One of the primary post-Brexit concerns to the technology industry in the UK, according to industry lobby group techUK, is the challenges that will come with exiting the EU Customs Union – given the highly integrated nature of supply chains across the European market.
About half of all digital sector goods exports, and one-third of services exports, are with EU countries.
According to a new techUK report out this week, technology companies have significant concerns about red tape and delays that could result from the UK’s departure from the Customs Union. In particular, with regard to increased delays for goods in transit; new contractual obligations on tech companies; and increased risk of unexpected interruptions in supply chains and distribution channels.
All of this would mean added costs for imports and exports and would potentially make UK firms less internationally competitive. The report states:
techUK members broadly agree that the introduction of tariffs, even in other sectors, would impact UK trade overall and consumer prices would likely increase. It must be a priority for the UK Government to maintain zero or near zero tariffs with the EU as part of a trade deal. In addition, any move to a new customs agreement with the EU should seek to ensure as little disruption to businesses as possible. This includes giving all business, and particularly smaller exporters, time to adapt. Membership of the Customs Union should therefore form part of any transitional agreement.
techUK has called on the government to commit, as a minimum, to remain in the Customs Union as part of any transitional agreement to the new trading relationship with the EU, and to publicly commit to maintaining the same tariffs as the EU.
Interestingly, the report also argues that given the EU will continue to be a dominant market for UK exports, it believes that the UK government should aim for associate or observer status at discussions in the rules and regulations governing the EU Customs Union. Whether the EU will see the need for that, is anyones guess.
Antony Walker, Deputy CEO at techUK, said:
Customs arrangements matter for the UK tech industry and for the ambition of Global Britain. No one voted for Brexit so that UK businesses could be tied up in more red tape. Leaving the Customs Union presents the Government with an opportunity to rethink how the UK can create a world-leading Customs regime, which harnesses the latest developments in digital technologies. But that can’t be achieved overnight. There will be a need for transitional arrangements.
The UK’s digital sectors have thrived as a result of our international relationships and connected complex supply chains, but companies need concrete reassurances on what the future customs regime looks like outside of the EU.
Now is the time to work together to understand what industries need and create a new world-leading custom regime that will underpin a prosperous forward looking Digital Global Britain.
For further information on the regulatory barriers facing digital tread, read diginomica’s brexit coverage here.
Frictionless trade in digital goods
Whilst there are anxieties amongst techUK members about leaving the EU Customs Union, the report released this week also highlights the “unprecedented opportunity for market stimulation” in creating a world-leading new customs platform.
The government has already hinted that this may be an objective. In its Brexit white paper, out earlier this year, it said:
We will also look to ensure that the UK’s own customs systems and processes continue to be as effective as possible. We have an open mind on how we implement new customs arrangements with the EU and we will work with businesses and infrastructure providers to ensure those processes are as frictionless as possible, including through the use of digital technologies.
Customs delays and checks could mean lost sales by slowing the flow of goods, and where supply chains are heavily dependent on ‘just in time’ logistics management (where supply is kept to the bare minimum to meet real time demand), this could reduce productivity and competitiveness.
It is clear that unless an alternative agreement is reached, leaving the Customs Union will mean that all imports and exports to the EU will require customs declarations and separate security checks.
The techUK report states that this will be a “huge and unprecedented challenge for HMRC and the Border Force” as it has to scale up the new customs system’s maximum capacity to 350 million declarations a year, against approximately 50 million filings handled now.
The system for processing transactions – Customs Handling of Import and Export Freight (CHIEF) – is currently being replaced by a new Customs Declaration Service (CDS), alongside a new digital licensing system (LITE), which is part of an initiative called One Government at the Border.
However, it’s becoming clear that a new customs system will likely be needed to deal with the additional capacity. The report states:
There are industry concerns that the overall performance of the UK system will fall if substantial capacity and improvements are not implemented to deal with increased volumes. While the value will likely double, the number of transactions will likely increase by a larger ratio due to the number of low-value transactions currently within European supply chains.
Indeed, this was recently the subject of scrutiny by Treasury Select Committee chair Andrew Tyrie MP who said “The CDS is needed in order to handle a possible five-fold increase in declarations that could occur when the UK leaves the EU. The consequences of this project failing, or even being delayed, could be serious. Much trade could be lost.”
Given that the current system faces the challenge of mediating potential new capacity challenges and responding to any new trading relationship with the EU, in a compressed timescale, techUK has said that “now is the time” to take stock of how new technologies can help provide continuity and drive efficiencies of the current UK customs system. The report states:
In short, the UK can and must use the opportunity of exiting the European Union to create a new world-leading model for a data-driven responsive customs system. techUK encourages the Government to undertake an immediate review, in close dialogue with the full diversity of the UK tech sector, to investigate how new digital technologies, such as blockchain and machine learning, can play a role in delivering a data-driven and frictionless customs system.
The review could explore lessons learnt from the Open Banking APIs, exploring where Open Exports data could help SMEs and larger businesses manage their international logistics and suppliers in more real-time and innovative ways. Similarly, HMRC may wish to look at new UX opportunities across its 200 online services, opportunities for efficiencies arising from the data sharing components of the Digital Economy Bill, and increased open data APIs.
Government should consider how best to include the full diversity of the UK tech sector in the delivery of a new UK customs system. Leaving the Customs Union represents an opportunity to, in addition to implementing new technologies, also act as a market stimulus to the UK’s thriving govtech market.
The report is worth reading in full. Exiting the EU Customs Union – as with everything else Brexit related – is incredibly complex. And there are an extraordinary amount of considerations to take into account. However, what is clear is that the tech industry in the UK wants to maintain a low-tariff, low-regulatory environment that is enabled by a customs system that sees frictionless transactions cross-border. Whether or not that can be achieved, remains to be seen.
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