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)

Lessons from South Korea: What would a hard Brexit mean for British manufacturers? (LSE Brexit blog)

Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)

The UK government has proposed maintaining a ‘common rulebook’ with the European Union following Brexit, which would in principle prevent non-tariff trade barriers from developing. But if this proposal fails and the UK leaves without a deal, how would British manufacturers be affected? Robert Basedow draws lessons from the South Korean car industry, noting that manufacturers based outside of major regulatory regimes are not necessarily doomed to failure, but do face the extra costs of complying with different regulatory frameworks.

The highly controversial ‘Chequers Agreement’ of 6 July foresees that the United Kingdom maintains by and large free access to the European Union’s single market for goods after the end of the transition period in 2020 by adhering to a ‘common rulebook’. This common rulebook would encompass common technical standards relating to issues such as product compatibility and quality as well as regulations relating to consumer and environmental protection. Such ‘regulatory alignment’ is supposed to keep so-called non-tariff trade barriers between the United Kingdom and the EU low. In the absence for instance of common safety standards for electronic goods, the EU or the United Kingdom’s customs authorities may refuse the import of certain goods due to concerns over consumer safety. Common rules can avoid such barriers.

Many critics – and most notably former Brexit Minister David Davis and former Foreign Secretary Boris Johnson – warn that the May government is about to trade off British democracy and sovereignty and turn the United Kingdom into a colony of the European Union. They argue that the ‘common rulebook’ would make the British vassals of Brussels. Such concerns seem overstated. It is debatable whether the elaboration of for instance highly technical product compatibility or consumer safety rules form part of the core of national sovereignty and democracy in modern statehood.

State authorities often leave it to private sectorial associations at the national and international level to develop relevant soft law. Where states remain in the lead, rule-setting is typically delegated from parliaments to independent, non-elected and highly specialised regulators and technocrats. What is more, countries like Switzerland, Norway and Iceland adhere to more comprehensive ‘common rulebooks’ than foreseen in the Chequers Agreement and few people would suggest that these countries have turned into authoritarian colonies. The claim that a ‘common rulebook’ would undermine British sovereignty and democracy seems at best slightly exaggerated.

Nonetheless, it remains unclear whether the May government will succeed in seeing off opposition in her own party and agreeing with the EU on a common rulebook and more generally the course of action laid out in the Chequers Agreement. Due to the persistent uncertainty over regulatory alignment, it is illuminating to assess what would happen to British manufacturers in the absence of a ‘common rulebook’.

Lessons from South Korea

One case study from which the UK could draw lessons is the experience of the South Korean car industry. South Korea and its car industry are in many regards comparable to the United Kingdom and its car industry. From a global perspective, the United Kingdom and South Korea qualify as small, open, high-income economies. Both boast important car industries, which are too big for their respective home markets and thus rely on international markets.

A key difference between the United Kingdom and South Korea is that South Korea is not geographically part of one of the two dominant global regulatory regimes for cars – the US American and the European UNECE regime. South Korea’s intermediary position between the two regimes is problematic. Some European and American rules are incompatible. If a car is built to comply with US rules, it violates European rules and vice-versa. So how do South Korean car manufacturers and suppliers operate and compete in this position?

Continued on http://blogs.lse.ac.uk/brexit/2018/09/26/lessons-from-south-korea-what-would-a-hard-brexit-mean-for-british-manufacturers/

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Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)
Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)

UK EU Flags PABLO GARRIGOS/BLOOMBERG VIA GETTY

The Economists for Brexit predictions are inconsistent with the basic facts of international trade (LSE Brexit blog)

There is a degree of consensus among economists that a Brexit will make us worse off. The exception is recent work by Economists for Brexit. Their forecast of income gains from Brexit contrasts with all other economic analysis, explain Thomas Sampson, Swati Dhingra, Gianmarco Ottaviano and John Van Reenen.

The possibility of the UK leaving the European Union (EU) has generated an unusual degree of consensus among economists. Acrimony and rancour surrounded debates around austerity and joining the euro, but analysis from the Bank of England to the OECD to academia has all concluded that Brexit would make us economically worse off. The disagreement is mainly over the degree of impoverishment (for example, Dhingra et al, 2016a; OECD, 2016; HM Treasury, 2016; PWC, 2016; NIESR, 2016).

Perhaps the one exception is the recent and much-publicised work of ‘Economists for Brexit’ (2016). Since any coherent economic case for leaving the EU was been largely ‘missing in action’, it is refreshing to get some clarity over the Leave campaign’s vision of the UK’s post-Brexit economic arrangements.

The only modelling details provided by Economists for Brexit come from Professor Patrick Minford of Cardiff University (Minford, 2015; 2016; Minford et al, 2016). He argues that Brexit will raise the UK’s welfare by 4 per cent as a result of increased trade. So where exactly does he get his numbers from and why are they so different?

The ‘Britain Alone’ Policy: A hard political sell?

Minford’s policy recommendation is that following a vote for Brexit, the UK should not bother striking new trade deals but instead unilaterally abolish all its import tariffs (let’s call this policy ‘Britain Alone’). The UK would simply pay the tariffs imposed by other countries on UK exports. This is usually the worst-case scenario that other economists have examined.

This would be a pretty hard sell to UK citizens. Minford admits his model predicts that the policy would cause the ‘elimination’ of UK manufacturing and a large increase in wage inequality. But although he is relaxed about these outcomes, we suspect that voters in Port Talbot and elsewhere in Britain wouldn’t be so impressed.

