A headline that caught my eye this week was on the Belfast Live web page and contained the phrase “our Brexit bonanza has gone south.” The Northern Irish journalist – Pat McArt – was referring to the astonishing boom at Rosslare port in County Wexford, Republic of Ireland, which has seen an increase in the number of sailings from the port to the Continent from 6 a day in 2015 to 36 a day in 2023; leading local authorities to launch a £300m investment project to expand capacity and local businesses reporting significant increase in business – by 400% in the case of the transport company McArt interviewed for the piece. The explanation according to the director of the same transport business could be summarised in one word: Brexit.
Brexit benefits do exist then…but sadly – albeit predictably – they are not for us, as Northern Ireland fittingly illustrates.
Not for EU – Not for you?
‘Not for EU’ almost sounds like yet another three-word Brexiter slogan capturing how we have ‘taken back control’ – keeping more for ourselves, giving less to the EU. It is quite the opposite: Namely an indicator of the rights and freedoms British business have lost due to Brexit – here, selling their products in the EU Single Market without additional paperwork.
The ‘Not for EU’ label is being introduced in three phases as a result of the Windsor Framework (WF) regulating GB – NI trade, which came into force in October 2023 (Chris Grey has explained the details very expertly and thoroughly on his blog last week). The WF was adopted to smoothen trade across the Irish Sea Border between GB and NI and to make that border as invisible as possible. Ironically – but predictably – it seems to be creating a whole lot of new bureaucracy for firms exporting meat and dairy (and from 2025 fruit, vegetables, and fish) increasing their costs and the time it takes to export to NI.
Specifically, the framework creates a customs ‘green lane’ with limited paper work for goods destined for Northern Ireland only (and clearly labelled as such – hence ‘Not for EU’) and a more paperwork-intense ‘red lane’ for goods destined for re-exporting from NI into the EU via the Republic of Ireland. The – unintended – dilemma this creates for GB exporters is that if they choose the green lane to reduce administrative costs, this will drastically reduce the pool of potential buyers of their goods (from an estimated 449m people living in the EU Single Market (SM) to 1.9m living in NI) – thus making exporting less efficient despite reduced paperwork (Note: reduced paperwork compared to the situation under the Northern Ireland Protocol (NIP) alone, not compared to the situation before hard Brexit of course!). Conversely, choosing to export for both the NI and the EU market to tap into the massive EU SM means incurring higher border admin costs in terms of certification and documentation of standards. For some firms that dilemma may be solvable, for others it may simply not be worth exporting to NI anymore.
However, even if a UK business in the relevant sector decides not to export to NI anymore, it will still incur some additional costs due to the new regime. The reason for that is that the UK government has decided to require ‘Not for EU’ labelling not just for relevant goods for exporting to NI, but for all relevant goods across the UK (from next year). This move was justified by James Cleverly on ‘practical and philosophical’ grounds. The practical one being that having one single labelling system may be more cost-efficient for retailers anyways; the ‘philosophical’ one being unionism. Indeed, the move was seen as an attempt to signal to the Democratic Unionist Party (DUP) that NI is not treated any differently from any other part of the UK and that its place in the UK has not changed with Brexit.
That gesture never was going to convince the DUP and other unionist forces in NI of course. Their (maximalist) ‘seven tests’ for an acceptable post-Brexit border arrangement would require a much more ambitious solution than the Windsor Framework will ever be able to deliver and the EU will ever be willing to accept – at least within the parameters of the DUP’s own preferred version of hard Brexit. Indeed, as long as the UK stays outside the SM for goods and does not conclude any agreement on dynamic alignment on EU standards, it seems simply impossible for there not to be any checks – however light touch – on goods moving from GB to NI. As such, the 5th test on the DUP list (‘no checks on goods between GB/NI’) at least can never be fully met. The question is whether or when the DUP will start accepting that and rethink its position, rather than standing paralysed in the corner into which it manoeuvred itself by first supporting Brexit, than cheerleading the hardest possible version of it, and then refusing to accept all the logical and necessary consequences of having gotten what they had wanted all along.
As his speech at the DUP party conference suggests, party leader Jeffrey Donaldson still seems to be paralysed in that corner, staring into the headlights of the electoral truck that is about to hit him. With the General Election looming next year, the DUP having been overtaken by the nationalist Sinn Fein in recent local elections, and his position as party leader seemingly entirely depending on defending a hardline position on post-Brexit trade arrangements to fend off challenges from unionists further to the right, it is hard to see how Donaldson can manoeuvre himself out of the lose-lose situation he currently is in. In particular, restoring the power-sharing Stormont government that the DUP has collapsed in February 2022, while still popular with unionist voters, may become untenable in the mid- to long-run. Ending it will most certainly mean accepting the WF in a form that’s very close to its current shape and that will mean accepting something that will certain fall short of more than one of the DUP’s seven tests. Indeed, claims by Donaldson that there is progress in his negotiations with the UK government about the implementation of the WF are simply not believable, because the UK government could not possibly agree to anything that would amend the facts created by the WF – after long and arduous negotiations with the EU – to the extent that the DUP’s seven tests would be met. Donaldson’s hope is probably that the UK government will agree to something that he can then claim does meet the most important ones and use this as a reason to return to Stormont without losing face. Yet, it is unlikely that whatever that agreement is will satisfy the hardliners amongst the unionists and Donaldson’s position as party leader would most likely become very precarious.
