Brexit: A brief history and the customs implications

BrexitThis document is designed to give an overview of the Brexit situation to date, from the perspective of a trade specialist.  It will be refreshed as new updates come in.  Any fortune-telling is my own.

Last updated: 18 May 2018

A brief history and the political landscape of Brexit

How the Brexit referendum came about

May 2015 saw a general election in the UK.  Within the Conservative manifesto was a pledge to hold a referendum on UK independence, but this was far from the main issue concerning the electorate.  The polls were tight and the exit polls predicted a hung parliament, but we woke to news of a surprise result – a Conservative government with a small majority, and a Brexit referendum to go with it.

Brexit soon became the topic on most people’s lips – in the UK at least.  There was level of political engagement that had not been seen in recent history in the UK, and lots of amusing campaign materials from both sides of the argument.

The referendum took place in June 2016 and brought with it another surprise – against most poll predictions, the UK had voted to leave the European Union.  Following the result, David Cameron announced that he would step down as prime minister, saying there was a need for “fresh leadership”.

UK Brexit referendum resultFollowing a Conservative leadership contest Theresa May became the UK’s second ever female prime minister.  She quickly assembled her new cabinet and started preparations for Brexit, putting several ‘leave’ campaigners in prominent roles – Boris Johnson became the Foreign Secretary, David Davies became ‘Brexit’ Secretary, (Secretary of State for Exiting The European Union), and Liam Fox took on the Department for International Trade.  During her campaign for leadership, May had said she would stick to a fixed-term parliament and wait until 2020 for another general election.

Our notice to leave

In February 2017, the government published a policy document to clarify its Brexit plans.  This set out the government’s 12 ‘principles’ including migration control and “taking control of our own laws”.

The prime minister sent a letter to President Tusk of the European Council on 29 March 2017.  This gave formal notice to the EU that the UK intended to leave in two years.  In that letter she set made some statements I found very interesting:

  • “…we believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU.”
  • “If, [however,] we leave the European Union without an agreement the default position is that we would have to trade on World Trade Organisation terms.”
  • “…the United Kingdom does not seek membership of the single market: we understand and respect your position that the four freedoms of the single market are indivisible and there can be no “cherry picking””.
  • “In order to avoid any cliff-edge as we move from our current relationship to our future partnership, people and businesses in both the UK and the EU would benefit from implementation periods”
Further political changes

Less than three weeks later, Theresa May surprised the nation again by calling a snap general election.  She said that “Britain needs certainty, stability and strong leadership following the EU referendum”.  This resulted in a two month delay to the Brexit process, as a result of ‘purdah’ – where civil servants avoid activities which might call into question their political impartiality.

The general election result on 8th June 2017 presented yet another surprise – the Conservatives lost seats and became a minority government.  The Democratic Unionist Party (DUP) offered their backing several days later, allowing the Conservatives to form a government.  The Brexit process could now continue.

Negotiations with the EU kicked-off

Talks with the EU started on 19 June 2017.  In order to conclude negotiations by March 2019, the deal must essentially be agreed by Autumn 2018.  This is to allow time for agreement in UK Parliament, EU Parliament and the EU Member States.

Conservative MP David Davis leads the UK team, and Michel Barnier was chosen by the other 27 EU Member States to represent them.  Davis and Barnier plan to meet approximately once per month to progress negotiations.

A transition period agreed

On 19 March 2017, a transition period was agreed.  Brexit day will still be 29 March 2019, but a transition period will last until 31 December 2020.  The UK will still be party to existing EU trade deals during this time.  The UK will be able to negotiate, sign and ratify its own trade deals during the transition period.

Where are we now?

Negotiations are ongoing, but there is a lack of clarity on the UK side as to what we want from the negotiations with the EU.    The “divorce” part of the agreement is still very much on the table.

There is a planned EU summit on June 28, and we expect to know by this date.

What does the EU seem to want from Brexit?

The EU has repeatedly talked of the importance of the ‘four freedoms’ – movement of goods, capital, services, and people.  It has also taken a hard line in discussing the ‘divorce’ before they start talking about a future relationship.

Barnier and the EU27 outlined a three-stepped approach and produced a priority list between them.   The three separate topics are: disentangling past ties and commitments; setting goals for future relations; and arranging transition terms to avoid unnecessary disruption.  Each one is expected to take between four and eight months.

