Johnson offers EU new Brexit border plan

02 Oct 2019

Philip Shaw

Chief Economist, Investec

All eyes turn to Brussels after the Prime Minister presents a new Irish protocol to the European Union in bid to replace the troublesome backstop

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As highlighted earlier this week, Westminster’s new compromise was sent to Brussels this afternoon. The details were largely as trailed. These are that, subject to approval from the authorities there, Northern Ireland (NI) will form part of an all-Ireland regulatory zone for agrifood and industrial products, but will belong to the UK’s customs territory and not the European Customs Union. 
This would require all goods heading to NI from Great Britain (GB) to be checked at border posts in GB. Customs checks between NI and the Republic of Ireland (RoI) would also need to take place, but the proposal envisages that goods movements between the two would be notified to relevant customs authorities via prior declarations with a small number of necessary checks taking place at traders’ premises or other designated locations. In any case, this would be away from the RoI/NI border which would obviate the need for a physical border, thus complying with the spirit of the Good Friday agreement.
If agreed by the EU27 and ratified by Westminster, the envisaged transition period to 2020 would be maintained, during which the UK/EU27 relationship would remain almost identical to current arrangements. Indeed over this period, the NI Assembly and its Executive would be required to give its consent to the arrangements (we note that Stormont has not met since early-2017). Thereafter this would be required every four years. 
This would replace the existing NI backstop which has proved troublesome over the past two years. In response, the DUP (NI’s largest political party and also, of course, the Conservatives’ confidence and supply partners) sounded a positive note, stating that the offer ‘provides a basis for the EU to continue in a serious and sustained arrangement with the UK Government…’. Indeed the UK government has offered a ‘New Deal’ for NI to help boost competitiveness and growth within the province.
Current thinking seems to be that UK/EU27 talks have to be finalised by 11 October for the EU Council to approve the Brexit deal.
A further detail included in the PM’s letter to EC President Jean-Claude Juncker is that the Johnson government is seeking a Free Trade Agreement with the EU, rather than a ‘customs partnership’ arrangement, the aim of Theresa May’s government. If accepted by EU27, necessary changes to the Political Declaration (i.e. the outline of the proposed future relationship between the UK and EU) would be necessary to reflect this shift. 
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It remains to be seen whether this proposal can form the serious basis of a discussion with the EU27. The mood music over this week so far, during which some of the details were made known, has not been positive. But we have not seen any such comments since the offer was published. Current thinking seems to be that UK/EU27 talks have to be finalised by 11 October for the EU Council to approve the Brexit deal on 17/18 October. Even if there is some wiggle room of a couple more days, time is ‘of the essence’.
Last, the UK government made it clear that the proposals for Ireland should not be used as a template for the UK and the remainder of the EU after the transition period ceases at the end of 2020. Indeed were today’s proposals to gain acceptance by both Brussels and Westminster, the focus would inevitably begin to be trained on how to minimise trade frictions between the UK and the EU more widely. Sterling reacted positively. At the time of writing, the pound was trading at $1.23, a gain in excess of half a cent, while edging firmer to below the 89p level against the euro.

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