The last few weeks have seen the media focussing on the debate within the government about its preferred post-Brexit customs model. But the following developments are also worthy of note:
- Norway softens stance on UK membership of EEA: the Prime Minister of Norway, Erna Solberg, has publicly indicated that she would not necessarily oppose possible UK membership of the EEA. This appears to signal a change of attitude from Norway, which had been concerned about UK membership upsetting the balance of power between the 3 EEA-EFTA States (where Norway is by far the largest country). Instead, Ms Solberg emphasised that UK membership would increase the bargaining power of the EEA-EFTA States vis-à-vis the EU. Although the UK government has ruled out joining the EEA Agreement for the purposes of the UK's post-Brexit relationship with the EU, its lack of an overall majority means that Parliament may have the power to force consideration of other options. Indeed, the House of Lords recently passed amendments to the Withdrawal Bill making it a negotiating objective of the UK government to remain in the EEA after Brexit (albeit that this would require support in the Commons, which is not certain). For more information on the EEA Agreement, see our Q&A.
- Preparations for "no deal"? The Department for Transport has announced revised plans to deal with traffic problems arising from cross-Channel disruption (known as "Operation Stack"). There have been suggestions that this move represents part of the government's planning for a "no deal" Brexit – because although the announcement does not mention the UK leaving the EU as a potential risk, the new arrangements are expected to be in place for "early 2019." Our view is that the government will need to do significantly more than this in order to mitigate the potential adverse effects of a no deal Brexit on HGV traffic using the Channel ports (see our webinar "Is your supply chain Brexit-ready?"). Indeed, so far as we aware, few if any other government preparations for a "no deal" Brexit have been made public. As a result, businesses making contingency plans for a "no deal" Brexit may want to reduce their expectations of government readiness for such an outcome.
- The cost of leaving the Customs Union and the Single Market: in evidence to the Treasury Select Committee, the Head of HMRC has estimated that the total cost of the so-called "max fac" (maximum facilitation) customs proposal – which is one of the options being considered by the government – would be in the region of £17-20 billion per annum or about £350 million per week. We do not think this level of cost is surprising because there is currently no system for carrying out customs and other border checks on high volumes of traffic at Channel ports such as Dover; creating an efficient system will require substantial investment in infrastructure and new technology. Businesses which transport goods via the Channel ports/Channel Tunnel will also face increased administrative costs from border red tape, as explained in Q2 of our Q&A on Customs.
A tale of two backstops
Remaining with the topic of customs arrangements, it has been reported that if Ministers cannot agree a way forward, the Prime Minister will propose a "backstop" arrangement to the EU which will act as a "holding position" until agreement can be reached on a longer term solution. It appears that this backstop will consist of the UK remaining in a customs union with the EU and maintaining regulatory alignment with the EU in respect of goods (both of which would be necessary to preserve current levels of "frictionless trade").
The EU, however, is reported to have concerns that such an arrangement would amount to the UK "cherrypicking" only those aspects of the Single Market which it considered beneficial. For more discussion of these issues - including consideration of possible areas of compromise between the two sides - see our article "Is a customs union the answer?". The EU has also recently released a slide which highlights the key point made in that article, which was that a customs union on its own is very unlikely to be sufficient to preserve current levels of "frictionless trade" in goods.
Confusingly, this latest proposed "backstop" is different from the arrangements agreed in December 2017 which were designed to avoid a hard border in Northern Ireland. Those arrangements would require Northern Ireland to remain in full alignment with EU regulatory and customs rules and would effectively mean that there was a customs border in the Irish Sea, dividing the rest of the UK from Northern Ireland. Such an outcome is considered unacceptable by many UK politicians, hence the UK government's recent attempts to portray the December 2017 backstop as "temporary" and the move to promote an alternative, UK-wide backstop (as outlined above). The EU, however, is reported to be insisting that the UK government must abide by the commitments it made in December 2017 – and that unless other solutions are found before the end of the transition, the existing backstop will be applied.