Brexit: Drop the backstop and create a customs association, Ifo economists say

This is the press release for the German think-tank Ifo Institute:

The authors of a report released by EconPol Europe have urged the UK and EU to drop the backstop solution for Northern Ireland and instead lift the time limit on the provisional agreement while working on an ambitioned customs union. In the report, released today, the group of prominent European economists have called on the UK government and European Commission to rethink their ‘red lines’ and return to the negotiating table, adding: “A hard Brexit is in no one’s interest and would cause irreparable political and economic damage.”

The authors* -  Gabriel J. Felbermayr (LMU, Ifo Institute), Clemens Fuest (LMU, Ifo Institute), Hans Gersbach (ETH Zurich and chairman of the Board of Academic Advisors to the German BMWi), Albrecht O. Ritschl (LSE), Marcel Thum (TU Dresden, Ifo Institute, and chairman of the Advisory Board to the German BMF) and Martin T. Braml (Ifo Institute) –suggest a minimum three-month extension will be necessary to establish a European Customs Association.

“We propose a model for the relationship between the United Kingdom and the European Union for the post-Brexit era that ensures close economic ties and avoids a hard Irish border,” they say. “Our aim is not to define a first-best solution but rather a politically feasible approach that minimizes economic costs.”

The model proposes: 

  • The backstop provision in the withdrawal agreement is dropped.
  • The United Kingdom permanently delegates all trade policy matters in goods to a newly created European Customs Association (ECA) in which the EU is also a member. Neither the EU nor the UK pursues independent trade policies, and the ECA represents them the World Trade Organization (WTO) in the same way as the EU has done until now for all 28 EU members.
  • The UK has voting rights in the ECA, as do all other member states. Together with the other members of the ECA, it mandates the EU Commission to negotiate trade agreements with third parties.
  • Decisions are taken with a double majority as defined in the Lisbon Treaty, and the European Court of Justice (in an extended form including all participating countries) continues to supervise all law- and policy-making in the field of trade.
  • The ECA covers all  ‘classical‘ areas of trade policy, such as tariffs, quotas, rules of origin, trade defense, etc. On these issues, the EU has exclusive competence.
  • Areas in which the EU has no exclusive competence and in which countries have veto rights (trade in services, intellectual property, direct foreign investment, audiovisual and cultural services, and social, educational and health services), should not fall under the ECA. During a transition period, the pertinent provisions in the EU treaties continue to apply. For the future, arrangements in these areas are made by means of one or several supplementary bilateral agreements.
  • In existing trade agreements with third parties, provisions pertaining to ‘classical‘ areas or areas covered by bilateral agreements continue to apply to the UK, as well as those currently or in future negotiated

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