Indeed, we know of no cases where an industrialised country has ever implemented full unilateral liberalisation – and for good reason. Persuading other countries to reduce their trade barriers is easier if you can also say you’re going to reduce your own as part of the deal. If we’re committed to go naked into the world economy, other countries are unlikely to follow suit voluntarily.

But putting political reality aside, standard economics does suggest some benefits from ‘unilateral trade disarmament’. For example, in our work back in March (Dhingra et al, 2016a, Table 2) we also look at what would happen if the UK eliminated all tariffs after Brexit. Looking solely at the short-run static effects, we find that if the UK trades under World Trade Organisation rules following Brexit, but maintains import tariffs, income per person falls by 2.6 per cent. Under the ‘Britain Alone’ scenario of unilateral liberalisation after Brexit, UK real incomes still fall by 2.3 per cent. In other words, there is a gain of only 0.3 percentage points from eliminating tariffs compared to just trading under WTO rules and the British people are still considerably worse off as a result of Brexit. The mystery is why Minford can generate effects thirteen times are large.

Continued on http://blogs.lse.ac.uk/brexit/2017/08/23/economists-for-brexit-predictions-are-inconsistent-with-basic-facts-of-international-trade/

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Photo: hehaden via a CC-BY-NC 2.0 licence

What if Britain rejoined the EU? Breaking up may be less hard than making up (LSE Brexit blog)

By Iain Begg, a Professorial Research Fellow at the European Institute and Co-Director of the Dahrendorf Forum, London School of Economics and Political Science.

If Britain ever sought to rejoin the EU, it could not be on the terms of membership we previously enjoyed, warns Iain Begg (LSE). The UK’s budget rebate, exemption from Schengen and opt-outs from the euro and judicial cooperation will not be on the table again. This would make rejoining a difficult sell to the British public.

A curiosity of the Brexit saga has been the steadfast belief in the sanctity of the referendum result. Despite the ambiguous constitutional status of referenda in the UK and the narrowness of the vote, the main political parties fall over each other to “respect the verdict of the people”. Individual Members of Parliament are too worried about upsetting their constituents to insist that the principle of representative democracy should give them the final say.

Many Remainers cling to the hope that it will all prove to be disastrous, the country will return to its senses, and seek to rejoin the EU sooner rather than later. However, one dimension of this scenario has received surprisingly little attention: the terms of membership the UK currently has are very unlikely to be on offer in future.

First, the opt-out from the euro will be no longer apply, with the best the UK can hope for being to emulate Sweden – legally “in derogation” of its obligation to accede, rather than having an opt-out as the UK and Denmark do – by making no effort to join. In practice, this could be enough to enable the UK to retain the pound indefinitely, but if (and it is far from implausible) other countries accede to the euro following Brexit, leaving only one or two Member States outside, the position would be harder to sustain.

Moreover, the euro will not stand still. The Germans and the French struggle to agree on what the priorities are for strengthening the governance of the Eurozone, but it is the sequencing of the various reforms more than what needs ultimately to be done that is at issue.

Within a few years, a closer banking union (which the UK has not been part of) will be in place. Bank supervision has already been assigned to the European Central Bank for the largest Eurozone banks, and there is now a common bank resolution procedure. The next phase will very probably include some form of common deposit insurance and the establishment of a European Monetary Fund.

Eurozone deepening will also include additional budgetary capacities aimed at macroeconomic stabilisation – meaning automatic cross-border fiscal transfers – and the possibility of a common bond equivalent to the US Treasury Bond. Although resistance from creditor states has stalled these developments and is likely to mean only small funds in the first instance, the direction of travel is set. Ironically, it is a direction British ministers regularly advocated during the years of the euro crisis.

Continued on http://blogs.lse.ac.uk/brexit/2018/09/25/what-if-britain-rejoined-the-eu-breaking-up-may-be-less-hard-than-making-up/

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Photo: hehaden via a CC-BY-NC 2.0 licence
Photo: hehaden via a CC-BY-NC 2.0 licence

LSE: Can Brexit defy gravity? Right now it is still much cheaper to trade with neighbouring countries

Is the UK locked into economic relationships dominated by geography? Can it reorient its trade and FDI patterns from the slower growing European economy to faster-growing markets in Asia, Latin America and Africa, as promised by the proponents of Brexit? In this article Saul Estrin, Christine Cote (LSE), and Daniel Shapiro (Simon Fraser University) concentrate their attention on trade in goods and conclude that in practice, it is much cheaper to trade with neighbouring countries, and it will remain so in the near term.

One of the arguments made in favour of the UK withdrawal from the EU is that the deep process of trade integration between EU members restricts the ability of the UK to trade with other, perhaps faster growing, economies in Asia and the Americas. Thus the UK is said to be tied by trade agreement to a group of economies that are expanding slowly, while being less able to exploit opportunities in more dynamic regions. There seems some a priori evidence for this; using World Bank data, Europe as a region on average saw real GDP growth of 1.6% in the 1990-2000 period and the same, 1.6%, since then to 2017. This contrasts with other regions, for example South Asia, where comparable growth rates are 5.6% and 7%, or Sub-Saharan Africa with 2.4% and 5.4% respectively. So why pin your colours to the mast of the slowest ship in the race?

Continued on http://blogs.lse.ac.uk/brexit/2018/08/21/can-brexit-defy-gravity-right-now-it-is-still-much-cheaper-to-trade-with-neighbouring-countries/

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