Brexit Bites, 16 October 2017

Oct 16, 2017

With the talks in Brussels now in deadlock over the financial bill, the much anticipated trade talks look to be delayed until at least December. In other developments, Revenue has released a report showing the trade and tax links between Ireland and the UK, while the UK publishes trade and customs papers outlining the contingencies should talks fail.

Brexit talks hit a hard wall

Following the end of the fifth round of negotiations, the EU’s chief negotiator Michel Barnier has said that not enough progress has been made to move to the next stage of trade talks because there is “deadlock” over the financial bill.

Mr Barnier used a post talks press conference to say that given the UK did not clarify its commitments on the thorny issue of the divorce settlement, no meaningful negotiation could take place.  As a result, the EU’s chief negotiator is unable to propose to the European Council that discussions should begin on the future EU/UK trading relationship next week as originally planned.  It would seem that the concern expressed by the European Parliament last week about the state of the Brexit negotiations was well founded.

In addition to the divorce bill, the EU was also seeking advancements in the first phase of talks on citizens’ rights and Ireland.  On citizens’ rights Mr Barnier said that there remained differences of opinion on reuniting families and exporting social benefits post Brexit. On Ireland, some progress was reported on the Common Travel Area, but there is more work to do “in in order to build a full picture of the challenges to North-South cooperation resulting from the UK, and therefore Northern Ireland, leaving the EU legal framework.”

It’s reported that Ms May will be in Brussels today to talk with Michel Barnier and head of the European Commission Jean-Claude Juncker in a bid to break the deadlock amid rumours that her party will block her leaving the EU without a deal. EU leaders will meet this week at the European summit in what was originally planned to be the start of the trade talks. The UK has been anxious to move on to trade talks for weeks now. However it did agree the negotiations timetable in June and despite the UK arguing that negotiations on the future trade arrangements are vital to settling the financial bill, the EU’s position has not changed. The UK needs to clarify its intentions in respect of paying the divorce bill before any future trading relationship can be discussed.

It’s hoped that this can be done by December. Because at the moment the UK will leave the EU in March 2019, giving them little over a year to agree a future relationship with its biggest trading partner. 

Revenue analysis of the Ireland/UK links

Revenue has published a paper “Ireland and UK - Tax and Customs link” which examines the customs implications of trade flows between Ireland and the UK and the tax contributions of Irish based businesses that have links to the UK.   

The analysis looks at trade flows by road, sea and air and concludes that, as expected, there are widespread linkages between the Irish and UK economies.  While ties to Northern Ireland are found to be more limited, they are more concentrated in the agri-food sector.  The report says that while Brexit will not eliminate these trade flows and the Exchequer will still benefit, there will be a change or a decrease in the trade patterns.  

The report looks at the tax paid by businesses in border counties and finds that PAYE and VAT make up the largest contributions, with the biggest employers operating in the agri-food, retail and construction sectors. 

The report notes that multinational companies are critical to the Irish exchequer and that 25 “foreign owned affiliates” employ over 306,000 people in Ireland. 27 percent of these are UK owned.  On the other side Irish owned foreign affiliates employ over 300,000 globally and 28 percent of these are in the UK.

The report says that “Given the globalised nature of these businesses, their potential exposure to changes following Brexit could have implications for the Irish tax receipts.”

In terms of trade, 86 percent of excisable products such as alcohol, tobacco and oils come into Ireland from the UK under the EU duty suspended regime. This is significant.

This report follows a leaked report last week which was written by Revenue and explored the significant costs of Brexit for Ireland as well as examining ideas on an all-island trade policy for agri-food.  According to Revenue the report was prepared in September 2016 (before Article 50 was triggered) and was an “early technical consideration of possible administrative implications post Brexit.”  We covered this story in last week’s Brexit Bites and you can read more on our website.

UK begins contingency planning

The UK government has published Trade and Customs white papers outlining contingency plans on how it would cope with trade and customs arrangements should the Brexit talks fail to reach a trade deal. Given the talks are now in deadlock and the clock is ticking, the possibility of a cliff edge or hard Brexit might just be on the rise again.  

In terms of customs, the UK has put forward three objectives in creating a new customs agreement; first and foremost is ensuring that trade between the UK and EU is as frictionless as possible. Secondly the UK wants to avoid a hard border between Northern Ireland and Ireland and lastly the UK wants to establish an independent international trade policy.

Regardless of whether a deal is reached, the UK will present a customs bill to parliament later this year which will set out how customs should be charged and collected. This is seen as critical as the UK needs to have some form of customs legislation in place on Brexit day, 29 March 2019 to facilitate trade.

Delving into the detail, in the event that customs checks are required at the border, the UK are preparing for EU goods to have to pass through roll-on roll-off ports in the UK post Brexit. The paper says that legislation would be passed to ensure that consignments could be pre-notified to HMRC and that checks would be done to ensure that businesses are complaint with customs obligations.  To avoid holding vehicles at ports for lengthy periods, traders would need to show goods to HMRC but that this would be done “as inland as possible” because of the space constraints at the majority of UK ports.

For trade between Northern Ireland and Ireland, the paper suggests a cross-border trade exemption for small traders given that in 2015 over 80 percent of trade was carried out by small traders. This exemption would allow small businesses to continue to move goods across the land border with no new customer requirements.  Simplified customs procedures such as reduced declarations and periodic payments of customs duties are being examined for other frequent “trusted traders”.

The trade white paper sets out the principles of future UK trade policy which includes how the UK will operate under World Trade Organisation rules, how the UK will boost trade in a transparent and inclusive manner with other countries and mentions supporting poverty reduction in developing countries. Much of the detail illustrates how the UK intends to put trade frameworks in place should talks fail but frustratingly for businesses, the paper does not and cannot address the burning question for traders on the make-up of the future trading relationship with the EU.

Brexit Shorts

  • 300 changes reportedly demanded to the UK Brexit Bill on EU Withdrawal
  • Given the deadlock, reports are emerging that the EU is preparing for post Brexit trade without discussing the matter with the UK
  • UK Chancellor reportedly calls for response from the EU on the UK’s transitional deal offer
  • Theresa May refuses to say how she would vote if there was a second EU exit referendum
  • A surge in Britons seeking citizenship in another EU country is reported

Read all of our Brexit updates on the dedicated Brexit section of our website.