Brexit – UK proposes “innovative and untested” customs system with EU

SUMMARY:

In a new paper, the government has laid out two options for it’s customs arrangement with the EU post-Brexit. One of which has never been tried before.

The UK government is finally beginning to shed some light on it’s proposals for a customs arrangement with the European Union post-Brexit, with the release of a paper out today that lays out it’s two preferred systems.

It has been confirmed by senior ministers that when the UK leaves the EU, it will also be leaving the customs union. This has caused concern amongst the business community, which has been asking for clarity, as it will inevitably increase friction and costs for those trading goods or services with the EU.

Both proposed systems will require new, sophisticated technology to streamline trade post-Brexit.

The first proposal is for a highly streamlined customs arrangement between the UK and the EU, with customs arrangements that are “as frictionless as possible”. The paper states:

This would aim to continue some existing arrangements we have with the EU, reduce or remove barriers to trade through new arrangements, and adopt technology-based solutions to make it easier for businesses to comply with customs procedures.

The government admits that this option would, however, result in increased administration and costs.

If this were to be pursued, to avoid delays at ports, the government would look at using the “bilateral implementation of a technology-based solution for roll-on, roll-off ports which could consist of pre-arrival notification of consignments on a port IT system, linked to customs declarations and vehicle registration numbers so that vehicles were not required to stop at the border”.

To reduce the time and costs of complying with customs administrative requirements, the government would also aim to speed up authorisation processes, through “increased automation
and better use of data”.

Another option

However, the alternative proposal is for a “new customs partnership” with the EU, which aims to align the two trading partners’ custom borders in a way that removes the need for a UK-EU customs border. It argues that one potential approach would be for the UK to mirror the EU’s requirements for imports from the rest of the world where the final destination is the EU.

This would mean that all goods entering the EU via the UK would have to have paid the correct EU duties, removing the need for the UK and the EU to introduce customs processes. The UK hopes that this will allow it to also pursue independent trade deals with other countries, something it can’t do whilst it is a member of the EU.

However, this ‘innovative and untested’ approach is complex. For example, the paper states:

There would need to be a robust enforcement mechanism that ensured goods which had not complied with the EU’s trade policy stayed in the UK. This could involve, for instance, a tracking mechanism, where imports to the UK were tracked until they reached an end user, or a repayment mechanism, where imports to the UK paid whichever was the higher of the UK’s or the EU’s tariff rates and traders claimed a refund for the difference between the two rates when the goods were sold to an end user in the country charging lower tariffs. Businesses in supply chains would need to be able to track goods or pass the ability to claim a repayment along their supply chain in order to benefit.

However, Guy Verhofstadt, the European Parliament’s negotiator, has already said on Twitter that the prospect of “invisible borders” is a “fantasy.

Secretary of State for Exiting the EU David Davis said:

The approaches we are setting out today will benefit both the EU and UK and avoid a cliff-edge for businesses and individuals on both sides.

The way we approach the movement of goods across our border will be a critical building block for our independent trade policy. An interim period would mean businesses only need to adjust once to the new regime and would allow for a smooth and orderly transition.

The UK is the EU’s biggest trading partner so it is in the interest of both sides that we reach an agreement on our future relationship. The UK starts from a strong position and we are confident we can deliver a result that is good for business here in the UK and across the EU.

Chancellor of the Exchequer, Philip Hammond said:

Our proposals are ambitious, and rightly so. They set out arrangements that would allow UK businesses to continue to trade with their European partners in the future, while expanding their markets beyond the EU.

And in the near term they will reassure people and companies that, the day after we leave the EU, they will still be able to go about their business without disruption as we make a smooth transition to our bright future outside the EU and deliver a Brexit that works for Britain.

The leading document crucially sets out that the UK will be guided by what delivers the greatest economic advantage to the UK, and by three key objectives: to ensure trade with the EU is frictionless as possible, to avoid any form of hard-border between Ireland and Northern Ireland and to establish an independent international trade policy.

To add even further complexity to the situation, the UK is currently implementing a new Customs Declaration Service (CDS), which will replace the existing HMRC customs system (CHIEF). It is expected to be delivered by January 2019, but was designed before the referendum last summer, and as a result, is being implemented without full consideration for what Brexit means for any future customs agreement.

The National Audit Office recently highlighted this, where it said:

One factor under negotiation is a new customs arrangement. Until UK/EU customs negotiations are complete, the programme is operating with some uncertainty, which increases the risk that management does not have a clear view on the amount of work still required. The UK’s negotiations with the EU could result in changes to customs processes in the UK and other EU member states. These negotiations could introduce changes to the new system requirements shortly before the planned implementation date.

The response

Commenting on the government paper, CEO of technology lobby group TechUK, Julian David, said:

A frictionless border with the EU is vital for the kind of just-in-time services that the UK tech sector delivers. For any industry with complex supply chains, the costly additional paperwork and long delays that will occur without a new custom system, would place an unnecessary burden on the business customers and ordinary consumers who use their products.

The publication of the Government’s paper is an important step to providing clarity on the UK’s future customs relationships but the devil will be in the detail. More work is clearly needed so as not to leave businesses in the dark as to how they will be expected to operate in the future.

Getting the customs processes themselves right will also be critical in ensuring any new UK/ EU system functions post Brexit. That will almost certainly involve creating new tech systems to cope with additional red tape, and ensuring that these systems can cooperate with those in other EU countries. This will take time, and so the sooner the Government can give concrete, technical directions on the customs system it wants, the quicker UK tech can get to work on the solution.

However, Joe Owen, senior researcher at think tank Institute for Government, had some words of warning about the new proposals on Twitter. Owen has been following the customs challenges closely and warns that any new customs arrangement will increase friction. He said:

My take

Time is not on the UK’s side and what the government is proposing has never been done before. Many will feel like the UK is simply trying to have it’s cake and eat it. Will the EU sway? Negotiations thus far suggest that that may not be the case, especially when the EU still hasn’t had an answer from the UK on securing citizens’ rights and the financial settlement – it’s two main priorities.

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