Brexit & EconomyPoliticsGovernment publishes post-Brexit customs arrangements policy paper

Government publishes post-Brexit customs arrangements policy paper

While EU and domestic responses have been derisive of the government’s perhaps wishful positions, industries have welcomed the arrangements outlined in the paper

The government has published a policy paper on post-Brexit customs arrangements, the first in a series of documents clarifying Whitehall’s Brexit positions.

The paper outlines two potential approaches for future customs arrangements that would ensure “the freest and most frictionless trade possible in goods between the UK and the EU”, and proposing transitional customs arrangements for an interim period following the UK’s official departure from the EU in March 2019.

The document reiterates the government’s position that leaving the EU will mean leaving the customs union, and confirms that the UK will take up their independent World Trade Organization (WTO) seat following the exit from the EU.

Secretary of State for Exiting the EU David Davis commented on the mutually beneficial nature of this relationship, as: “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 document elaborates that in 2016 UK imports and exports from the EU totalled £553bn, approximately 30% of UK GDP in 2016, and over 200,000 UK businesses trade with the EU.

Chancellor Philip Hammond put forth the UK’s three key objectives with future customs arrangements: “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.”

Potential future customs arrangements

The first customs model outlined in the paper builds upon existing arrangements between the UK and EU, and aims to achieve a “highly streamlined customs arrangement” between the two. This arrangement would see requirements being simplified and putting in place “new negotiated and potentially unilateral facilitations to reduce and remove barriers to trade”. This arrangement would also involve technology-based solutions to simplify compliance for businesses.

The second, more ambitious customs model is an “innovative and untested approach”. This “new customs partnership with the EU” would see the two trading as third parties and the UK aligning it’s approach to EU requirements, thus removing the need for a UK-EU customs border. One of the proposed ways to achieve this would be the UK “mirroring the EU’s requirements for imports from the rest of the world”.

Transitional arrangements

The document recognises that any final customs arrangement will ultimately depend on the outcome of EU-UK negotiations.

In order to avoid a “cliff-edge” scenario in which no agreement is reached on either side, the government paper suggests a transitional arrangement of a “model of close association with the EU Customs Union for a time-limited interim period”. This period would last roughly two years or less, and would certainly conclude before the next election in 2022, according to David Davis.

This arrangement would minimise disruption on both sides, as Davis added it would mean “businesses only need to adjust once to the new regime and would allow for a smooth and orderly transition”.

In this transitional arrangement, the UK would continue to negotiate new global trade deals, a caveat that has not been received positively by EU counterparts.

The paper looks beyond the EU to make ambitious new trade deals, referencing EU estimates that “90% of future global economic growth is expected to be generated outside Europe – a third of it in China alone”. The paper also promises “our trade agenda will support our foreign policy, security and development goals”, by supporting “developing countries to reduce poverty through trade”.

The EU response

The policy paper has been met with some derision from Europe and domestically. EU response has been tepid to say the least, and an EU spokesperson took the opportunity to reassert the Union’s upper hand: “We take note of the UK’s request for an implementing period and its preferences as regards the future relationship, but we will only address them once we have made sufficient progress on the terms of the orderly withdrawal.”

The EU reminded the UK not to jump the gun, as trade negotiations cannot commence until sufficient progress has been made on the Brexit divorce bill, citizen rights and the issue of North Ireland border. Michel Barnier, European Chief Negotiator for Brexit said:

Michel Barnier will report to EU leaders in October on whether the UK has made “sufficient progress” on these issues and whether the focus of discussions can shift to trade.

Guy Verhofstadt, the European parliament’s lead coordinator on Brexit, echoed this sentiment:

In a revelatory comment on the progress of negotiations, the EU spokesperson added: “We see the UK’s publication of a series of position papers as a positive step towards now really starting phase one of the negotiations.”

Bursting the UK’s bubble hoping for a “free and frictionless border”, the spokesperson added: “As Michel Barnier has said on several occasions, ‘frictionless trade’ is not possible outside the single market and customs union.”

Meanwhile, domestically, Keir Starmer MP, Labour’s Shadow Secretary of State for Exiting the European Union, said: “These are incoherent and inadequate proposals designed to gloss over deep and continuing divisions within the cabinet.”

“These fantastical and contradictory proposals provide no guidance for negotiators or certainty for businesses.”

Nicola Sturgeon was also scathing in her response:

While reaction from Europe has been cool, and domestic political response has been divided, this paper has been generally positively received by industries. The Confederation of British Industry (CBI) called the paper “encouraging”, with Josh Hardie, CBI Deputy Director-General, being particularly supportive of maintaining the customs union for the interim period, as “this clarity is vital for businesses making long-term investment decisions today.” Indeed, recent research revealed that less than a third of UK businesses have made formal Brexit plans. The Institute of Directors (IoD), meanwhile, called the paper a “hugely positive step”.

In the document, the government acknowledged that it will need to “legislate for a new customs regime to be in place by March 2019, and make changes to the VAT and excise regimes” regardless of negotiations outcomes, as following the UK’s departure from the EU it will be bereft of the rules governing customs, that are mostly in EU law. The paper thus promises a “Customs White Paper ahead of the Customs Bill in the autumn”, and also a white paper and bill tackling trade.

The EU is also working on a position paper on the customs union. The next negotiation round will start in the week of 28 August.

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