EU enclaves across Britain could break the deadlock

EU enclaves across Britain could break the deadlock

Chlorinated chicken has been on everyone’s lips.

Well, not literally (for reasons that we will soon review), but it has been much-discussed.  Chlorinated chicken’s fame now rivals that of other celebrity avians such as Woody Woodpecker and Donald Duck.  Its notoriety stems from its role as the standard shorthand for the trade dilemma facing Brexit Britain.

The chlorinated chicken problem is as follows:

  • The European Union has banned chlorinated chicken.
  • The United States of America allows chlorinated chicken.
  • Post-Brexit Britain will have to decide its policy on chlorinated chicken.
  • If we choose to allow chlorinated chicken we could potentially get a good trade deal with the US; but we would face barriers to trade with the EU.
  • If we continue to ban chlorinated chicken we will face fewer barriers to our EU trade; but will not be able to strike a meaningful trade deal with the US.

“Chlorinated chicken” is a proxy term for goods and services that are not manufactured and delivered in accordance with the EU’s standards.  These standards are exacting and can be unnecessarily burdensome.  For many Brexiteers, the ability to reduce the regulatory burden on business is one of Brexit’s chief benefits.  I agree with that view.

Brexiteers also argue that this should not have a significant impact on our trade with the EU.  Exporters are aware, after all, that their goods must comply with the standards of the country to which those goods are being exported.  If, therefore, a manufacturer wishes to export a product to an EU country then the manufacturer will have to ensure that the product complies with EU standards (just as the product would have to comply with Japanese standards if it were being exported to Japan).  I also agree with this argument.  In principle Britain should be able to deal with both the US and the EU: we could (if we wished) import chlorinated chicken from the US, but we could not then export it to the EU.  However, while this argument works well in theory, it does lead to a problem with border arrangements.

At present other EU countries can be confident that our exports to them are fully compliant with EU regulation (because we are also subject to that regulation).  They do not, therefore, need to carry out border checks.  Once we leave and once our standards start to diverge from those of the EU, this confidence will disappear.  Border checks will take its place.  That is not unreasonable.  The EU cannot be expected to take our word for it if we say that our exports have been manufactured to meet their standards.  In many cases a border check may not pose a problem.  There are two instances, however, where border checks could be problematic: “just in time” supply chains and Northern Ireland.

At present there are two proposed solutions to the problems of border checks:

  • 1.     A Common Rule Book for goods (whereby British standards for manufacturing would be the same as those of the EU) – This would mean that there was no need for border checks involving manufactured goods exported from the UK to the EU.
  • 2.     The Northern Irish Backstop (whereby Northern Ireland would effectively remain in the Single Market and the Customs Union) – This would mean that there was no need for border checks in Northern Ireland.

Neither of these is acceptable in its current form.  The Common Rule Book would mean sacrificing the freedom to set our own rules and to pursue our own trade policy; while the Backstop would undermine the Union between Northern Ireland and the rest of the United Kingdom.

The Backstop, however, contains a potentially useful idea: part of a country can be in the Single Market and the Customs Union while the rest of that country is outside the Single Market and the Customs Union.

That idea could be attractive to those manufacturers who rely on just in time supply chains.  They might well be happy to remain in the Single Market and the Customs Union in exchange for the continuance of frictionless trade with the EU.  Manufacturers whose factories are based in Northern Ireland, and whose supply chains run through Northern Irish ports, could well benefit from the Backstop.  Manufacturers with just in time supply chains based in the rest of the UK, however, would not.  Happily there is an easy way both to spread the use of the Backstop throughout the UK and to prevent the Backstop from undermining the Union: enclaves.

International law has long recognised that national borders can seldom be drawn with straight lines. Enclaves are part of the solution to this problem.  An enclave is a piece of land which is totally surrounded by a foreign territory.  Sometimes entire countries can be enclaves.  Vatican City, for instance, is entirely surrounded by Italy, while Lesotho is entirely surrounded by South Africa.  More typically, enclaves are very small.  Campione d’Italia is a 0.6 sq mile piece of Italy that is entirely surrounded by Switzerland, while Rückschlag is a four acre piece of Germany that is entirely surrounded by Belgium.  Enclaves are surprisingly common.  Sometimes there are even enclaves within enclaves.  Cyprus, for instance, contains the British Overseas Territories of Akrotiri and Dhekelia.  Dhekelia, in turn, contains Dhekelia Power Station.  Cyprus wishes to have control of its power stations – so Dhekelia Power Station has become a Cypriot enclave in British sovereign territory on the island of Cyprus.  Where there is a political will, political geography can find a way.

If there can be enclaves in Switzerland, Belgium and Cyprus, why cannot there be some in England?  If a power station that, geographically speaking, is in British territory can legally speaking be part of Cyprus why cannot a factory that geographically is in England, be legally part of Northern Ireland?  If the Backstop came into force and if a car manufacturer in England decided that frictionless trade was so critical to its business that it was prepared to follow EU rules in their entirety why should they not be able to do so within a Northern Irish enclave?

The logic is simple.  If the Backstop came into force, then the EU would be happy to have frictionless trade with Northern Ireland because Northern Ireland would follow the same rules as the rest of the EU.  That could also apply to Northern Irish enclaves in England, Scotland and Wales.

