Brexit Briefing No.1

As an MEP I regularly get asked about how the brexit process is going and what is happening in the negotiations. As it is such a fast moving process, with a huge amount needing to be agreed in a relatively short period of time, I will be writing a weekly briefing for the next 18 months to try to keep everyone up to date with the state of negotiations and what it will mean in a variety of areas. 

These weekly pieces are not intended to push a position on one side or another, I hope they will be informative and provide a narrative to the process from someone who is, at least partly, inside the Brussels machine and will get to vote on the final agreement. Before that vote much still needs to be arranged with regards to the withdrawal process and the future relationship between the EU and UK ahead of our exit at the end of March 2019. 

This week is a holiday in Brussels, so not much is formally happening on the Brexit negotiations front, however the UK government is in the process of making a much more detailed proposal of its desired position ahead of the negotiations, publishing the first of 12 position papers on various aspects of the negotiations. 

The first of these papers is in customs and the future customs relations between the EU & UK. The customs union is the most challenging part of withdrawal, because without a transition deal, one that allows the UK to modernise its customs facilities to deal with the many more declarations that will be needed outside the EU, UK ports, airports, international rail stations and motorways surrounding these ports of entry will become clogged up almost immediately and become an unpleasant experience for anyone tying to travel. Businesses will face extra costs from form filling, delays in customs clearances and the imposition of import vat on all imports. In addition, leaving the customs union will bring everyone under customs controls when they enter the UK, meaning people will need to know what is the limit on goods they can bring into the UK from abroad and which goods are not allowed at all, such as meat products and often fruit. That is something that many people don't currently think about when they travel to and from Europe and some will, unintentionally, fall foul of these new rules. 

Without some agreement on customs the issue of the border in Northern Ireland is unlikely to be resolved. 

The option floated of not leaving the customs union is also unpalatable because it means the UK would not be able to do trade deals with any other countries, we would remain under the EU trade rules that the EU negotiates with other countries. Worse than that, we would have to allow goods into the UK tariff free from countries that the EU has a trade deal with, such as Canada or South Korea, but as the UK would not be part of the EU, our exporters wouldn't benefit from the agreement when they export, meaning they would face tariffs when exporting. That is simply the worst trading option possible and one which Turkey, a non EU member of the customs union finds itself in. 

So finding a solution on the customs union between these two undesirable outcomes will be a priority in the negotiations.

This week the UK government published proposals on the future customs relationship with two possible scenarios. (https://www.gov.uk/government/publications/future-customs-arrangements-a-future-partnership-paper)

The first centred on a customs border being managed by a mix of technology and smart borders which would provide minimal checks at the borders, but which would nevertheless be a customs border. 

This has been suggested before by the UK government and its fair to say this approach has received a lukewarm response from the EU side, particularly from the Irish government which is not convinced a customs border can be managed in this way. However there are some precedents in other parts of the world, the Norwegian/Swedish border for example. 

The second proposal is more intriguing and can be best described as a customs union with a customs union. I have heard this talked about for some time and it is a tantalising possibility. Effectively the UK and EU would do a customs agreement which brings the two into a sort of wider customs area but both sides would keep the ability to do their own trade deals. This would in some ways be a "have your cake and eat it" solution for the UK as it would keep the benefits of the customs union and be able to do trade deals. It is not that different from the relationship Switzerland has with the EU. 

However this approach is fraught with difficulties. Firstly it would elevate the status of the UK in the customs area to being equivalent to the EU. So whereas previously the UK was one of 28 members, it would now be at the same level and have equal say in the relationship as the EU itself. This is good for the UK but not so good for the EU. So to succeed, this will take some serious negotiation from the British negotiators. 

Secondly if trade rules diverge, for example if the UK does a trade deal with the US which removes tariffs on cars while the EU remains without a deal with the US, there would be a temptation for US importers to import cars to the UK and then into the EU from the UK, avoiding the EU tariffs. To avoid this situation strong "rules of origin" requirements need to be agreed so that trade agreements are not undermined. This will increase paperwork for all exporters but will be vitally important to the success of any customs partnership. 

The third problem will be related to product standards regulations in the UK and EU. For example, if the UK changes regulatory standards on a particular product away from the European norm, checks will need to be made on that product when it is exported into the EU to ensure that it meets European rules. This will be a growing problem over time as UK rules will undoubtedly diverge over time as we make different decisions over how to regulate different products.

So the UK position papers on customs are interesting, and are much more forward thinking than anything that has so far come from the EU side, however all ways forward on customs are problematic. The key to a successful future customs relationship lies in three areas - a customs facilitation agreement to allow the smooth movement of goods through ports, rules of origin to ensure the original provenance of goods, and a framework mutual recognition of regulatory standards bodies, to ensure that future changes to legislation don't mean that products get banned on different sides of the new customs borders.