In terms of step one – disentangling – the highest priority agenda items include the ‘financial divorce settlement’, citizens rights and the physical border with Northern Island.  Spain also wants to discuss Gibraltar.

The EU will want to discuss the practicalities of any approach desired by the UK whilst protecting its finances, industry and its citizens.  It has committed to no physical border in between the UK and Ireland, and this will be of major importance if the UK want to disentangle systems for management of customs duties and import taxes.

In addition, the EU will require time to prepare their systems to cope all across Europe.  In particular, France represents the UK’s main gateway to the rest of Europe.  Any friction on their side of the border would impede our ability to trade with all of the EU27.

What does the UK government say it wants from Brexit?

There is a lack of clarity on the UK side.  The Prime Minister has made her position relatively clear via communications such as The Customs Bill in October 2017, her “Florence Speech” back in September 2017 and a “Future Partnership Paper” published in August 2017.  The PMs position is to agree some sort of partnership or arrangement with the EU.

However, Hard Brexiteers are publicly fighting for nothing less than full independence.  It seems that the PM is trying to convince her cabinet to find a middle ground.  There are plans to publish an additional white paper ahead of a key EU summit on June 28.

 

As per the Article 50 letter and subsequent speeches by Prime Minister May, the position – for now – seems to be that “no deal is better than a bad deal”.    This would mean that in the absence of an agreement, the default position is that we trade on World Trade Organisation terms.  This is also a baseline for a permanent scenario if the Hard Brexiteers achieve their aim of full independence.

Where are we now with the negotiations?

An EU summit is planned for 28 June 2018.

The government will likely publish an additional white paper in advance of the summit.

There are two negotiating rounds planned for May and June.

the customs implications of Brexit

So what does it mean for customs?

Until the customs element of Brexit negotiations are complete, it is uncertain what the new customs regime will look like.  This is a challenge for government authorities and business alike.

In my opinion, it is unlikely that  we will be ready to separate by 1st January 2021.  This is irrespective of which path Brexit might take.  In the event of trading on WTO terms, the UK’s new IT solution may be able to cope by then, but this does not take into account the infrastructure challenges, or systems challenges faced by our trading partners on the EU side.   If we have some sort of partnership, it is equally unlikely that the level of technical detail required could be agreed and ratified in time. Even the recently agreed trade agreement between the EU and Canada took 8 years following the start of negotiations to come into force – and that was comparatively simple.

There is rumour of a six month extension to the transition period, but customs professionals like myself believe that anything relatively different to the status quo will take at least two years to prepare for – after we receive some clarity as to what that might be.

 

What customs projects do we know are underway?
  • Various government bodies and business stakeholders are meeting to discuss the practicalities.
  • One key project is the Customs Declaration Service (CDS).  This is to replace outdated software for processing customs declarations.  The project was already underway to cope with new EU customs requirements, but has been ramped up and adapted for Brexit.  The aim is to process all customs declarations through CDS by January of 2019.  The old system may continue to run some functionality until CDS can take over in full.
  • There is a lot of focus on infrastructure requirements, particularly in Dover which suffered during Operation Stack in 2015.  The CEO of the Port of Dover, Tim Waggott, was interviewed in a Channel 4 news report.  He indicated that if we start to process customs declarations to and from Europe, he might expect up to 17 mile tailbacks on both sides of the channel in busy periods.
  • HMRC is looking at the potential for Self Assessment.  This may mean that ‘trusted’ traders could make their own declarations without having to go through the normal process at the border.
What should we expect next in terms of customs?

We expect the government to publish another Customs White Paper by June.

What should businesses do?

In a nutshell – start to prepare for the WTO terms scenario!  That means you should:

  • calculate the potential costs
  • anticipate potential disruption in the supply chain
  • identify remedial actions. There may be customs reliefs or authorisations that can help.  You may also be able to make changes to your supply chain to mitigate some of the impact.
  • identify your ‘critical-path’.  How long can you afford to wait before taking key actions?
  • get involved in shaping Brexit.  The government is consulting stakeholders and is particularly interested in the views of smaller business.
How to find out more?

Feel free to contact me with any questions.

 

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