CROSS-BORDER TRADE on the ISLAND of IRELAND in the WAKE of BREXIT Logan Herr

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CROSS-BORDER TRADE ON THE ISLAND OF IRELAND IN THE WAKE OF BREXIT Logan Herr

Cross-border trade is the cornerstone of the Northern Ireland and Republic of Ireland economic relationship and a primary driver of Brexit discussions, which threaten the integrated and currently invisible seams of the border. The UK has simultaneously committed to maintaining frictionless trade and to no hard border post-Brexit. This article analyzes the UK’s proposed solutions for the Irish border as well as the potential impact of these new systems on the economics of cross-border trade on the island of Ireland.

Introduction units in the north. Each month, roughly 385,000 trucks and vans and 1,850,000 cars Uncertainty presides over the future of cross that border. Additionally, around 35,000 cross-border trade on the island of Ireland in people cross daily because they live and work the wake of the quickly approaching March on opposite sides. One particular east-west 2019 Brexit date. At the time of writing this road between the towns of Clones and Cavan article, the UK is committed to leaving the traverses the border four times within six customs union and single market of the EU, miles. Unravelling ties as tightly intertwined as thereby forcibly erecting a customs border these amplifies the challenges Brexit presents that will need to be managed in the future. for the border (McCann and McSorley). A focused examination of the UK’s proposed In this article I first lay out the history of resolutions for the Irish border post-Brexit the border and then explore the border’s role provides clarity into the future of cross-border at the center of Brexit negotiations and the trade and its economic impacts. British position on the border’s future status. Spanning the province of Ulster, the I then focus on economic aspects, complete border between Northern Ireland (NI) and with a snapshot of current trade between NI the Republic of Ireland (ROI) divides rivers, and the ROI. Finally, I critically analyze, derive bridges, towns, and even the occasional the economic impacts of, and develop points farmhouse. Despite a troublesome and violent for consideration on the proposed solutions history, the 310-mile frontier today is nearly from the UK government for the Irish border invisible. One of the only detectable differences post-Brexit. Shifting away from a frictionless during a crossing is the change in speed limit free trade border will have heavy consequences signs from metric units in the south to imperial at the local island level on the two integrated 76 economies. Through highlighting the key role in a disruptive trade war (Hayward). pitfalls of the UK’s imaginative plans, it is evident that nothing can compare to openness Anglo-Irish Trade War and cooperation in driving seamless trade relations. In the early years after partition, the Irish Free State and the UK (including NI) History of the Irish Border were closely tied through trade. The Irish Free State was greatly dependent on UK coal Partition coming across the Irish Sea while nearly 90% of all agricultural products, the largest As a result of the Irish War of sector of the Irish economy, was exported to Independence, the Anglo-Irish Treaty was the UK. After a series of financial disputes in signed in 1921. It established the Irish Free 1932, the UK instituted a hefty 20% import State while partitioning 6 of the 9 counties duty on all goods coming from Ireland as of Ulster in the majority Protestant and well as quotas on Irish livestock. Retaliating, pro-British northern region of the island. the Irish Free State imposed import duties This northern territory, just one-sixth of on coal, steel, iron, cement, electrical goods, the landmass of the island, became NI and machinery, and other top British exports (“The remained a member of the UK. The partitioning Economic War…”). This period offers insight kept majority Protestant unionist counties into an uncertain future where import duties within NI, while majority Catholic nationalist and trade boundaries may be established once counties became part of the Irish Free State again. (later becoming the Republic of Ireland in After 6 years of this economic tug of 1949). Despite establishing independence, Dr. war, known as the Anglo-Irish Trade War, Katy Hayward, a sociology researcher from severe impacts rippled across these nations, Queen’s University Belfast who specializes in underpinned at the same time by the global studying international borders, describes how economic depression. The biggest scars were the new Irish border was drawn with British left on the island of Ireland. The economy of contempt: the Irish Free State nearly collapsed with its The colonial high-handedness with economic lifeblood, the cattle industry, down which the border was carved is reflected 35% in exports and many farmers going in its route, which cuts through bankrupt. Unemployment