Brexit: UK Position Papers on the Customs Union and the Irish Border

21 August 2017

Author: Stuart Anderson
Practice Area: EU and Competition
Sector: Brexit

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Last week the UK government finally released its position papers on the critical issues of the customs union and the Irish border following Brexit. The UK outlined that it would wish to maintain a “temporary customs union” after it leaves the EU in March 2019, and that this would be followed by either a “highly streamlined customs arrangement” or “a new customs partnership”. It further proposes having no border checks along the Irish land border or between Northern Ireland and Great Britain.

The novel proposals have been cautiously welcomed by some in the business community as they demonstrate an intention to avoid as much disruption to trade as possible. The EU’s positions on these issues remain unclear whilst the UK government acknowledges that their plans are both ambitious and untested. An Irish government representative has since commented that whilst it agreed with some proposals put forward in the papers, there is “work to do”, adding that the proposed options around the customs union were “totally unworkable”.

The key proposals include:

1. A temporary customs union: it is suggested that a temporary customs union based on a shared external tariff and without customs processes and duties could be put in place between the UK and the EU in the immediate aftermath of Brexit in March 2019. The paper does not give any indication as to how long it envisages this will last or whether it would be willing to pay a fee for the arrangement. A further series of questions remain over legal status of a temporary union. For instance, would the UK have to continue to implement new EU law during period? – and if it did, what role would the European Court of Justice would play in interpreting and applying EU law in the UK post 2019? These are key questions, particularly given the UK courts’ status as a jurisdiction of choice for international trade.

The desire appears to be to maintain the current arrangements insofar as possible to avoid a “cliff edge” for the UK economy, and to allow the UK to negotiate new trade deals and to prepare for the new settlement. The extent to which the EU member states would be prepared to accept a new interim customs arrangement, that amounts to little more than a slight deviation from the status quo, to facilitate the UK as endeavours to access new markets independently is questionable.

2. Following the interim period, two options are proposed (without a preference):

a. a highly streamlined border - this option accepts that the UK and the EU would be distinct third parties, but it would enter into simplified customs arrangements that are as “frictionless as possible”, principally through technology and/or “some existing arrangements” with international precedent. The proposal includes negotiating mutual recognition for authorised economic operators (according to HMRC estimates UK companies with AEO status account for 74% of exports), a waiver on entry and exit requirements and amongst other things, the UK would join the Common Transit Convention, a transit procedure used between the EU and ETFA states – meaning goods would not need to complete import/export declarations each time they cross a border. Obviously, the EU would have to agree to reciprocal arrangements which are likely to carry significant implementation and maintenance costs. Another issue is timing – it is unclear how long would be required for implementation but it is difficult to envisage a fully functioning and agreed streamlined system being operational within a 2 year transition period, as was suggested by the UK Minister for Exiting the EU, David Davis.

b. a new customs partnership with no border at all - a second option proposes the creation of a partnership where the UK and the EU "operate a regime for imports that aligns precisely with the EU's external customs border for goods that will be consumed in the EU market, even if they are part of a supply chain in the UK first". To achieve this the UK would need to apply the same tariffs as the EU and provide the same treatment for rules of origin. By mirroring the EU’s customs approach at its external border, it would remove the need for the UK and the EU to introduce customs processes between themselves. This would however require the UK government to collect duties for their EU counterparts – and vice versa. The UK would also need to include enforcement mechanisms to ensure goods do not enter the EU market that do not comply with its rules. Again, this option will requires EU buy-in for reciprocity and some have expressed concerns around the potential adequacy of any “enforcement mechanisms” that might be applied by the UK to prevent goods entering the EU without complying with their rules. Indeed, this could be a risk too great for the EU and the protection of its single market.

3. The Irish Border

The UK government has boldly suggested that the land border between Northern Ireland and Ireland, with its 300 crossings would continue without physical border posts. It has proposed that small to medium size businesses engaging in cross border trade within the island should be able to avail of an exemption from any new tariff regime. It is estimated that this accounts for up to 80% of businesses in Northern Ireland. It is suggested that businesses engaging in international trade (that would fall outside the exemption) could carry out customs administration online.

The Common Travel Area (CTA) would be maintained, however, without passport controls in place this would it seems allow people to cross into the UK illegally. The UK government have also voiced support for the Single Electricity Market (SEM) on the island of Ireland. This will be a welcome statement for the business communities north and south, concerned about the impact Brexit may have on energy costs. However, the SEM is currently subject to the jurisdiction of the European Court of Justice which the UK government have said will no longer apply.

Whilst free-flowing trade, the maintenance of the CTA and SEM are to be welcomed, much work is still to be done to determine how non-tariff barriers would be addressed. Notably, the UK government argues that to avoid disrupting the agri-food industry – a key sector in NI - the UK could adopt “regulatory equivalence”. However, declarations of equivalence can be revoked unilaterally and would require long term EU buy-in while the UK endeavours to develop a new trade policy in its own right.

Concluding Thoughts

Whilst many aspects of the position papers are to be welcomed, many questions still remain unanswered and indeed, many more have arisen as a result of the publications.

There is a real concern that in absence of a border, the burden will be placed on businesses to conduct in-work immigration checks and customs administration which will inevitably lead to an increase in costs.

We appreciate that as the negotiations remain in their infancy businesses are unsure as to how to best prepare for Brexit. From a legal perspective, we would advise that businesses at least begin by identifying key risk areas for their sector.

Carson McDowell is top ranked across more practice areas than any other law firm in Northern Ireland, with a dedicated Brexit team we are assisting a number of clients plan for the impact of Brexit. We will continue to monitor the negotiations as they progress and would be happy to assist as you prepare to navigate and protect your business throughout this process.

For further information please contact us on [email protected]

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