In short, then, the ‘Not for EU’ label is another case where more costs are being piled onto UK businesses to implement a border regime that has become necessary for political and ideological (Cleverly would say ‘philosophical’) – not technical or economic – reasons, i.e., to make the necessary Irish Sea border seem as thin as possible to make it acceptable to unionists. Yet, the chosen ‘solution’ will most likely not achieve its political goal and indeed only constitutes an exercise in damage limitation anyways (without hard Brexit, no Irish Sea border); but it will develop all sorts of unintended consequences for UK businesses and consumers.
One predictable such consequence is that there are already signs that UK consumers may – mistakenly – believe that the ‘Not for EU’ label means the products carrying this label are of lower quality compared to other products (which is not necessarily the case as Chris Grey explains). How ironic it would be if UK consumers ended up believing that ‘not for EU’ in fact means ‘not for you’ and increasingly started to choose non-labelled products, amongst which will be products imported to the UK from the EU…Another Brexit benefit accruing outside Britain’s borders?
The deregulation, divergence disaster
At a more general level, the ‘Not for EU’ label is the result of the continuing refusal of the UK government to align its regulatory regime dynamically on EU standards – in this case in the area of sanitary and phytosanitary (SPS) rules. There is no sign of Brexiters admitting anytime soon that such dynamic alignment across a range of sectors would solve many of the practical problems caused by Brexit. To the contrary, the more Brexit turns into a right mess, the more Brexiters retreat into the defence that this is a result of Brexit having been done too timidly – i.e., not enough divergence from EU rules has happened. That was for instance Farage’s excuse that I wrote about last week. Similarly, Business Secretary Kemi Badenoch continues to be firmly stuck in the ideological Tory straitjacket of deregulation. In spite of increasingly loud voices from businesses for the UK regulatory regime to remain aligned with the EU’s, she has launched a new – according to Anthony Robinson 23rd! – attempt to identify ‘red tape’ that can be cut to stimulate economic growth. The reasons for this move are ideological and political – in her case, her scrapping Jacob Rees-Mogg’s Retained EU Law bill, which would simply have disapplied EU rules by default by the end of this year has damaged her standing with Eurosceptics in the Tory party and thus her leadership ambitions. Clearly there is little insight in the Tory party that their deregulation fanatism invariable ends either in a damp squib, or in disaster.
Besides the ‘Not for EU’ label mess, another recent illustration of just how easily divergence generates unintended – and very costly – consequences for the UK is Sunak’s anti-green turn. His backtracking from the UK’s commitment to Net Zero involved among other things increasing emission allowances to polluting firms. As a result of Sunak’s move, the carbon price under the UK Emission Trading Scheme (ETS) has plummeted, and is now well below the price of emissions inside the EU. This clearly sounds like the sort of ‘divergence’ from EU policies that the libertarian ‘free enterprise,’ ‘pro-growth’ fringe of the Brexit movement would be very happy with.
In the real world, however, this has had the unintended (but – once more – very predictable) consequence that the UK Treasury’s revenue from the carbon tax will be billions of pounds lower than predicted a few months ago. Instead, rather than paying the tax to the Treasury, British exporters will likely pay large amounts of carbon tax to the EU. That is because the EU’s new carbon border adjustment mechanism (CBAM) means that from 2026 exporters from countries with lower carbon prices than the EU will have to pay a tax to adjust for the differential. This is still a few years away, but it is another illustration how diverging from EU regulations and policies (here in terms of carbon pricing) may be politically attractive (by seducing the climate sceptic wing of the Tory party) and perhaps have some short-term economic (but certainly not environmental and societal) benefits by reducing costs, thus allowing polluting industries to thrive once more, but create unintended negative consequences not just for UK businesses but also the British state. In the case of carbon pricing the combination of UK government laxist stance on emission allowances combined with the EU’s CBAM essentially mean a transfer of tax revenue from London to Brussels. Yet another Brexit benefit, accruing to others…
It is not without irony that the ultra-nationalistic Brexit project seems to increasingly benefit anyone but the Brits (New Zealand’s and Australia’s farmers could be added to the list)!…If Brexiters do not learn their lesson, this could turn into a very un-British Brexit indeed!