GAA Accounting

The Journal of the Global Accounting Alliance

Brexit negotiations

By Brian Keegan

Ireland needs time to identify its Brexit related difficulties and opportunities. In March, however, the clock will start ticking.

The wishful thinking that has surrounded the Brexit debate has blurred the distinctions between what is desirable, possible and legally achievable. Prior to the vote, we didn’t even have a vocabulary to discuss the options. The first reference to a “hard Brexit” in The Irish Times was on 11 July 2016, a good three weeks after the referendum outcome was known.

Fast-forward to 2017. The key message now from the Prime Minister was that the UK is to leave the EU Single Market. So what does that mean? The EU Single Market was designed with a single purpose – that members of the market will be better off dealing with each other than dealing with any other country. It also means that any country which leaves the EU Single Market has to end up worse off than before. There is no such thing as “the best possible deal for everyone”. The UK’s future trade prospects with the EU will be damaged and so, there will also be collateral damage for individual EU countries with strong trade links to the UK. As the UK’s closest neighbour, Ireland suffers the greatest risk of collateral damage.

Traditional taxes

Tax has traditionally been the method used by governments to protect their interests, and the EU is no exception. Trade regulation is maintained primarily through customs tariffs. No matter what some analysts and politicians say, there will be a customs border between Ireland and Northern Ireland, and between Ireland and the UK. That will mean costs and delays. If you trade with the UK, you will incur customs costs and experience delays in shipping goods post-Brexit. There are in excess of 50,000 different customs rates applying between EU and non-EU countries and post-Brexit, the United Kingdom of Great Britain and Northern Ireland will be a non-EU country. That’s a problem for the whole island. Businesses in the Republic that include the UK within their supply chain will have to do some rethinking. Exporting to Europe or indeed, further afield using the UK as a land bridge, will mean having to export goods out of the EU and then back into the EU. At the moment, the problem doesn’t arise because the UK is part of the Common Transit Area, so Customs obligations for Irish exporters are often a formality rather than a cost. Post-Brexit, I can’t see a very strong reason for the UK to remain within the Common Transit Area but perhaps they could be persuaded.

The power of persuasion

Being able to persuade will be crucial. Brexit negotiations will not be between Ireland and the UK, but between the UK and the 27 countries remaining within the EU, of which Ireland is just one. Despite ill-informed suggestions otherwise, Ireland cannot go beyond its own commitments to the EU Treaties. Ireland cannot negotiate special customs rates or arrangements on its own. But on the other side, Prime Minister May has already signalled that part of the reason for leaving the customs union is the potential to negotiate customs and trade arrangements with non-EU countries.

Leaving the Single Market also means that the UK could abandon commitments to allow EU nationals to work in the UK, and grant permanent rights of residence to those workers and their families. Before getting too exercised about the prospect of border checkpoints for people moving north and south, and people on these islands moving east and west, we need to make an important distinction. It’s not the same thing to restrict travel to the UK as it is to restrict people coming to seek work or claim social security benefits in the UK. Many countries already operate sane arrangements such as ESTA (the Electronic System for Travel Authorisation) to control the movement of non-nationals in and out of their territories going on vacation, for example.

Flexibility

Neither Ireland nor the UK currently fall within the Schengen Arrangement, which operates between most other EU countries. Our travel arrangements are governed by the Common Travel Area, which currently is one of the very few items under the EU treaties where Ireland and the UK can make their own arrangements. It should be possible to retain that flexibility. Customs and movement of people are just two of the many issues associated with Brexit. There are many others, from the macro policy considerations of restrictions on capital flows to the micro (but no less important) considerations of university fees for cross-border students. These issues didn’t arise when Ireland and the UK shared membership of the EU. Now they are moving front and centre.

We need time to identify the difficulties but more importantly, we need space to find the opportunities. Perhaps this is why we have allowed for the blurring between the desirable, the possible and the achievable. For now, a bit of blurring may give people time and space but once the UK formally notifies the EU in March of its intent to leave, the Brexit clock starts ticking. Then will be the time for sharp focus.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.

This article was originally published in the February 2017 edition of Accountancy Ireland.

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