Johnson’s Brexit Plan: The Sticking Points for the U.K. and EU

(Bloomberg) -- U.K. Prime Minister Boris Johnson has finally published his plan to break the Brexit logjam. The Irish government has been quick to pour cold water over the various leaked versions of it so far. Here’s quick guide to what Dublin and the European Union might like about it -- and what the likely sticking points might be.

The Good News

The U.K. is proposing to create a single regulatory zone on the island of Ireland for all goods. Initially, the signs were that Northern Ireland might only keep the same rules as the EU for food and livestock. This wider scope of rule alignment is likely to be welcomed by Ireland and the EU.

In addition, Johnson’s letter to Jean-Claude Juncker says the proposals represent the “broad landing zone” for a deal. This suggests he might be ready to move further, possibly even closer to the original backstop that would keep Northern Ireland in the EU’s customs union.

The Bad News

The proposed single regulatory zone is dependent on the consent of Northern Ireland’s Assembly and Executive, which will have to back it before the end of the transition period, and every four years after that.

That sounds fine, but is potentially a problem for Ireland and the EU. Under the current rules, a third of the members in the region’s 90-strong power-sharing assembly can effectively block a measure they don’t like. The mechanism has been described as an open veto to be played like a joker at any time, according to one former assembly member. The concern in Dublin will be that the Democratic Unionist Party could block any rule alignment with the EU even before it starts.

Customs

Under the proposal, Northern Ireland would remain part of the U.K.’s custom zone and outside the EU’s customs area. That will mean checks somewhere on the island of Ireland, something Dublin is resisting. The plan says most of these can take place far away from the border, at traders’ premises, for example. Small traders could be exempted altogether, the British say. The EU will wonder how its single market will be protected in such a scenario and will worry that any added bureaucracy will harm the all-Ireland economy.

Sales Tax

One of the areas of contention in the proposal is what the U.K. plans to do about value-added tax on goods moving between Northern Ireland and the Irish Republic. At present, VAT is subject to EU rules.

In the blueprint, the U.K. says that VAT wouldn’t be paid at the border and wouldn’t be subject to checks there. The two sides should “cooperate to minimize evasion and ensure payment of the tax in the country where it is due.” It will be difficult for the EU to accept that level of trust. It may insist on tougher controls.

--With assistance from Ian Wishart.

To contact the reporter on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Edward Evans, Ben Sills

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