Ireland Forces U.K. to Confront Brutal Brexit Trade-offs

By Simon Nixon Features Dow Jones Newswires

This week's row over the Irish border marks a significant moment in the progress of Brexit: It is the first time since the referendum that the British political system has been forced to confront a genuine trade-off.

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Until now, the big Brexit arguments -- over the Brexit bill and the rights of European Union citizens in the U.K. -- haven't required the government to make choices so much as to face realities. But the Irish-border issue has obliged it to confront for the first time the possibility that the EU has been right all along: That it may not be possible for the U.K. to have its cake and eat it.

Under pressure from the EU, the U.K. was being asked to choose between accepting a hard border on the island of Ireland, a border in the Irish Sea, or remaining in the EU customs union. Prime Minister Theresa May hoped to fudge the issue with diplomatic language that committed the U.K. to maintaining regulatory "alignment" with the EU while at the same time ruling out any deal that would treat Northern Ireland differently from the rest of the U.K.

As a result, the fate of Brexit now hinges on the definition of the word "alignment."

According to Irish Prime Minister Leo Varadkar, "alignment" means exactly the same as "no divergence," which was the wording in an earlier draft. From an Irish perspective, it could hardly mean anything else -- since any deviation by the U.K. from EU customs union and single-market rules would inevitably lead to the need for border checks. A partial alignment of single-market rules only in those areas critical to the working of the Good Friday Agreement would still result in a hard border, albeit softer than it might have been.

But the British government insists that "alignment" simply means that the rules have the same outcome even if they get there by different routes: Both sides would agree to recognize each other's regulations even if they diverged.

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This emphasis on mutual recognition lies at the heart of the Brexiter conception of free trade. The Brexiter vision of "global Britain" hinges on the U.K. being able to set its own rules and have these accepted by multiple jurisdictions.

As the U.K.'s International Trade Secretary Liam Fox recently explained: "we want to move to an equivalence arrangement rather than the EU's harmonization model."

The problem is that the EU has made clear it has no intention of allowing the U.K. frictionless access to EU markets on the basis of mutual recognition.

The EU's chief negotiator, Michel Barnier, insists that the U.K. must choose between full single-market access on the basis of harmonized EU rules similar to Norway or a much more limited free-trade agreement similar to that of Canada, which has limited provision for financial services.

In a recent speech in Brussels to the Centre for European Reform, Mr. Barnier went further, warning that even a Canada-style deal would require the EU to commit to EU standards in areas such as state aid, labor and environmental rules, otherwise a U.K.-EU free trade deal would be rejected by national parliaments.

Of course, this could be simply an opening bid. But EU officials insist Mr. Barnier isn't bluffing. They note that the EU demanded safeguards on sustainable development in its deals with South Korea and Canada, and is insisting on state aid safeguards in its negotiations with Japan. They point out that the Canada deal nearly failed amid fears that Canada could be used as a backdoor for U.S. goods to enter the EU market: Those fears are bound to be greater in the case of a U.K. deal given its greater capacity to damage the EU's internal market. EU diplomats say that the loudest calls for binding commitments to a level playing field are coming from the U.K.'s traditional free-trade allies such as the Netherlands and Ireland.

Even so, some British observers, including former EU Trade Commissioner Peter Mandelson, argue that the EU has shown a willingness to contemplate a deal based on regulatory cooperation before when it opened trade negotiations with the U.S. over the Trans-Atlantic Trade and Investment Partnership. Wouldn't it be in the EU's interests to agree a TTIP-style deal with the world's sixth-largest economy?

But EU officials say TTIP failed for a reason: Neither side was willing to give up its regulatory autonomy. The EU has a longstanding goal to establish its standards as global standards -- something that it is doing with increasing success, much to the frustration of the U.S. It wasn't prepared to give a third country's standards the same standing its own.

"If we wouldn't agree such a deal with the U.S., we're not going to do it for the U.K.," said a senior EU official. "Why would we elevate the U.K. to the status of global standard-setter?"

The question now facing the U.K. is one that Mrs. May and some in the EU had hoped to avoid confronting until the second phase of negotiations -- or even until after the U.K. has left the EU. What if Mr. Varadkar is right? What if the dream of a mutual-recognition deal is a delusion? Then the U.K. will have to choose between a hard border not just on the island of Ireland but around the whole U.K. -- or turn the U.K. into perpetual follower of EU rules unable to do deals with the rest of the world.

Write to Simon Nixon at simon.nixon@wsj.com

(END) Dow Jones Newswires

December 07, 2017 11:02 ET (16:02 GMT)