I was pleased to attend the publication of Lord Lilley’s Fact – NOT Friction in London this week; an excellent, informative paper published jointly by the European Research Group and Global Britain explaining how there are widespread misconceptions about the costs and implications of not being in a customs union with the EU. I agree with him: these misconceptions have led the Government into the wrong negotiating strategy for Brexit.
In Rotterdam the week before last, I saw how transit documents procured in advance and lodged electronically allow veterinary goods from third countries all over the world outside the EU to move predictably and rapidly into the EU, and be cleared by their import declaration and any other checks necessary in commercial premises 40km behind the border.
The three essential documents to make this run are the export declaration; the transit document to get the goods through and behind the frontier; and the import declaration that can then clear the goods once inland.
Non-veterinary goods go deep into Europe under such documents and are cleared when the import declarations are made on arrival at customer warehouses or kept in bond for future clearance.
The cost of this whole customs process is around €25 per document or between 0.1 to 0.4 per cent of value for the average consignment value of €25k depending on whether a company gets a customs broker to procure some or all of the documents, (plus up to another 1 per cent for the veterinary inspections on veterinary goods, around a third of which could be subsidised by our government if it chose to do so, being the government vet fee).
The export declaration is fairly easy for companies to do themselves, but the transit document and import declarations take a bit more customs expertise. Specific border inspections for veterinary goods can take place in authorised commercial premises well away from the frontier itself, and from the perspective of their authorisation they just need access to adequate space and facilities, government vet availability, and reasonable off-site access to professional sample testing facilities.
These processes do not require the exporting country’s domestic regulations to be aligned with the EU. EU standards need to be met for imports in the same way that goods exported to the US need to meet US standards.
What they do require for borders to remain efficient is for the documents to be prepared in advance so that lorries do not need to be stopped before leaving because they can’t be guaranteed to get through the other side.
The costs involved were corroborated by a major Japanese car company operating in the UK which told us in our International Trade Committee a few weeks ago that they can run these documentary procedures in-house for about £30 per shipment of equivalent salary cost. Multinational firms such as these are already well used to the data and documentary requirements for sourcing components globally.
I also met roll-on roll-off ferry operators in Rotterdam who have Nissan’s UK operation as a major client, who are expanding capacity to meet demand for regular just-in-time shipments and are most focused on getting their customers, who are often the freight forwarders, geared up to ensure all arriving trailers have the right pre-cleared documents. They need them an hour in advance to be able to match up their port traffic management systems with the documents of the lorries they expect to arrive.
There is no reason why similar processes could not also be effected behind the border at Calais to keep the frontier flowing freely and shipments being cleared with predictable timing as in Rotterdam, and if the authorities there want to keep their business that is what they will end up doing.
We need to get our exporters and our exporting ports and service providers geared up to have their export and import declarations and the transit documents ready in the same way. That way just-in-time supply chains are not threatened.
Businesses need to be ready with processes for generating the data to lodge electronically. Dover, Folkestone and Calais need to adjust their port inventory management so as to reconcile their traffic bookings and manifests with the documents matching the shippers’ documents. At first this might have to be somewhat rudimentary because the authorities have left preparation so late, perhaps being done by hand and needing more advance notice; however more efficient modern systems could be introduced fairly quickly.
Investing in these logistics processes will be equally useful for trade, whether, as is my preferred option, we end up with a regular free trade agreement as offered by the EU in March (and the processes can be adapted to ensure no hard border in the island of Ireland too); whether we leave the EU at the end of next March without agreeing a Withdrawal Agreement; or whether we have an “orderly no deal” with side agreements in key areas like transport and licensing which can help the logistics industry, as the “no-deal” preparation the EU has set out suggests they want. The basic requirements for borders are the same, and are what businesses all around the world manage successfully with standard processes every day.
If we prepare in this way, we will be prepared, whether we are able to arrange zero tariff and zero quantitative restriction trade with the EU before or after the end of March next year.
It is worth considering the costs of these processes in the context of the rest of the transport supply chain. They are a very minor part of the cost of the overall shipping cost, which is often many hundreds of pounds for each of the inland transport legs, from premise to port, port to premise, and the ferry or rail crossing carrier cost.
At 0.3 to 1.4 per cent of average shipment value they are also only a tiny fraction of the 12 to 24 per cent non-tariff barrier costs that were assumed in the “Cross-Whitehall Briefing” leaked in February, which were the major factor in the Government’s negative economic forecasting of World Trade and FTA scenarios for our trade with the EU.
The Government has ill-advisedly been using these hugely over-negative estimates as the reason for its negotiating strategy of high regulatory alignment and “frictionless” trade with the EU, and this has landed it in its current mess. Ironically the outcome of that mess is the idea of the customs union “backstop”, which when you read the small print contains the more costly and completely antiquated requirement for physical paper forms inspected and stamped by customs officers, for every commercial shipment between the EU and Great Britain, and every shipment across the Irish Sea.
While there may be a few teething troubles with the above processes being implemented from the second quarter of next year, with the right application by authorities and businesses costs of such high scale shouldn’t eventuate, and in any event won’t persist for 15 years as Government assumes.
In particular the car industry should be able to adapt relatively easily, and rather than prejudice our independence by worrying about overestimated costs, we should focus on getting small- and medium-sized businesses ready, and improving general business conditions. Whatever the size of business, most just want certainty as to what they need to do, and that is of far more value right now than indefinite transition, more political argument and risk.
The perfectly normal customs processes I saw, available now, without new technology and under current EU law, should be the focus. Preparing them is a far better strategy than tilting at the windmills of a never-to-be practical “Facilitated Customs Arrangement”, suffering under the illusion that economic Armageddon is the alternative, and waking up to the reality of the EU being in control of our destiny.
The post The processes exist for life outside the EU’s Customs Union – we just need to prepare for them appeared first on BrexitCentral.
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