rose over 475% single farm holdings and shows little from 1931 to 1935 while, simultaneously, Irish respect for the natural terrain of the emigration increased to more economically landscape. For the largely rural and sustainable shores, including Australia, impoverished borderlands, there were Canada, the United States, and England. particularly dire consequences from The overall cost to the Irish Free State from severing the close social, economic the trade war was about £48,000,000, an and kinship ties that ran across what amount worth roughly £3 billion today (“The had previously been merely a county Economic War…”). NI, a region dependent boundary. on cross-border trade, struggled to find new The Common Travel Area was created in markets, and many industries were hit hard 1923, shortly after partition, to allow citizens by the duties imposed at the border. Mainland of the Irish Free State, NI, and mainland Britain suffered least in comparison but still Britain to travel throughout and between lost 22% in its share of the Irish Free State the island nations without identification or market and faced shortages of agriculture documentation. This significantly eased the products traditionally acquired from the Irish burden of separation on people living on either Free State. A treaty ended the trade war in side. In its early stages, the border’s customs 1938, although the adverse effects echoed in checkpoints managed a limited variety of basic the region much longer. One lasting impact, goods, including some manufactured products. smuggling, has become an integral part of A short decade later, the border played a pivotal Irish culture (“The Economic War…”). 77 A Culture of Smuggling businesses began cooperating across the border and trade become more fluid (McCann Smuggling became a day-to-day and McSorley). opportunity not just for organized crime A Guardian journalist, Sean O’Hagan, groups funding violent activities but also for journeyed in Spring 2017 along the Irish families to make ends meet and avoid the border, documenting the sentiment of the effects of duties and fines on small family people living in the borderlands on issues of the budgets. This phenomenon was amplified in border post-Brexit. His discoveries exemplify the borderlands, where even children were sent the threat a hardened border would have on off by their parents to smuggle butter, bacon, the foundations of peace gained through the bread, or eggs across the border (“Living Good Friday Agreement: with...”). Duties on products coming from one If one were to imagine a worst-case side meant cheaper prices on the other, and post-Brexit scenario for Northern smuggling itself became an accepted norm, Ireland, it would involve the border carrying with it an air of rebellious glamor and becoming once again a focus for humanitarian vindication, where the culture paramilitary aggression. Dissident welcomed innovative methods of subverting republican groups remain sporadically the border (O’Leary). active in Northern Ireland. They are Smuggling significantly waned after the relatively few and have little support joint accession of the UK and the ROI to the among the nationalist population of European Economic Community (EEC) in the north of Ireland, but it is worth 1973. This established access into the EEC remembering that the Provisional customs union and standardized policies IRA occupied a similar position on the and tariffs on goods, which greatly reduced margins at the start of the Troubles. trade barriers and furthered the openness of O’Hagan’s travels unearthed a heavy border relations. Looking forward, a post- sentiment against a return to the border posts Brexit withdrawal from the customs union of the past. There is a lot at stake. Thanks and a potential return to a hardened border, to the combined effects of the Good Friday including tariffs and customs checkpoints, Agreement and membership in the EU for could bring criminal and cultural smuggling both the UK and the ROI, cross-border trade is back to the forefront (Hayward). seamless and the frictions of customs, tariffs, and quotas nonexistent. The economies and The Irish Troubles Through people on both sides have benefited from this Current Day open, peaceful relationship for over a decade now. Unfortunately, with Brexit, history could Despite the progressive step of joining well repeat itself. Given the negotiation’s the EEC, the NI-ROI relationship frayed in uncertainty, it is important to reflect on the the bloodshed of the Troubles between the history of violence and economic disparity unionists and nationalists. The 30-year conflict that has burdened its existence over the past was sparked by rioting, political unrest, and century. The after-effects of the Irish War of intermittent violence. A cease-fire was finally Independence—the Anglo-Irish trade war, announced in 1994, ultimately ending with the the culture of smuggling, and most recently Good Friday Agreement, signed in 1998. The the violence of the Troubles—suggest