How Brexit May End Up Creating Accidental Borders in Europe

(Bloomberg) -- About 150 times a day, Lakeland Dairies' trucks zoom across the Irish border. However good a trade deal the U.K. strikes with the European Union, Brexit risks slowing them down.

Headquartered just miles from Northern Ireland, the company's fleet zip freely back and forth across the 310 mile (500 kilometers) frontier, picking up milk at 2,200 family farms before the firm transforms it into butter, cream and frozen yogurt.

Board member Peter Quinn wonders whether the seamless operation will survive Brexit, even as the EU and the U.K. seek to avoid a return to checkpoints after Britain leaves the bloc.

“Bureaucrats being bureaucrats, we could still finish up with a hard border,” said Quinn, 74.

Read more: Why Ireland's Border Is Brexit's Intractable Puzzle: QuickTake

For the U.K. government, the answer is simple, with International Trade Secretary Liam Fox saying last week that the issue is best dealt by a “comprehensive and liberal” trade agreement with the EU. Indeed, the U.K. believes such a deal can pave the way for frictionless trade with the bloc as a whole after Brexit. Experts disagree.

‘‘A deep and comprehensive free-trade agreement is insufficient, ” Katy Hayward and David Phinnemore, academics at Queen's University Belfast, wrote last month. “Border controls would be needed to check regulatory compliance.”

Brexit Frontline

Lakeland may be at the front line. The company processes 1.2 billion liters of milk a year - 600 million from the north, 600 million from the south, converting it into about 240 different products for export all over the world.

“If every one of those lorries was delayed by four minutes that's hours” lost, said Quinn. “When you are trying to get something into a processing plant losing hours a day is not great. Our transport costs would increase.”

According to Hayward and Phinnemore, even the U.K. staying in the customs union, as the opposition Labour Party has suggested, wouldn't necessarily solve the border issue. Agricultural goods aren't automatically covered by a customs union and checks would have to be carried out to ensure good met regulatory standards, they said.

While the U.K. has suggested that technology can minimize disruption through a so-called smart border, surveillance and inspections points would still be needed, the researchers said.

Against that backdrop, companies are taking make measures to protect themselves. Just before the Brexit referendum, Lakeland bought a milk operation north of the border, allowing them process their Northern Irish milk there in the event of a hard Brexit and Quinn maintains the company shouldn't suffer financially.

Boris Opines

For U.K. Prime Minister Theresa May, though, problems remain.

Given that neither a free trade agreement or technology fully fix the border problem, she may need to give Northern Ireland special status within the EU or keep rules across the U.K. in tune with those of the EU to avoid a border. Trouble is, neither of those is palatable to her backers, such as Boris Johnson.

Johnson has suggested that London's congestion charge system offers lessons for solving the border issues.

Those comments “only solidified widespread opinion that Theresa May's Cabinet is seriously underestimating the vexatious ‘Irish question' to a degree that continues to imperil the entire Brexit process,” Davy, Irish largest securities firm, said in a note last week.

To contact the reporter on this story: Rodney Edwards in London at redwards102@bloomberg.net.

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Dara Doyle, Emma Ross-Thomas

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