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The Jersey Option: A possible solution to the Brexit trilemma

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The Jersey Option: A possible solution to the Brexit trilemma

I didn’t expect the Irish border to become such a big issue in the Brexit negotiations until much later. I fully expected both sides to fudge it during the withdrawal agreement only for it to jump up and bite them during the trade deal negotiations. It seems I was wrong. The EU is talking tough on Ireland. Very tough.

Last week, European Council President Donald Tusk said:

We know today that the UK government rejects: “a customs and regulatory border down the Irish Sea”; the EU Single Market and the customs union. While we must respect this position, we also expect the UK to propose a specific and realistic solution to avoid a hard border. As long as the UK doesn’t present such a solution, it is very difficult to imagine substantive progress in Brexit negotiations. If in London someone assumes that the negotiations will deal with other issues first, before moving to the Irish issue, my response would be: Ireland first.

So no negotiations on future trade deals until the UK makes clear commitments on Ireland. He says he has the backing of the other EU leaders too:

Since my last visit here in Dublin, I have spoken to virtually every EU leader, and every one of them – without exception – declared, just like Prime Minister Bettel did yesterday, that among their priorities are: protecting the peace process, and avoiding a hard border. The EU stands by Ireland. This is a matter between the EU27 and UK, not Ireland and the UK.

This gives the UK government a problem. It can’t sign up to the protocol on Page 98 of the draft Withdrawal Agreement unless it backs down on some of the commitments it has already made. John Springford illustrated the ‘trilemma’ with this graphic.

 

The UK government has committed to avoiding both a hard land border in Ireland and a customs border on the Irish Sea. It has also said repeatedly that, after Brexit, the UK will no longer be in the single market or a customs union with the EU.

Some politicians and commentators insist that the border can be policed using advanced technology so that, although there will be customs checks in place, no-one will actually see them so the border will look and feel the same as it did before. Many cite Smart Border 2.0, a paper presented to the European Parliament in November, to back up their claims. The trouble is, that paper, while suggesting solutions to streamline border controls, doesn’t actually say that it could make them disappear altogether. In a recent blog post, the report’s author very wisely avoided committing himself. Yesterday, the Commons Northern Ireland Affairs Committee reached the conclusion that a border without checkpoints is not possible with the technology currently available.

This puts the government right back in the middle of John Springford’s triangle. It can’t agree to a customs border in the Irish Sea. To do so would require a referendum in Northern Ireland, if only to give political cover. Even then it would be seen as a national humiliation. It can’t renege on its commitments on the land border or the EU would refuse to discuss a future trade deal. Furthermore, the UK would be seen as a country that goes back on its word just at the point when it is trying to negotiate new agreements with other countries. It can’t stay in the single market and customs union because it has already said it won’t and to do so would mean allowing free movement, which is what most people who voted Leave disliked most about the EU.

Does that mean we’ve reached an impasse? Well maybe not. Within what is now a very narrow range of options, there might just be a workable solution.

The Jersey Option started out as a flippant comment by Sam Lowe at the Centre for European Reform but he and John Springford have since worked it up into a more detailed proposal. Sam explained it further at a recent Institute for Government event. Essentially, it means applying the relationship the crown dependencies currently have with the EU to the whole of the UK. Jersey, Guernsey and the Isle of Man are in the Customs Union and in the Single Market but only for trade in goods. For all other purposes they are treated as third countries. This means that they do not have do not have to accept free movement and do not have to abide by EU law in non-trade matters. Jersey, for example, has no Working Time Directive, no TUPE and only introduced discrimination laws in 2013.

Adopting a similar arrangement for the whole of the UK would get us round a number of issues. Most importantly, it would remove the physical problems associated with Brexit.

There are 3 reasons why customs borders exist:

  1. To impose tariffs and quotas;
  2. To confirm the imports’ countries of origin;
  3. To ensure compliance with regulations and standards.

A free trade agreement with the EU would only get us over the first of these. To avoid the second would require membership of a customs union with the EU. Staying in the Single Market for goods only would get us past the third. This would mean we wouldn’t need to check vehicles crossing frontiers so not only would there be no need for a hard border in Ireland, there would also be no need to build customs posts, lorry parks and new IT systems that we are unlikely to have in place by 2020 anyway.

