Customs and Excise.
Alternatives to Customs Frontier.

The President,²
1. In accordance with your directions I have prepared the following memorandum on the alternative arrangements that might be made for the determination of Free State Customs and Excise Revenue if it were decided to suspend temporarily the setting up of a Customs Frontier between the Free State and Northern Ireland. It is assumed that the object would be to postpone the Frontier temporarily and to make temporary arrangements to tide over the interval from 1st April. In those circumstances there are, I think, but three feasible alternatives, viz:-

(a) All-Ireland Collection of Revenue.

2. System described. Under this arrangement all-Ireland would be treated as a fiscal unit. A complete Customs ring would be set up round Ireland: Customs duties would be payable on all dutiable goods imported into Ireland from all countries (including Great Britain) and Customs and Excise drawbacks would be payable on exported drawback goods to all destinations (including Great Britain). The official machinery for such a system exists in skeleton and for its completion would only require the strengthening of the Staffs at the Customs ports. The Revenue as collected in Ireland would be the true all-Ireland Revenue and its distribution between the Free State and Northern Ireland would fall to be made on some presumptive basis (e.g. population), to be agreed upon between the Governments concerned.

3. Free State position. The objections to this system from the Free State point of view are that it connotes a uniform tariff and a uniform basis of collection and assessment of Customs and Excise duties for the whole of Great Britain and Ireland - (this could only be avoided by the grant of fiscal autonomy to Northern Ireland and the acceptance by them of an agreed tariff - a contingency which need not be considered). This implies the adoption by the Free State Parliament of the British Tariff in its entirety and of any modifications that may be made in it as a consequence of the new British budget. The system has the advantage that it does not violate the principle of Irish unity and that it is free from the criticism, to which the Frontier system is open, that it recognises and tends to stereotype the present boundary between the Free State and Northern Ireland.

4. British position. Looked at from the British point of view the primary objection to this system would probably be that[,] despite uniformity of tariff, it involves the treatment of Northern Ireland by Great Britain as a foreign country for Customs purposes, and vice versa. This might well prove an insuperable difficulty in itself as it would evoke intense opposition in the North of Ireland and would also be unpopular amongst the British trading community doing business with Northern Ireland. There would, however, be the further difficulty that the arrangement would require legislation in the British Parliament and it is extremely unlikely that the present British Government would, even if it could, ask Parliament for the necessary powers. Apart from the possibility that the scheme might yield a little more Revenue to the North (and this is entirely problematical) it has no compensating advantages either to Northern Ireland or Great Britain.

(b) Collect Revenue for Great Britain and Ireland as a unit but attribute to Free State on a Statistical basis.

5. System explained. This is really an extension of the existing arrangement described at paragraph 8 below. In addition to the collection of statistics of the movements of dutiable goods between the Free State and Great Britain as at present, statistics of the movements of dutiable goods between the Free State and Northern Ireland would also be collected. The complete statistics thus collected would give the total quantities of dutiable goods retained for consumption in the Free State. The quantities so ascertained would form the basis for the determination of Free State Revenue. This arrangement would necessitate the employment of a small number of Customs officers along the frontier to collect the statistical returns but it would not involve any machinery for the bringing to account of or the collection of duties on dutiable goods passing to and fro. The transit of free goods would be perfectly unrestricted as now and the arrangement would not involve any appreciable interference with the trade and traffic between the Free State and the North.

6. Free State position. This system has, from the Free State point of view, all the disadvantages of system (a) above, with very few of its compensating advantages. It would involve the temporary surrender of fiscal autonomy without achieving even the semblance of fiscal unity. Whilst it could not be described as stereotyping the present boundary between the Free State and the North, the presence of Customs officers along the boundary to collect statistics might be construed as an official recognition of its existence. It has the advantage over the existing arrangement that it would provide a firmer basis for the determination of Free State Revenue and would eliminate the speculative division of Revenue between the Free State and Northern Ireland which is inherent in the present system.

7. British position. The only objection that I can see from the British point of view is that this arrangement would probably require legislation and that the time available is very short, but the British legal advisers are really the only competent people to judge. It would probably involve a small additional cost for increased staff as compared with the present system but, on the other hand, it would mean a very great saving in staff as compared with a 'Customs frontier' regime.

(c) Continue present arrangement.

8. Present arrangement. The arrangement in force at present is to collect statistics of trade in dutiable goods between Great Britain and Ireland. These statistics coupled with the particulars of Customs and Excise Revenue actually collected in Ireland (as a whole) furnish a basis for the determination of true all Ireland Customs and Excise Revenue. The all-Ireland Revenue thus determined is divided between the Free State and Northern Ireland on a presumptive basis.

9. Free State position. This system is equally open with systems (a) and (b) to the objection that it involves a temporary surrender of fiscal autonomy. In theory it is open to the further objection that all the statistical returns now go to London and that the accounts are prepared there. On the other hand these accounts are available for any detailed scrutiny or examination that the Ministry of Finance may wish to impose and it has the merit that it saves duplication of work and staff and the expense which this involves. If it were desired to continue the system there would moreover be no physical difficulty in arranging that duplicate returns should be supplied to the Free State and a duplicate account prepared here.

10. British position. I cannot see any objection, from the British point of view, to a continuance of the system. On the contrary it would save them considerable expense in the way of staff and considerable trouble in the way of administration. It has also, from their point of view, the merit that it would not require further legislation as it is already provided for in their 'Irish Free State Constitution Act' of last year.

General

11. Schemes compared. Of the three schemes there is no question but that scheme (a) would be the most desirable from our point of view. For the reasons stated in paragraph 4 it seems probable that neither the British Government (nor the Northern Government whom they would no doubt consult) would be prepared to accept this scheme, and for that reason I am afraid that it must be regarded as outside the sphere of practical politics. As between schemes (b) and (c) there is not, from our point of view, a great deal to choose, but the balance of favour undoubtedly rests with scheme (b). On the other hand scheme (b) would probably require legislation in the British Parliament whereas scheme (c) would not, and it may therefore be assumed that as between the two schemes they would press for (c). Either (sic) of the three schemes would require legislation in the Oireachtas.

12. Questions for decision. The fundamental objection to the Customs Frontier, from our point of view, is that it may be regarded as stereotyping the present boundary line between the Free State and Northern Ireland and might, to that extent, prejudice our position before the Boundary Commission. The fundamental objection to the alternatives discussed above is that they all imply acceptance by the Free State not only of the existing British tariff and its administrative system, but also of any modifications that may be made by the British Parliament so long as the arrangement continues. If there were any probability that the Boundary Commission were likely to sit and complete its deliberations in the early future there would be a very strong case for postponing the frontier. If there is not, it may be difficult to justify postponement, with its consequences, to the Oireachtas. We are now in the middle of February with only six weeks left in which to prepare the necessary machinery for the arrangements to operate from 1st April. Whatever these arrangements are to be they will involve considerable negotiation and discussion and it is therefore essential that the position should be cleared up without delay. The points for decision are:-

I. Is the establishment of a Customs Frontier as from 1st April to be postponed or not?

II. If the decision is in the affirmative, which of the schemes discussed above is to be introduced as a temporary substitute for the frontier?