One of the most critical issues for business concerning Brexit will be the nature of the customs arrangements to be adopted between the UK and the EU. At worst, the absence of an agreement between the UK and the EU could result in heavy administrative burdens and significant delays and queues, quite apart from the tariff costs. Yet customs and trade are seen by the EU as a future relationship issue and not a withdrawal agreement issue, and so have not been addressed in the negotiations so far. The UK has issued a detailed Future Partnership Paper setting out proposals on Future Customs Arrangements. The issue is also addressed by the UK in its position paper on Ireland and Northern Ireland, because the customs arrangements between the UK and EU are highly relevant to the shared aim of a soft border between Ireland and Northern Ireland. The Irish – Northern Irish border will be an EU single market frontier, so the parties will not be able to resolve fully the withdrawal agreement issue of agreeing a soft border without at the same time addressing the future relationship issue of trade and customs across the border.
The UK emphasised in its paper that in assessing the options for when the UK is outside the EU Customs Union, the government will be guided by three strategic objectives: ensuring UK-EU trade is as frictionless as possible; avoiding a hard border between Ireland and Northern Ireland; and establishing an independent international trade policy.
It then set out two alternative approaches:
The first approach, a streamlined customs arrangement, would involve negotiating waivers from requirements to submit entry and exit summary declarations for goods moving between the UK and the EU, combined with membership of the Common Transit Convention (CTC). The CTC simplifies border crossing for goods in transit, which means that import and export declarations are not required each time they cross a new border, and would allow goods moving between the UK and rest of the world (and vice versa) to circulate through the EU without being subject to EU duties. The second approach would involve negotiating mutual recognition of authorised economic operators, enabling faster border clearance, and bilateral implementation of technology-based solutions for roll-on, roll-off ports, including pre-arrival electronic notification of consignments, linked to customs declarations and vehicle registration numbers. Further, the UK would look to negotiate customs co-operation, mutual assistance and data sharing so as to replicate existing levels of co-operation between the UK and EU member states.
The second approach, a new customs partnership with the EU, would involve a tracking mechanism in respect of individual consignments, whereby imports to the UK would be tracked until they reach an end user, or a repayment mechanism, where imports to the UK would be subjected to whichever is the higher of the UK's or the EU's tariff rates and traders would claim a refund for the difference between the two rates when the goods are 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 the supply chain in order to benefit. The overall intention is that the need for new customs processes between the UK and the EU would be avoided, so that goods moving between the UK and the EU would be treated as they are at present for customs purposes.
The UK has underlined these proposals by a further proposal for an interim period in which there would be a continued close association between the UK and the EU Customs Union. This would be for a time-limited period and the length of the period would be based on the time needed to implement the new arrangements.
The UK's position paper on Ireland and Northern Ireland recognises the crucial importance for the peace process in Northern Ireland of avoiding a return to a hard border and of therefore aiming to avoid any physical border infrastructure. The paper also emphasises the deeply integrated nature of trade both between Northern Ireland and Great Britain and across the land border between Ireland and Northern Ireland. The paper emphasised the following:
The paper restated the essential features of the UK government's Future Customs Arrangements proposals paper. It also emphasised that imposing new customs barriers between Northern Ireland and Great Britain, i.e., within the UK, would not be accepted by the UK government because of its wider constitution implications. The paper further stressed the importance of an interim period for close association between the UK and the EU Customs Union, stating that this proposal is highly relevant to the border between Ireland and Northern Ireland and that the interim period needs to be agreed at an early stage.
The EU has not publicly responded to the UK proposals. The parties appear to be closely aligned on the overall approach of avoiding a hard border between Ireland and Northern Ireland. The European Council's negotiating guidelines set out the objective of maintaining existing bilateral agreements and arrangements between the UK and Ireland, including the Common Travel Area and the avoidance of a hard border. However, the EU team does not appear to be have responded on the customs implications of this objective, apparently because it has not accepted that the negotiations of the withdrawal agreement have progressed sufficiently to allow relationship agreement discussions to commence. The EU published a paper on 20 September 2017, Guiding Principles for the Dialogue on Ireland/Northern Ireland, in preparation for the fourth round of negotiations, but this did not address the customs aspects of the border.
The EU also published a position paper, in preparation for the fourth round of negotiations, on Customs related matters needed for an orderly withdrawal of the UK from the Union. This paper addresses only the customs-related treatment of goods in transit or undergoing customs procedures before or on the withdrawal date. This applies to EU goods being shipped between the UK and the EU27, non-EU goods loaded for introduction to the UK or EU27 and EU goods which are being exported. The paper essentially proposes that where EU Customs Union processes have already commenced in relation to such goods on the withdrawal date, such processes should continue to apply.
The UK is ahead of the EU in its publicly-stated proposals on customs matters. The objective of maintaining a soft border between Ireland and Northern Ireland for customs purposes is one of the most difficult issues in the negotiations. Because of the interface with future relationship agreement issues, in particular as regards customs arrangements on the border, it is likely to be one of the last issues to be resolved in the withdrawal agreement negotiations. Finalisation of the content of the withdrawal agreement in this respect will, it seems, have to await negotiation of the new UK-EU customs arrangements as part of the relationship agreement discussion. This seems to be an inevitable consequence of the border being an EU single market frontier and the need to reconcile this with the shared objective of maintaining an open border without physical infrastructure. It does also seem that for a defined period following Brexit, a transitional period will be needed in respect of the Ireland-Northern Ireland border between the current Customs Union arrangement and the implementation of the eventual new customs arrangements.
This article is part of our Brexit series