Trade and customs white papers: the unanswered questionsFriday, 20 July 2018
Thursday, 12 October 2017
The UK government has published two new White Papers dealing with post-Brexit trade and customs respectively. Whilst they contain some new material, they are perhaps more remarkable for what they don't say than what they do.
The trade white paper confirms that after Brexit, the UK aims to take back control of trade policy from the EU, including trade defence measures (and will legislate to do so). The recent imposition of tariffs on aircraft manufacturer Bombardier is an example of trade defence measures taken by the US government against what it perceives to be unfair subsidies under WTO rules – and one that highlights how controversial they can be. The UK proposes to set up a new independent body to investigate such matters – but it is likely to be extremely challenging to have a new regulator in place by March 2019 (in case of a "no deal" Brexit). Meanwhile, the paper has relatively little to say on the following issues, which will be key to minimising the disruptive impact of Brexit on trade:
- Existing free trade agreements: The paper acknowledges that the UK currently benefits from a significant number of trade agreements with third countries which have been negotiated by the EU – but it does not explain how the UK can retain the benefits of these agreements after Brexit. In our view, this is likely to depend on those third countries being prepared to agree to continue with existing arrangements – but since they originally negotiated them with the EU, which represents a far larger market than the UK on its own, some may well demand more advantageous terms. Even if the UK secures a transitional agreement where it has formally left the EU but most of the current EU-UK trading arrangements remain the same for a period, it is far from clear that this would secure the continuation of agreements with third countries, potentially leading to trade with those countries falling back onto WTO terms.
- WTO tariff quotas: Nor does the paper give any insight into how the government proposes that EU-wide WTO tariff quotas (which are particularly relevant for agricultural produce) should be dealt with on Brexit. A letter from the WTO Ambassadors of 7 countries – including the US, Canada, Brazil and New Zealand – suggests that they are unhappy about joint EU/UK proposals to simply apportion the existing quotas between them, which could have adverse implications for the UK's ability to rely on WTO rules in the event of a "no deal" Brexit.
The customs white paper does not add much to DEXEU's previous proposals on this issue, which we commented on here. However, it does explicitly discuss the possibility of a "no deal" scenario, which would involve the re-introduction of customs controls at the end of March 2019, leaving both government and business very little time to prepare. The focus of the paper is on legislating to allow the government to levy customs duties in its own right (rather than on behalf of the EU as at present) - but legislation on its own will not be enough. For example:
- Essential practical measures: HMRC will need additional staff and computer systems to process an expected 300% increase in customs notifications and physical infrastructure at or near major ports such as Dover will have to be modified to allow for significantly more inspections to be carried out, particularly in relation to products such as foodstuffs. It is very difficult to see how all these practical measures can realistically be put in place by March 2019.
- Third countries: Nor is the problem necessarily confined to trade with the EU. The paper does not explain how, after Brexit, the UK will secure the continuation of important customs cooperation arrangements which the EU has negotiated with third countries such as the US and China, which are designed specifically to ease the passage of goods through customs.
Theresa May has insisted that the "ball is in the EU's court" and appears to be signalling that if there is no movement from the EU side, the UK will start preparing for a "no deal" Brexit in the New Year. However, it is hard to draw much comfort from either of these papers as regards the likely readiness of the UK for a "no deal" Brexit in March 2019. With no assurances as yet from the EU about the availability of transitional arrangements, our advice remains that clients should continue to hope for the best, but prepare for the worst (see our Brexit contingency planning checklist).
By way of example, if you are worried about the impact of sudden introduction of customs controls in a "no deal" Brexit scenario, bear in mind that not all ports are likely to be equally affected; the highest risk of disruption is at ports such as Dover with a high proportion of EU-UK roll-on roll-off HGV traffic. It follows that some risks could be mitigated by looking at other routes for getting key products into the country (e.g short sea shipping) and/or turning to suppliers who rely on imports from outside the EU (which typically come into different ports, where the relevant customs infrastructure is well established and it is more likely to be "business as usual" in the event of a "no deal" Brexit).
The fifth round of Brexit talks concluded this week with no sign of a breakthrough. A European Council meeting is due to take place on 19-20 October to decide whether "sufficient progress" has been made for talks to move onto matters such as trade.
For more background on the issues discussed above, see our Brexit Q&As on WTO rules, the UK's future trade relationship with the EU and Customs.