Originally posted on Business Post 24 January 2021.
Ever since January 1, various business groupings and representative associations both here and abroad have been queueing up to make complaints to their respective governments over the handling of the Brexit deal. Unfortunately, some of them are barking up the wrong tree.
Disruption and curtailment to business opportunity and profitability have been a daily part of many working lives since the de-facto British membership of the EU customs union and single market ended on December 31. The haulage associations were in early, followed in quick succession by retail, financial and fishing interests looking for concessions or adjustments to the Trade and Cooperation agreement between Britain and the EU.
Most recently, the arts industries in Britain have been complaining about the constraints on their rights to perform beyond the English Channel.
The Trade and Cooperation agreement deals only with goods, not services. British qualifications and standards, particularly the equivalence required by financial services, are not automatically recognised any more within the EU.
The Brexit referendum result was partly viewed as an expression of a desire to curtail immigration, and you cannot have cross-border services without allowing people to move. If anything, the EU line on services is hardening as evidenced by the European Commission’s strategy for the European economic and financial system launched last week.
The problems for cross-border trade in goods do not derive from what the Trade and Cooperation agreement contains but, rather, from what is missing from the agreement, such as the removal of customs paperwork. Customs compliance is proving to be more challenging than many businesses, even those who had geared up for it, had expected.
Agri-food imports and exports are worst affected, because agricultural projects and foodstuffs require additional sanitary checks as well as customs inspection. The sanitary checking and customs checking systems are not integrated, thereby duplicating the virtual paperwork and increasing the scope for error.
Things will be much worse in the coming months because trade volumes were artificially depressed by pre-December 31 stockpiling, and also because Britain is not implementing the full rigours of its customs regime until next June. These problems cannot be lobbied away.
Contributing to the chaos of the customs declarations are the so-called rules of origin. The Trade and Cooperation agreement does not comprehensively deal with goods assembled in Britain with a certain level of foreign components, nor does it deal with situations where Britain is merely a distribution hub for goods. Such goods are not automatically exempt from customs duties. The rules of origin effectively rule out Britain as an efficient distribution hub for supplies originating from within the EU and destined for markets in other EU countries.
Short of Britain rejoining the EU customs union, no amount of lobbying is going to sort out this problem either. From the Brussels point of view, why should a British distributor be allowed to take a margin on EU produce going to EU markets? This is especially bad news for Ireland, because we are the island beyond the island beyond the English Channel. Irish trade is as much a victim of geography as it is a victim of trade rules.
The Vat position is somewhat better. Like customs, Vat gets charged at borders if one of the countries involved is not a member of the single market. Both the British and Irish authorities have finessed their Vat rules – at, incidentally, a considerable cashflow cost to the Irish exchequer – so that Vat obligations don’t disrupt cross-border trade between businesses. Cross border trade direct to the consumer is another matter entirely. Because different Vat collection rules apply, some smaller EU traders may find that British customers are not worth the bother.
The EU’s stated intention during the Brexit negotiations was to secure the single market and hence the interests of EU traders relative to the position of British traders. In this it has succeeded, but the success is not clear-cut. It was a failure of negotiation to allow the deal to be concluded on Christmas Eve, one week before it was to take effect and thus adding to the Brexit damage. That failure also sidelined the European Parliament in the treaty approval process. This lack of regard for a European democratic institution may well come back to haunt Ursula von der Leyen’s European Commission.
Yet there is little to be gained now by looking for changes to the law, or by seeking to apportion political blame, or by trying to have the treaty overturned. Brexit did not apply new trading rules with Britain. It simply removed the decades-long exemptions from normal trading rules between countries.
We are all having to change the way we trade with Britain, whether by learning and applying the customs rules, or by developing new supply chains and trading routes to get around the rules in the first place. The customs authorities also have to up their game. While not insurmountable, these are not mere teething problems as Tánaiste Leo Varadkar has claimed.
The sooner we all make these changes, the better. Trade with Britain is not going to get any easier.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland
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