Tensions persist, but planning must proceed

Jun 01, 2018
While the pace of Brexit negotiations has quickened, the stakes remain high – particularly when it comes to the border.

Political issues continue to dominate the debate about Brexit. In March, the European Commission published the draft legal text of a withdrawal agreement, which included  provision for a transition period and a “backstop” solution to prevent a hard border on the island of Ireland. In the event that no other solution to the border question is found, this would avoid a ‘cliff edge’ Brexit by creating a “common regulatory space” where goods could flow back and forth without border checks. However, Prime Minister Theresa May has said that the backstop undermines the UK common market and threatens the constitutional integrity of the UK. The UK is still of the view that the border should be solvable through a trade deal and/or technical solutions.

At the time of writing, the main insight the UK government has provided into what these technical solutions might involve appeared in an August 2017 paper, which set out two approaches for the future customs relationship with the EU. The first option would use technology-based solutions to streamline and simplify customs requirements; the second would involve the UK, at its external border, applying EU external tariffs and origin rules for imported goods with their final destination in an EU member state, to ensure that the importer has paid the correct EU duties. For goods staying in the UK, companies would seek refunds where the UK’s import tariffs are lower. The paper describes the latter option as an “innovative and untested approach” which would “take time to develop and implement”.

More recently, a House of Commons Select Committee on Northern Ireland Affairs looked at how technology might be used to avoid a hard border. Among the technologies considered was Automatic Number Plate Recognition (ANPR). Among other sources, the paper cites an Irish Revenue Commissioners (2016) draft paper which said: “An e-flow-style number plate recognition system would allow vehicles carrying goods to move from the Republic to the North and vice versa without having to stop in cases where a pre-departure/arrival declaration has been lodged and green-routed. In theory, upon arriving at the frontier, a vehicle could be identified by the ANPR system, associated with a particular pre-declared consignment and signalled as to whether clearance had been provided or engagement with customs was required.” 

The Select Committee stated that use of cameras would require electronic pre-notification of the movement of commercial vehicles across the border. This is currently required for exports outside the EU. ANPR cameras cannot ascertain if the contents of a vehicle match the electronic customs declaration form, so customs officials would still be required to monitor compliance.

In the course of its work, the Select Committee took evidence on the operation of other external EU customs borders. Cameras are used at customs borders in Norway, Switzerland and Gibraltar to help prevent smuggling and monitor the movement of vehicles.

Norway is part of the Single Market, but outside the Customs Union. The Norway-Sweden border is over 1,600km in length, there are 57 crossings and 11 customs offices. The Committee was told that everyone declaring goods “has to stop at the border” and must “cross the border where there is a customs office”.

One witness to the Committee highlighted the limitations of digital technology in practical terms: “The point that was made on the Sweden-Norway border, where they have a fully electronic system and people are sharing information, was: ‘Why are you still stopping people and x–raying trucks? They have told you what they have in their customs declaration’. They say, ‘How do we know they are telling the truth?’”

Switzerland is also outside the Customs Union and has signed 30 free trade agreements with partners outside the EU. It has over 100 bilateral agreements with the EU, which cover many aspects of Single Market rules. Commercial goods entering Switzerland must use designated crossings and complete customs clearance at offices on the border. In Basel, 750 officials at eight customs offices deal with 50% of all Swiss commercial goods traffic. Closer to home, the UK government recently advertised over 550 border force roles. Controversially, candidates must hold British passports if they wish to apply for Border Force jobs based in Belfast. People in Northern Ireland who only hold Irish passports cannot apply for these roles.

Meanwhile, the possibility of the UK remaining in the Customs Union has not entirely disappeared off the radar despite Prime Minister May’s repeated statements that the UK will leave both the Customs Union and the Single Market. In April, the House of Lords backed an amendment to the EU Withdrawal Bill that would force the government to explain what they have done to ensure that Britain can remain in a Customs Union after it leaves the EU.

Understandably, political discussions continue to hog the spotlight; however, business leaders are all too aware that Brexit is not just a matter for national authorities. Business planning cannot wait for political certainty and there are important legal repercussions to consider, not least – as mentioned in my earlier Accountancy Ireland article – for Chartered Accountants providing statutory audit services and finance teams in companies subject to audit requirements. These individuals and firms will need to bear in mind that, subject to any transitional arrangement which may be contained in the withdrawal agreement, as of the withdrawal date, the EU rules in the field of statutory audit (in particular, the Statutory Audit Directive) will no longer apply to the UK when it becomes a ‘third country’. Elsewhere, Chartered Accountants can play a valuable role highlighting potential solutions that could work in specific sectors.

For businesses moving goods between jurisdictions and concerned about the potential delays that may result from customs requirements at borders, a practical option worth considering is to apply for Authorised Economic Operator (AEO) status. This internationally recognised quality mark indicates that your role in the international supply chain is secure and that your customs controls and procedures are efficient and compliant. A benefit of having AEO status is that it gives you quicker access to certain simplified customs procedures and, in some cases, the right to fast-track your shipments through some customs and safety and security procedures. Mutual recognition agreements with other customs jurisdictions mean that companies authorised in one customs jurisdiction can be recognised as an AEO in a second customs jurisdiction. The EU has mutual recognition agreements with Norway, Switzerland, Japan, Andorra, the US and China.

The EU summit in October is the target set by Michel Barnier to reach agreement on the Withdrawal Treaty. Before that, another significant milestone looms at the end of June when EU leaders will decide if enough progress has been made for a ‘political declaration’, which would set the framework for trade negotiations with the UK.
While political tensions persist, there is a danger that progress made to date could still unravel, given that “nothing is agreed until everything is agreed”. European Council President, Donald Tusk, recently warned that without a solution to the border issue, “there will be no withdrawal agreement and no transition”.

As this edition of Accountancy Ireland goes to press, there is talk that Prime Minister Theresa May could seek to align the entirety of the UK with the EU for a period of time pending the development of other solutions. It is as yet unclear whether she can win enough support to allow her to take this proposal to the EU. Unless a ratified withdrawal agreement establishes another date, all EU primary and secondary law will cease to apply to the United Kingdom from 30 March 2019. With less than a year remaining to that date, the pace of negotiations has quickened and stakes remain high.

Michael Farrell is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

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