there peace process, along with newly established is much to be gained in resolving the border north-south cooperation programs, facilitated without rekindling those drastic downsides. all-island prosperity and an integration of the cross-border economies while simultaneously erasing obstacles and burdens to trade Brexit and the Border (Dorney). During the Troubles, there were only Definitions of Terms 17 approved border crossing points. Hundreds remained completely closed. As peace In analyzing proposed border solutions, progressed and the roads were un-blocked, it is helpful to clarify terms that dictate the 78 Irish border from an economic perspective, their very core. Brigid Laffan, Director of the including a free trade area, the single market, Global Governance Program at the European and the customs union. A free trade area is University Institute, puts it this way: “The one in which there are no tariffs, quotas, or sentiment in Ireland is that the decision to taxes on goods and services transferred from opt for a Brexit model that involves leaving one country to another. Negotiating such both the single market and customs union free trade agreements can take a long time, undermines the credibility of the UK’s stated and there are often exceptions, such as for commitment to no hard border on the island agri-food products. The single market, a tenet of Ireland, and to frictionless trade” (Laffan). If of membership in the EU, is essentially an the UK does not secure access to the EU single extension of a free trade area, with additional market and customs union, thereby forcibly rules for free movement of goods, services, erecting barriers in the form of tariffs and capital, and people between all the member customs controls, trade relations between the nations. The customs union, also a tenet of EU UK and the EU, more specifically NI and the membership, treats all EU member states as a ROI, will fundamentally change. single bloc in trade agreements with outside To decrease the immediate impact of nations. All member states agree to offer the these changes, May committed to a transitional same tariffs on incoming goods from countries period after the March 2019 Brexit date in outside the EU, meaning that EU members which the UK and EU will adhere to current cannot strike trade deals with outside nations trade terms and remain partners in the single on their own. Once foreign products enter market and customs union for around two any EU nation, they can then be transferred additional years (Stone). While this may throughout the EU with no further frictions or delay the cliff-edge of Brexit and smooth barriers (Bloom). the transition, it remains that the UK will Britain will, in leaving the single market ultimately depart both the single market and and customs union, gain sovereignty over customs union. At the time of this writing, with forging trade agreements with other nations, the December 8, 2017, EU-UK joint agreement determination of its own product and service being the farthest-reaching progress in Brexit regulations and standards, and managing negotiations, the unity on the desired future immigration and other flows across its borders. state of the Irish border is overshadowed by Despite these benefits, there are serious risks the risks of extremely adverse economic effects and concerns that the economic damage for that British sovereignty entails. Britain will far outweigh the benefits (Bloom). Northern Ireland–Republic of The British Position Ireland Trade Relations

In her manifesto released before the June NI sent 31% of its goods directly to the 2017 general election, UK Prime Minister ROI in 2016 (55% of goods went to the EU as Theresa May stated her full intention to lead a whole). Conversely, a mere 2% of the ROI’s the UK out of the customs union and the single goods was exported to NI. Despite this small market: “As we leave the European Union, we percentage going to NI, the ROI’s largest will no longer be members of the single market export destination is the UK at 13% of total or customs union but we will seek a deep and goods. While NI may not be the end destination special partnership including a comprehensive for goods that cross the Irish border from the free trade and customs agreement” (Osborne). south, more than £33 billion of goods in 2014 Later, in the same manifesto, May stated one of alone made the trek over the divide headed the pinnacle goals is to maintain a frictionless toward the UK (Stennett). The UK as a whole and economically fluid border on the island is significant to the ROI in terms of trade, but of Ireland. These principles were affirmed the ROI has broader export destinations than in the joint agreement issued December 8, its northern neighbor. Thus, the biggest threat 2017, resulting from the first phase of Brexit from frictions to cross-border trade clearly negotiations. However, these aims differ at falls on NI due to its heavy reliance on direct 79 trading links with the south, accounting for Customs Partnership