Irish backstop –
The EU customs union in 1968 abolished tariffs between member states, but it was the introduction of the single market in 1993, based on a common set of standards and rules across the EU, that really delivered barrier-free trade and had a transformative effect on the EU economy.
The ending of customs barriers had a dramatic impact. While larger firms may have gained relatively less in terms of cost savings in paperwork, for smaller firms the ability to sell across borders as easily as selling locally really did matter.
Ireland benefitted disproportionately from the creation of a single market in services and the opening up of public procurement on an EU-wide basis. Companies supplying the rest of the EU can develop software, design buildings, and sell financial services from a base in Ireland. Companies producing pharmaceuticals or computer equipment in Ireland can compete on equal terms for government contracts across the EU.
It was customary at Christmas for many people from Derry to go across the Border to buy their poteen to moisten their Christmas cakes
The most obvious effect of the single market for us was that it ended the customs border on the island. While in the 1980s, a friend had his ham sandwich confiscated at the Border by a zealous customs official, as food standards were different North and South, after 1993 we could traverse the Border munching ham or cheese sandwiches with impunity.
This is because of the harmonisation of food and animal health standards across the EU – so-called phytosanitary standards – which was an integral part of the single market, enabling a free flow of safe food within the EU. As a major food exporter, this has proved very important for Irish producers, as well as being a guarantee of quality for consumers.
Rather surprisingly, the United States is not a “single market” like the EU, with standards differing across states. If you try taking fruit on a plane from Chicago to San Francisco it will be confiscated – phytosanitary standards are different on either side of the Rockies. You can buy Kerrygold butter in any supermarket in California, Minnesota or New Jersey, but not in Wisconsin. This is because Wisconsin imposes its own standards – producers have to be checked by Wisconsin inspectors.
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Standards and regulations are not the only impetus to cross-border trade – other factors can also have an impact. It was customary at Christmas for many people from Derry to go across the border to Ballybofey in Donegal to buy their poteen to moisten their Christmas cakes and puddings, perhaps even to take a small drop.
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Of course, selling poteen was illegal on both sides of the Border. However, what drove this trade was the fact that buying poteen was a reserved sin in the Catholic diocese of Derry, which only the bishop could forgive, whereas in Ballybofey, in the diocese of Raphoe, it was a less serious offence.
So clearly tariffs are only one part of the story when it comes to barriers or incentives to trade, although they have become a favoured weapon of President Donald Trump.
In terms of global trade, tariffs are, of course, a significant problem for exporters and importers, but the barriers to trade arising from different standards and regulations can be at least as big an obstacle to economic development.
While freer trade has played a major role in increasing living standards and reducing poverty across the globe over the last half century, creating the conditions for free trade has required huge efforts.
In a much simpler world, the Anglo-Irish Free Trade Agreement of 1965 took over a year of intensive negotiations to deal with the problems of different standards.
A particularly difficult issue was determining what proportion of the value added of a product had to be attributable to Ireland before a product could be considered Irish.
In the modern economy, complex supply chains make determining country of origin a much more challenging task. If and when the divorce element of Brexit gets over the line, the difficulties involved in the next stage of negotiating a free trade agreement between the UK and the EU will be on a far greater scale, given both the range of products involved, and the degree of integration of supply chains across national borders that has evolved as a result of the single market.
There is a huge amount of detailed work to do in negotiating the future trade relationship between the UK and the EU, and the timetable set by Boris Johnson is unrealistic.
Until that work is done, we cannot rule out a no-deal Brexit completely, if meeting the deadline becomes more important than agreeing the terms.
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