10 October 2017

The new Brexit white papers are being interpreted by some as showing the Government is ready for no deal. But Joe Owen argues that they just underline how far from ready we are.

Yesterday’s Customs White Paper is the first of the Government’s Brexit publications to touch on the ‘no deal’ scenario in any real detail. It confirmed that, in the absence of a deal, trade that currently moves uninhibited between the UK and the EU would suddenly face significant friction - tariffs, customs checks, and import/export licensing.

No deal, or ‘the contingency option’ as the Treasury is calling it, is the most extreme change in the shortest period of time.

Preparing to crash out of the European Union (EU) on day one requires thousands of new staff, infrastructure and technology and changes to over 30 government departments and public bodies. And that is just to prepare the border.

On top of that there will be a need for new public bodies and regulatory agencies, such as a new Trade Remedies body announced yesterday in the Trade White Paper, and the replication of over 40 Free Trade Agreements that we are currently signatories of through our membership of the EU.

The civil service drew up plans for no deal months ago

Two pages of the Treasury White Paper may be the most we’ve seen publicly on ‘the contingency option’, but behind closed doors in Whitehall these plans have existed for months.

In the spring of this year, we were told that every department had drawn up two Brexit plans – one for ‘a negotiated outcome’ and one for ‘no deal’. They mapped out a route to March 2019 that would ensure the UK was ready for every eventuality.

We heard that departments were asked to, wherever possible, avoid relying on new technology since large ICT programmes and hard deadlines often prove incompatible.

Customs is one of those cases where ‘day one’ delivery is dependent on ICT. Customs Declarations Service is the new system being implemented at the moment as part of the Union Customs Code - the current EU customs rulebook - which started in 2013 and it is not due to be in place until January 2019. Just months before it will be needed in a no deal scenario.

Missing decision points?

With less than three years from referendum to exit, these no deal plans were already squeezed into heroic timelines. Many of them included decision points that appear to have come and gone.

Take border agents. It takes about a year to train even the more generalist members of staff, and in a no deal scenario the numbers required could be in the thousands. If the Government is going to recruit, hire and train a new cadre of Brexit border agents it needs to at least have started the process by now.

The Customs White Paper talked about using ‘inland clearance’ – moving customs checks away from the ports where possible, to limit the demand placed on the physical border – which is something the Institute for Government recommended in our recent report on Customs. But that requires specialist facilities to be built and staffed.

To date there has been nothing to suggest that any infrastructure is being built in the South East to give the Eurotunnel and Dover the inland facilities they will require in the case of no deal.

Past changes to the border suggest that there is not enough time to properly prepare for no deal

Major changes at the border take time and government is just one of many players in the process. There are port operators, customs handlers and freight forwarders, all of whom need to prepare for no deal and all of whom will not want to spend money until they are sure it is necessary.

The Union Customs Code was agreed in 2013, introduced in 2016 and government and business had until 2020 until they needed to be compliant.

In the past, and for relatively straightforward changes, businesses were given 18 months to adapt once the UK government had finished work on a change. They now have less than that to prepare for a no deal scenario.

Even if the UK is ready for no deal, to avoid disruption we need the EU to be ready too

Our recent paper on customs also highlighted the fact that customs is a canyon not a cliff edge.

Even if the UK’s border is ready for Brexit, ports could turn to gridlock if the there are issues in Calais, Rotterdam or other European ports. The famous queues of lorries along the M20 in Kent in 2015 were a result of problems in Calais, not Dover.

Then there is the question of the Irish border. There are reports that Ireland’s Office of the Revenue Commissioners (ORC) see some form of hard border inevitable, even with an imaginative negotiated solution. The Customs White Paper offers very little on potential solutions in the case of no deal.

Preparing for no deal might offer the UK Government some negotiating capital, but it has consequences

There seems to be broad support for the Government’s increased focus on no deal preparations. For the more risk averse, it’s seen as vital to have contingency plans in place. For others, who are keen to call the EU’s bluff, unless you are able to walk away from the negotiating table, you’re going to get a bad deal.

The reality is that seriously preparing for no deal requires money to be spent, and quickly. The cliff edge is fast approaching – new systems, public bodies, staff and infrastructure will be required in a range of areas.