and Trade nearly a third of its export economy (“Brexit Agreement and UK-Irish Relations”). Cross-border trade is the cornerstone The most important of the UK’s proposed of the NI-ROI economic relationship and is solutions is a new customs partnership and a primary driver of Brexit discussions. The potential free trade agreement with the EU after fact remains that withdrawal from the single removal from the single market and customs market and customs union means managing a union. If this paramount goal is not met, EU- land border on the island of Ireland. The real UK trade relations would revert to World Trade Organization standards. Extreme barriers to questions are, What will be the constitution trade—including border posts, tariffs, and and scope of the control systems enforced at the duties—would once again become the norm, external frontier for goods? and How will they potentially tearing apart integrated cross- affect the economics of cross-border trade on border supply chains and trading networks, the island (Dougan)? The analysis of proposed especially for products in the agri-food sector, border solutions in this article focuses on the where the average EU tariff is 22.5%. Coinciding economic perspective of the physical frontier with these frictions are serious security risks for goods. resulting from sophisticated smuggling by paramilitary networks and criminal gangs Analysis of Proposed Border seizing opportunities to evade tariffs and using Solutions these funds to fuel their violent and aggressive tendencies. Additionally, new border posts The planned system of border controls could become direct targets for dissenting post-Brexit is outlined in the NI and the ROI republican paramilitary groups looking to position paper released by the UK government instill fear through bloodshed (Anderson). As on August 16, 2017. Plans include but are not evidenced by the violent history of the border, limited to especially in the relatively recent times of the • Establishing a new UK-EU customs Troubles, re-erecting physical border posts partnership and trade agreement threatens to unravel many decades of peace • Utilizing extensive technology tools to process work. Both the EU and UK would need reduce frictions to trade and ease the to invest significant resources to manage and burden of complying with customs police this hardened border while the economic procedures damage to the all-island economy, especially • Exempting small and medium-sized on a local scale, could be deep and widespread enterprises (SMEs) from customs (Burke). processes and establishing mutual This scenario—failure to reach a free recognition for trusted traders among trade agreement or customs arrangement— larger enterprises must be strongly avoided. The UK government • Approving select roads as official has expressed that the ideal solution would customs crossing points involve “aligning our approach to the customs • Maintaining absolute regulatory border” and treating goods essentially equivalence in the agri-food sector with the same way they are today for customs no border checks on these types of goods purposes, thereby eliminating the need for any to stabilize the economic lifeblood of the additional customs processes on the border. island Maintaining seamless custom relations is high While the details are left to future negotiations, in priority but not without difficulties, as the the position paper lays out the UK’s desired UK admits its planned approach is the first of means and end state. The critical assessment its kind and bears unparalleled challenges for below highlights the considerable gap between implementation (“Northern Ireland…”). what the position paper calls “flexible and For instance, this new customs imaginative solutions” and reality (“Northern partnership would require that Britain mirror Ireland…”). EU tariffs for goods arriving from third 80 countries, while also agreeing to maintain EU fact that new technology often introduces product standards. However, this goes directly more problems than expected (Tannous and against the Brexiteers’ strong imperatives for Hayward). sovereignty in striking Britain’s own trade Cracks exist in this plan to achieve an deals. The directives would only erase trade invisible border through technology. The borders if they completely cover all areas of costs of following online customs declaration commerce (Taylor). Additionally, to maintain procedures would hit SMEs hard, because border security and regulatory consistency SMEs are responsible for the majority of cross- there would need to be absolute and robust border trade. These companies, with already traceability of all goods, from origin to thin profit margins, could not afford the endpoint, across all sectors. information technology resources and staff necessary for full compliance with rules and Technology to Reduce Frictions absolute traceability for all their traded goods. Therefore, even with intelligently implemented As outlined in its position paper, the technologies