The Jersey Option would also keeps two of the UK government’s most important red lines. It removes the requirement for free movement and most of the ECJ jurisdiction. Immigration was the driving force behind the Brexit vote so any solution that kept the free movement of labour would be politically difficult. Beyond that, though, people are a lot less bothered about what the eventual outcome looks like.

Trade deals are a case in point. The government wants to be able to negotiate its own trade deals with other countries. The voters, though, are lukewarm, to say the least. Leave voters, in particular, are not keen on free trade and are likely to be even less keen if trade agreements come with commitments to higher immigration attached.

So the fact that the Jersey Option would prevent the UK doing trade deals with other countries on goods isn’t likely to matter to most people. Businesses, too, are unenthusiastic about the freedom to do new trade deals if it means leaving the ones we’ve already got. The prospect of losing frictionless trade with our biggest market for the promise of unspecified trade deals at some point in the future isn’t going down well. The CBI has clearly stated its preference for staying in a customs union with the EU. This is not really surprising given that, even if these trade deals came off, they still would not replace the losses incurred by making trade with the EU more difficult.

The Jersey Option, then, would enable the UK to leave the EU, set its own immigration policy and free itself from most EU legislation without needing extra customs infrastructure and a hard border in Ireland. The downside would be that it would not be able to pursue the trade deals that few people want and which wouldn’t do us much good anyway.

How might this work in practice? The FT’s Martin Sandbu suggests the UK rejoins EFTA so that its institutions manage the EU-UK relationship in the same way as they do the EU-EEA relationship.

[S]uppose agreement could be reached on this “Jersey model” in principle, how could it be implemented institutionally?

[T]he Efta court and ESA would be given the resources and authority to govern the new EU-UK relationship, but on the basis of a subset only of the rules incorporated in the EEA. That subset would be everything relating to goods trade, and managed by a joint committee on the same basis as the EEA. There can be no doubt these institutions are fit for the job. They would be doing the same as now, for a smaller scope of activities. The EU is happy with how it works for the EEA, and should be equally happy for the EU-UK relationship, provided political agreement is reached on a Jersey-style model (admittedly a big proviso, on both sides). The Efta court president has encouraged the UK to look to it as an institutional solution, rightly arguing it is “sovereignty-friendly” in a way that should appeal to (some) Brexit supporters.

Would the EU 27 agree to all this? Well they might. Having a rich economy of 65 million people inside a customs union would maintain the EU’s current leverage when doing trade deals. It would also minimise disruption to goods trade which would be popular with a lot of businesses. The Jersey Option would also mean that countries like France and the Netherlands would not have to invest in expensive customs infrastructure. Port cities like Calais are not relishing the prospect of Brexit. For many EU countries, the prospect of having to invest in something simply to enable them to continue to do what they are doing now is absurd. Such an arrangement would certainly help Ireland. Around two-thirds of its exports go to or via the UK. It would be much more expensive to send them by sea. And, of course, the Jersey Option  would solve the question of the Irish border.

It’s not ideal. It would mean that the UK couldn’t pursue an independent trade policy on goods, though it could on services. We would have less input into trade negotiations than we have now, though how much less would have to be negotiated. And it still wouldn’t help us with access to EU markets for our service industries, though hopefully something could be negotiated on top. But all the post-Brexit scenarios are likely to cause a certain amount of disruption and economic damage. The Jersey Option would at least reduce some of the risk.

Since Sam Lowe first wrote about it a number of people have come out in support of the idea. Martin Sandbu in the FT, Alasdair Smith of Sussex University and former European Commission economic adviser Philippe Legrain, who says:

In short, then, the Jersey model is the furthest that the UK as a whole can diverge from the EU if it wants to avoid a chaotic no-deal Brexit.

The UK government has red lined itself into a corner. At the moment its position is contradictory and impossible. Something will have to give. If it is going to smudge one of its red lines, the least politically damaging would be the third country trade deals. Most people either don’t care about them or think giving up frictionless trade with the EU is not a price worth paying. This would enable the UK to leave the EU with minimised damage while still gaining full control over immigration. Its not a great solution and it would still leave us with all sorts of problems but it’s better than the others on offer. Given all the constraints, short of either staying in the EU or leaving with no trade deal at all, the Jersey Option, or something like it, is probably as good as we will get.

The Brexit trade-off 

 

 

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