And the impact of no deal could be felt long before March 2019. For many businesses, their ‘contingency option’ kicks in by the end of 2017. City firms have already said that jobs will start moving to the continent if there is no movement on transition by January 2018.

So while the Government must prepare to walk away with nothing in March 2019, there will be high hopes for an early transition. 

Comments

Developing your canyon analogy, as much if not more has to be spent by continental authorities to prepare their services for Brexit - and there is no sign that any preparations are in hand. In terms of UK exports, the greater burden on exporters occurs on entry to the destination country, in this case presenting goods at the EU's external border for clearance . Leaving the country, by contrast, is relatively less burdensome.

Then there is the huge "elephant in the room" of official controls relating to animals and foods of animal origin, with parallel regimes for foods not of animal origin. On the continent, there is a massive shortfall in physical infrastructure, with the absence of Border Inspection Posts (BIPs) and Designated Points of Entry.

Further, if the UK is to keep its current RoW checks in place, to avoid falling foul of WTO non-discriminating rules, it will have to implement a parallel regime, de novo, to inspect goods from EU Member States. There is no possibility that existing capacity can suffice, yet it is already too late to provide the additional facilities in time for Brexit - much less the additional specialist staff. This is not helped by the fact that the provision of port health services in the UK is a local authority function, outside the direct control of central government.

This "invisible arm" of government has been much neglected in the current debate, yet the shortfall will most likely have as great an effect on border friction as deficiencies in the customs service.

How does threatening a No Deal solution increase our bargaining power if it is evident that we cannot remotely deliver it? We need a transition period and we will have to face up to the fact it will cost us. But has anyone done a costing of the chaos that would follow from leaving abruptly without the necessary systems in place?

Why is this negotiation always be characterised as the EU trying to force us into a "bad" deal for us? What is the EU "demanding" from us? I can't see anything, except a fair conclusion (ie one that can be represented as such to the people of Europe/the UK). All the aggressive demanding seems to be coming from our side. If we could just get out of the trench-warfare win/lose mentality and start to talk to the EU constructively, we might stand some slim chance of this being less than a train crash. As it stands, though, with the government unable even to set out what it thinks might constitute a fair deal, I can't see how this can end in anything but tears.

Joe - I think its about time you got out of the office and witnessed what happens in the "real world" of integrated Supply Chain Management and individual express time definite and deferred goods customs clearance.

The major EU integrators DHL, UPS & Fedex (nee TNT) have all developed sort and applicable customs clearance software and procedures which simultaneously can meet all applicable Customs regulations irrespective of whether the imports are from another EU member state or the RoW and/or rely solely on WTO terms. Thus goods from the USA or Asia are ultimately sorted and despatched via their EU Hubs (DHL + East Midlands Airport & Leipzig; UPS East Midlands & Cologne; Fedex Paris CDG & Liege) to the final Country sub-hub and ultimate courier station or Supply Chain warehouse destination on board the same form of transportation. The same is equally true for UK/EU exports to RoW.

The secret of their success is in a word "pre-clearance" and in DHL's case having been in the cross border transportation business since 1969 - long before either UPS or Fedex ever stepped outside of their USA domestic market. Thus even before the goods leave their point of origin the said items duty and clearance is known and processed. Yes the Freight Transport Association Members may well have to play catch up

If they can make it work irrespective point of origin and trade agreement with the EU surely the Civil Service & HMRC should be working in even closer co-operation to inherit a "can do culture" in the event of a "No Deal Brexit" All too often the UK Civil Service are the only one within the EU to play strictly by the rules (think Cross Rail train contracts) whereas certainly the Germans, French Spanish & Italians will seek to promote their home industries and for imports place difficulties in the way of RoW goods irrespective of such delays and refusals not being legally permitted within EU said rules. Instead the aforementioned customs clearance procedures bow to looking after the best interests of their home producers. The recently published IfG "Frictionless Trade" report is typically Civil Service speak not seeking to provide or create alternative solutions other than those already know and to state that Jaguar has only 2 hours of some components totally ignores those with its Supply Chain Manager - DHL.

The UK has always been at its most creative when it stood alone - thank god for the likes of Messrs Dyson and Bamford who clearly still believe in the UK rather than those who would pay lip service to Brexit.

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
By submitting this form, you accept the Mollom privacy policy.