Fact: In 2016, goods worth GBP 382 Billion were traded between the U.K. and EU with minimal or no customs checks.

Fact: Preparing for Day 1 of a new customs model will mean coordinated change across 30+ government departments and public bodies, and 100+ local authority organizations

Fact: Over 180,000 traders in the U.K., most of whom are small and medium businesses, are looking at expenses of around GBP 4 Billion a year to start making customs declarations, apart from physical inspection costs of over GBP 600 per container.

Fact: The port of Dover alone handles 17 percent of the U.K.’s entire trade by value, with over 2.5 million heavy goods vehicles passing through every year. Despite having grown 150 percent in trade since the start of the single market, the area for processing traffic has remained the same and there is no built-in capacity for customs’ checks.

These are just some of the facts and figures that the U.K. government is staring at as it tries to devise a customs model for trade in goods and services post Brexit. Currently part of the EU Customs Union, British exports and imports enjoy tariff- and friction-free movement across the single market. Introducing checks for goods at its various ports and borders means major infrastructure changes, provisions for new document checks and fiscal requirements, apart from addressing the politically sensitive issue of an Irish border.

To avoid a hard border between North Ireland and The Republic of Ireland, the U.K. faces an impossible choice: either allow a customs border along the Irish sea (effectively allowing North Ireland to remain within the EU single market) or accept the application of the EU Union Customs Code (UCC) to the entire U.K., which would be against the tenets of the Brexit referendum.

The Models at Play

A deeply divided U.K. cabinet at home, and EU member states vigilant against too many concessions on the other side, are intensifying the uncertainty around the customs model that will finally be accepted. WNS DecisionPointTM presents a detailed analysis of all potential models that are being discussed. Here are the key highlights of the report:

  • The U.K. is in favor of exiting the current EU Customs Union because of the limitations on member states to pursue Free Trade Agreements (FTAs) with non-member countries, and the resulting Rules of Origin checks applicable

  • The proposal of a Temporary Customs Arrangement by the U.K. government will allow the application of the EU’s Common External Tariff (CET) and UCC along the U.K.’s external border to avoid a hard Irish border. The proposal also seeks to retain the U.K.’s right to sign FTAs with other non-member countries

  • The Max Fac Customs Union is a technology-driven proposal for roll-on and roll-off ports, with the assurance that goods moving between the U.K. and the rest of the world can travel through the EU without paying EU duties. There is widespread skepticism that the technology for this can be ready by 2021

  • The New Customs Partnership proposed in the government’s Brexit whitepaper involves the U.K. aligning its customs regime precisely with that of the EU, and charging the same tariffs. Importantly, it would involve the U.K. collecting tariffs on behalf of the EU at the point of entry. The EU rejected this partnership on July 26, 2018 as it does not wish to delegate collection of tariffs to a non-member

  • The Separate Customs Union will allow the EU to set external tariffs for the U.K. in return for allowing movement of all industrial and some processed agricultural goods without Rules of Origin checks. The U.K. has rejected this model since it will make exports more difficult and not allow an independent trade policy post Brexit

The uncertainties around the trade model are dampening investor confidence. Businesses are holding up investments as they have no idea how to prepare for post-Brexit trade. Our next blog will address the downstream implications of this for the British economy, which is already showing the effects with growing inflation, trade deficits and slowing productivity.

Click here for the Brexit series from WNS DecisionPointTM

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