for customs management, both UK plans to mix technology and reduced physical border controls and exceptional effort documentation requirements to create post- from traders remain imperative to uphold Brexit customs control mechanisms. Elements the integrity of legitimate trade while also of this technology-based approach include mitigating security risks (Hayward et al.). online pre-departure customs declarations by the trader, origin and destination traceability, Special Trader Exemptions and automatically registering vehicular border crossings through plate recognition To mitigate adverse impacts, Britain cameras. These components would then be proposes special arrangements for SMEs integrated into user-friendly and reliable and larger enterprises alike. SMEs include software accessible on both sides of the border businesses with fewer than 250 employees. In (Hayward et al.). While more streamlined than 2015, of the more than 5,000 NI businesses traditional border posts, there will still need that shipped goods south to the ROI, 99.8% to be occasional physical checks to ensure were SMEs, and SMEs accounted for 80% that any vehicles that raise red flags could be of the value of those exports (“Additional inspected. To avoid lengthy delays at these Data…”). SMEs are clearly the foundation crossings, the UK and EU would need to jointly of local economies and cross-border trade operate a single customs window where either on the island. Most of these smaller traders entity’s customs representatives have the right are not individually significant enough to be to carry out physical checks on any vehicle. categorized in international trade but rather The divide between the US and Canada trade largely in local markets. The UK plan has been touted as an example of a successful includes special cross-border trade exemptions technology implementation of border from all new customs processes for certified management, complete with a single window SMEs. Upon acceptance via an extensive system and unified software for declarations. application, these local traders could operate Deep cooperation and flexibility on both sides, as seamlessly as they do today (“Northern such as eliminating differences in standards Ireland…”). and regulations on trade goods, ease the Conversely, larger enterprises with hard border experience. However, reliance greater than 250 employees account for 20% on technology alone is not enough and has of the value of NI to the ROI trade in goods. its faults, including software implementation Businesses falling into this category could failures leading to border crossing delays and submit a similar application and be labeled heavy resource expenditures to continually trusted traders. Trusted traders could access resolve system errors and technical issues simplified customs procedures and streamlined as they arise. The US-Canada system could online customs declarations. In combination, be useful as a model for the Irish border, these two proposed programs aim to further but consideration should be given to the reduce the physical infrastructure needed at 81 the border (“Northern Ireland…”). few passable roads in sparsely populated areas. The problems here lie with the Ireland, on the contrary, has well over 200 roads administrative costs to the businesses for crossing the border, dozens of which are small registration and application for these special and may crisscross the border many times. exemption programs. Additionally, the burden It is in these intertwined borderlands where on the government to manage the programs, organized smuggling and criminal activity are including the vetting process, would be most present, challenges that are foreign to the substantial. Risks exist too of sophisticated Norway-Sweden border (Matthews). smuggling and sub-standard products leaking A stark choice for the UK remains: establish through open channels should small traders a select group of approved roads with physical have zero physical barriers to cross-border customs posts, which potentially become targets trade. While the intention behind special for violence from dissident paramilitary groups exemptions is right—a softened border—the and back doors for increased smuggling, or inherent costs and risks must be considered allow traders to traverse all cross-border roads and mitigated by both the UK and the EU in the and face the high logistics costs of tracking system’s detailed design and implementation, a and managing legitimate and illegitimate trade step far from even beginning at the time of this across these routes. Neither option at this writing. point seems feasible. In developing a solution, the UK will again need to utilize “flexible and Approved Roads for imaginative” methods in an “unprecedented” Border Crossings scenario, because for certain, straightforward approved roads are no easy answer (“Northern On average, more than 12,500 heavy goods Ireland…”). vehicles and light vans cross the Irish border per day. The UK Department for Transport Considerations