Parliament’s stark view for goods moving between Britain and Europe in the event of a no-deal Brexit

The UK Parliamentary ‘EU External Affairs’ Sub-Committee has published a report the practicalities and cost implications for dealing with customs under two Brexit scenarios: the Government's ‘Chequers’ proposal; and ‘no-deal’.

In summary, Chequers proposed a ‘Facilitated Customs Arrangement’ (FCA).  Under this scenario, UK importers would face additional administration costs of £700 million per year.  The FCA raises a number of significant questions that need to be resolved for it to be workable and acceptable to the EU.

A no-deal will bring considerably annual costs of 18 billion 'no deal' cost to UK traders.

Key findings from the Parliamentary Report: “Brexit – The Customs Challenge”

“The Government has not yet made clear how goods under the FCA could be reliably tracked and who would carry liability for keeping EU and UK-destined goods separate.  The UK's proposal to collect revenue on behalf of the EU makes agreement difficult as the EU’s chief Brexit negotiator has stressed that the EU will not delegate duty collection to a non-Member State.

The FCA's repayment mechanism is untested and will take several years to be developed and implemented.

Part of the implementation of the FCA relies on the establishment of new trusted trader schemes and maximising their take-up.  The Committee recommends simplifying the application process to facilitate access for small and medium-sized enterprises and newly established businesses.”

In the case of 'no-deal', trading with the EU under WTO rules would be disruptive and costly.  Up to 245,000 businesses currently trade exclusively with the EU and would have to gain expertise in complex customs procedures, which they do not presently have. They could choose to outsource part of the customs procedure - but at a cost.

Checks to the customs paperwork and time-consuming regulatory checks on some goods would cause delays at roll-on/roll-off ports and disrupt highly integrated supply chains.

The Government’s position is that in the event of 'no deal', customs checks of EU goods could be unilaterally suspended to keep goods moving – and this may be in breach of WTO rules.

Chair of the EU External Affairs Sub-Committee, Baroness Verma, said:  "The Government must, as a matter of urgency, provide answers to questions on the Facilitated Customs Arrangement, such as how goods would be tracked, how revenue would be collected and how the repayment mechanism would work.

"With only six months to go until Brexit the clock really is ticking on a mutually acceptable customs agreement.

"A 'no-deal' Brexit will cause disruption – mitigation options are limited and no technology currently exists, which would eliminate border checks completely. Even if the UK waived customs checks on goods arriving from the EU, the EU has said that it will not reciprocate."

Further detail from the Report

“The proposed FCA includes the operation of a dual tariff: for goods from non-EU countries, either the EU or the UK tariff would be charged, depending on their final destination.  If this cannot be firmly established, UK customs authorities would initially charge the higher tariff, but businesses would be able to claim back the difference on providing proof of the goods’ final destination.

We find the FCA proposal still raises a number of significant questions that need to be resolved, not only for it to be workable, but also acceptable to the EU.  With only six months before the UK’s scheduled exit from the EU, agreement on the principles underpinning any future customs arrangements has become a matter of urgency.

The Government has not yet made clear how goods could be reliably tracked and who would carry liability for keeping EU and UK-destined goods separate.  The EU might fear that the lack of a robust tracking mechanism could increase the risk of fraud.  The EU could also argue that the FCA gives the UK an unfair competitive advantage.  Most significantly, the UK’s proposal to collect revenue on behalf of the EU makes agreement particularly difficult, and Michel Barnier, Chief Negotiator of the European Commission on the UK’s exit from the EU, has stressed that the EU will not delegate duty collection to a non-Member State.  The Government therefore needs to provide greater clarity on the operation of the scheme and on how it intends to address the EU’s concerns.

The FCA’s repayment mechanism is untested and we understand it will take several years to be developed and implemented.  The operation of the repayment mechanism can be made easier by reducing the volume of businesses having to engage with it, through the expansion of trusted trader schemes.  We recommend simplifying the application process for the trusted trader schemes to facilitate access for small and medium-sized enterprises and urge the Government to seek mutual recognition of its scheme by the EU.  The Government’s estimate that 96% of UK goods trade would be able to pay the correct tariff up front has been challenged and we call on the Government to clarify how it arrived at this figure.

We find that, in the case of ‘no deal’, trading with the EU under World Trade Organisation (WTO) rules would be disruptive and costly.  Tariffs would apply, and although tariffs are generally low, some sectors, such as the agricultural and automotive sectors, would be disproportionately affected.  Businesses on both sides would have to meet additional administrative customs requirements, such as import and export customs declarations.  An estimated 145,000 VAT-registered UK businesses, and potentially a further 100,000 under the VAT threshold, currently trade exclusively with the EU.  They would either have to gain expertise in customs procedures or outsource part of the customs process to a customs broker or freight forwarder at a cost.

Roll-on/roll-off ports process the majority of trade in goods between the UK and the EU.  The introduction of new customs checks at the border under ‘no deal’ would cause delays at these ports, thus disrupting highly integrated supply chains.  The Port of Dover’s ability to handle its trade volume, for example, depends on vehicles flowing through the port without stopping for customs controls.  In the case of ‘no deal’, customs paperwork would need to be checked and some goods would be subject to additional time-consuming regulatory checks.  This would particularly affect manufacturing businesses that rely on components being able to cross and re-cross borders swiftly, and just-in-time supply chains, upon which food manufacturers and retailers depend for freshness and convenience.  As a consequence, the attractiveness of trading with UK businesses could decrease, and we urge the Government to set out its plans to protect existing supply chains.

The customs requirements that would be imposed in the event of ‘no deal’ would require some form of physical border infrastructure on all sides, which is of particular relevance to the Northern Ireland/Ireland border.  Any form of infrastructure would risk re-introducing a hard border, which could have severe consequences for UK-Irish relations.  Additional customs checks would also cause disruption at roll-on/roll-off ports dealing with UK-Irish trade and — given the UK’s position as a land bridge between Ireland and mainland Europe — could cause delays to the flow of goods between Ireland and the rest of the EU.

Options to mitigate the disruption caused by a ‘no deal’ Brexit are limited.  We welcome the Government’s intention to join the Common Transit Convention and the preparations made by HMRC to deal with additional customs declarations.  However, there are few other options available to the Government in the short term.  Technology does not yet provide a means for eliminating border checks, and WTO anti-discrimination rules mean that the UK could only decide to waive customs checks on goods arriving from the EU as part of a wider framework open to all countries.  The EU would also need to reciprocate for these measures to be effective, and it has indicated that it would not waive checks on UK goods.

We believe it is imperative that the UK and the EU continue to engage in a constructive dialogue and seek a mutually acceptable agreement, as the current lack of clarity about future customs arrangements and the possibility of a ‘no deal’ are having an adverse impact on UK businesses.”

The remainder of the 59-page Report gives detail and insight into present trading rules with EU and ‘third countries’ - and develops the impacts assessments under the 2 potential scenarios under discussion (September 2018) for Brexit.  They cover Rules of Origin; Customs Controls; Authorised Economic Operator status and look at the practical impacts on procedures, systems, costs and time.  There are 6 months until Brexit – and this report is a key document for organisations – large and small – as they prepare their contingency planning.


 
John ShuttleworthComment