Legally speaking a Northern Irish enclave would be exactly the same as Northern Ireland itself under the Backstop – ie full EU rules would apply.  From to employee contracts to product standards and from state aid to VAT, the enclave would be governed by Northern Irish (and therefore EU) law.  It would be Northern Irish regulators (under the aegis of the EU) which would be responsible for monitoring the enclave’s compliance with the relevant rules and it would be the EU’s enforcement mechanisms (including the European Court of Justice) which would rule on disputes.  The EU could therefore be confident that any goods manufactured in the enclave would meet the EU’s standards.

In view of the confidence that the EU could have in enclave goods, they could be given special treatment at UK/EU borders.  All that would be required would be for the EU officials at the UK/EU border to know which vehicles were “enclave vehicles” which only contained “enclave goods”.  Such vehicles would be processed on a “customs union” (ie frictionless) basis.  All other deliveries would be subject to the lengthier border arrangements that will need to take place when the rest of the UK leaves the EU.

This option would only be available to businesses.  It would not be possible for Newbury or Northumberland to become a Northern Irish enclave; but if Nissan decided that it was the best option for its UK business, and if London and Belfast agreed, then Nissan could put its factories into a Northern Irish enclave and, therefore, keep them within the Single Market and Customs Union.  The enclaves would only include private property and would not have domestic residents so, while freedom of movement would theoretically apply, it would not be an issue in practice.  Nor would any business be forced into an enclave.  If a business wished only to serve their domestic market, or if their principal export markets were outside the EU, then Northern Irish enclaves might not be relevant to them.  Such enclaves could, however, be a useful option for many businesses.

Enclaves could work for cross-border services too.  If, under the Backstop, a bank in Belfast could be governed by Single Market rules and therefore enjoy passporting rights into the EU, why should not a bank in a Northern Irish enclave in London do the same?  As we have seen, enclaves can be very small indeed.  Subject to agreement between the bank, London and Belfast, it would be possible for some of the floors in a bank’s London office to be in a Northern Irish enclave while others were outside of it.  Different subsidiary companies would operate according to different rules on the different floors.  On the Northern Irish floors the relevant subsidiary company would be registered in Northern Ireland and would obey Northern Irish (and therefore EU) rules.  As such it could provide services to the EU on the same basis as it could today.  On the other floors the relevant subsidiary company would be registered in England and Wales and would obey English law.  The English company would not enjoy the same level of access to the EU but would be able to trade with the rest of Britain and the rest of the world under whatever arrangements we establish post-Brexit.

The enclave plan would give us the freedom to make our own laws (though new laws would not apply in Northern Ireland and its enclaves unless they were in accordance with EU law) and, as such, the freedom to set our own trade policy.  The UK (minus Northern Ireland and its enclaves) could pursue comprehensive free trade deals with other countries while Northern Ireland and its enclaves would enjoy free trade with the EU.  We would have the best of both worlds.

The Democratic Unionist Party rightly opposes any plan that would undermine the Union between Northern Ireland and the rest of the UK.  One of the advantages of the enclave plan, however, is that it would greatly strengthen this Union.  If Northern Ireland had enclaves across England, Scotland and Wales then Northern Ireland would have a physical presence in the mainland UK.  There would also be regular communication between Belfast and the enclaves.  The Northern Irish enclaves would also give Northern Ireland an even more important role in the maintenance of the UK’s prosperity.  Belfast, moreover, would become central to the relationship between the UK and the EU post-Brexit.  Anyone who wants Northern Ireland to have a bright future within the UK post-Brexit can give the enclave plan their full support.

That leaves us with the question of whether the EU would agree.  Nothing is certain but there is every reason to believe that they might.

1.     Firstly it solves the practical problems that their own manufacturers would otherwise face with regard to just in time supply chains.

2.     Secondly it allows them to maintain access to the City.

3.     Thirdly they will enjoy a financial benefit in that Northern Ireland and its enclaves would still pay a membership fee to the EU (though of course this would be less than current fee as Northern Ireland and its enclaves would still be much smaller than the UK).

4.     Fourthly they would maintain control over important parts of the British economy (and so reduce the risk of the UK becoming a fiercely independent competitor right on their doorstep).

Given this, the EU could claim some important negotiating victories: parts of the British economy would be “rule takers” and subject to EU control , we would still be paying a membership fee, some British legal disputes would still be resolved by the European Court of Justice etc.  They could also point to some downsides for Britain.  For instance they could claim that the enclave solution will impose additional costs of Britain (in terms of running two regulatory regimes) and that it would complicate the process of making trade deals with other countries.  Both of these last points are true but no version Brexit will come without costs and complexity and, in the enclave solution, these costs and complexity need not be excessive.

Importantly the enclave solution is in accordance with the EU’s “red lines”.  It is also in accordance with the principle that the EU itself suggested in the Backstop: ie that part of the UK can remain in the EU’s institutions while the rest of the UK leaves those institutions.  The EU is presumably happy with this precedent on the basis that the parts of a country that leave the EU’s institutions must become rule-takers and that this will make it an unattractive option for EU countries whose economies are more integrated with the rest of the Single Market and Customs Union.

Brexit offers huge opportunities for Britain but it also entails some practical problems.  Many of these practical problems may be found at the UK/EU border.  The enclave solution solves these problems in a way that gives Britain the best of both worlds while also giving negotiating victories to the EU.

The enclave solution would give Brexit the flexibility to meet the different needs of different parts of the British economy as well as the needs of our negotiating partners in Europe and around the world.  Enclaves are the answer.

(This article builds on a suggestion I made in an article for the Daily Telegraph on 2 August which may be found here)

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