for the estimates that during 2015 over 7 million tons Agri-food Sector of total freight were shipped back and forth, with the largest portion from the agri-food The agri-food sector dominates the industry. Of the various shipping routes, half cross-border trade economies on the island of are concentrated within the Newry-Dundalk Ireland. Supply chains for farming, livestock, corridor (“Additional Data…”). Designating food, and beverage production are deeply specific approved border crossings, especially integrated, flowing back and forth across the on heavily trafficked throughways like Newry- border and accounting for 56% of cross-border Dundalk, would limit the number of physical trade on the island in total. Reliance on exports border posts needed, as all goods trade would in these lifeblood industries is above average. then be required to enter and exit through For example, 42% of dairy sales are exports, these defined chokepoints. 37% with sheep, 39% with fish, and 44% with A system like this currently exists drinks. Additionally, in the flow of a product’s between Norway, not a member of the life, production and processing can occur on EU, and Sweden, an EU member state. A differing sides of the border; for instance, 27% comprehensive EU-Norway trade agreement of the milk from NI’s farms (nearly 600 million and customs partnership covers manufactured liters) is processed in the ROI (“Additional goods and some agri-food products. Goods Data…”). Furthermore, due to extreme health cross over a limited number of approved roads risks from sub-standard agri-food products, where jointly operated customs posts check regulations on this sector are strict and goods only once, using customs staff from require extensive physical quality inspections. either side. Thanks to electronic detection of The current EU standards that apply to agri- plate numbers and online declarations, delays food imports from any non-EU nation require average only a few minutes. At the same time, official physical inspection on departure and comparing this Scandinavian border to the entry into the EU via certified border inspection Irish border is unrealistic. The land border posts as well as manual documentation and between Norway and Sweden contains only a identity checks 100% of the time. The sudden 82 shock of a transition from today’s seamless between sovereignty and all-island economic agri-food trade and supply chains over the stability. For Brexit negotiators, there is border to this new system of hardened delays no perfect design. Simply following the and extensive checks potentially could plunge models of non-member countries currently small agricultural businesses into an economic in partnership with the EU is not a cut-and- downward spiral (Matthews). dried option, due to the especially intertwined The only effective method to sustain social, political, cultural, and economic ties the regulatory-sensitive agri-food sector is to on the island of Ireland. Rather, an innovative ensure that UK products continue to comply approach is necessary, which creatively with EU single market regulations (Hayward amalgamates components from successful and Campbell). This frictionless end-state is border models tailored to the unique needs of entirely contingent on the post-Brexit customs the UK, NI, the EU, and the ROI altogether. partnership and trade agreement. British Lessons from the contentious history of officials stress that from day one after Brexit, the Irish border, from its partition to the thanks to the Great Repeal Bill, UK and EU smuggling and violence of the Troubles, must regulations will be identical. This commitment be combined with a forward-looking approach requires substantial compromise by hardline to ensure the all-island economy can continue Brexiteers, as the UK would have to follow to grow and flourish while minimizing any EU regulations in the future even as adapted regression in the peace process. The two-year and changed, in turn limiting their ability to transitional period beyond the March 2019 enter free trade agreements with any third Brexit date gives bureaucrats and negotiators countries demanding access into UK markets from both sides a much needed time buffer to for food products incompatible with EU rules arrive at a comprehensive solution for future (Matthews). Regardless of the approach, cross-border trade. Perhaps the greatest the agri-food sector is a top priority to be takeaway from this analysis of the story of protected, for the alternative is widespread the Irish border and the quest for seamless economic suffering of the people relying on trade is that freedom from EU membership these integrated trade networks. does not alter the timeless tools that support truly frictionless trade relations: regulatory Conclusion commonality, deeply coordinated efforts, and cooperation through compromise. Every parameter of the UK’s strategy for border solutions poses a difficult balance

83 References

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