UK-EU trade is about to get a lot more complicated
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We’re almost at the end of Year One of the Brexit experiment, which started on January 1 following the last-minute signing of the EU-UK Trade and Cooperation Agreement (TCA). Remarkable to think that this time last year, it was still not yet fully agreed.
Even if the “reasonable worst-case” scenarios of 7,000 trucks backing up at Dover never materialised (a rare example of deft expectation management and strategic comms from this government), it has still been a bumpy year for UK exporters compared with peer countries.
In truth, there was plenty of disruption behind the scenes in January, but much of it was pushed back into the distribution centres, warehouses and parcel depots where hauliers were waiting to get the correct paperwork to set off on their journeys.
Compliance levels at the border surprised UK officials, with only 2 per cent of trucks being turned away by mid-February, thanks to a combination of awareness campaigns (remember the Kent access permit?) and the fact that it was actually impossible to board a ferry to the EU without pre-declaring consignments via the French “SI Brexit” system.
To get the green light to board a ferry, you needed to show that your forms — customs, health certificates etc — were in order. That meant that, after the first couple of months, only manageable numbers of vehicles needed to be pulled aside for checks on the EU side of the Channel. In short, it all worked surprisingly well.
But what will have evaded the notice of much of the general public is that it worked in only one direction — for UK goods heading into Europe. For stuff coming the other way there was no requirement to pre-declare. Indeed, customs declarations could be deferred for up to 175 days.
That all changes on January 1 2022. Barring a last-minute change of heart from the government, hauliers delivering goods from the EU into GB will need to pre-declare their consignments via the UK equivalent of “SI Brexit”, the “GVMS”, or goods vehicle movement service.
Customs declarations can no longer be deferred, and products of plants and animal origin also need to be pre-notified in the “Import of products, animals, food and feed system” (IPAFFS) system — though they won’t need a full export health certificate (for which you need a vet to sign off) until July.
This means that, to some extent, compared with the “big bang” of full checks from day one that we saw on the UK-to-EU routes last January, the new EU-to-UK system is being phased in more gently.
But still, to get that green light to board the ferry in Calais, EU exporters sending food products will first need to complete IPAFFS forms, to generate a reference number in order to complete customs forms, which can then be used to obtain a GVMS code.
As Shane Brennan of the Cold Chain Federation puts it: “The government gives the impression that the IPAFFS requirement is a ‘soft launch’ — but it’s not very soft if you can’t do customs or get a GVMS code without one.”
So will it all go as (relatively) smoothly as last time? The truth is that nobody honestly knows, because the operation of the system will rely on drivers and exporters from 27 different countries getting their heads around the new system.
In practice, a lot of this will be handled by agents, but Brennan reckons that there are still likely to be a fair number of EU food exporters and hauliers “playing catch-up” after January 1 next year.
Looking at it optimistically, given that 85 per cent of lorry drivers on the Short Straits are EU drivers, and they have been using “SI Brexit” for a year going the opposite way, they ought — in theory — to be able to manage GVMS.
They may also find, given the UK government’s self-professed desire to prioritise flow, that if things do get sticky in the initial months, the British authorities will be more flexible than their continental counterparts, based on the approach to Brexit borders thus far.
When the top mandarins appeared in front of the public accounts committee last month they appeared quietly confident that preparations had been sufficient.
Jim Harra, the permanent secretary at HM Revenue & Customs, said the fact that businesses were already filling in customs forms, albeit with 175-day deferrals available to them, meant that HMRC was “confident that traders are ready”.
He was less certain about EU hauliers, acknowledging that the “greatest risk” came from EU drivers that didn’t realise what they needed to do, though HMRC said it was writing to 14,000 EU haulage groups monthly to gee them up.
Harra was broadly confident. He said he reckoned there were “greater levels of readiness” in the EU than we saw in January 2021 for trucks moving the other way, but still, he says “we will undoubtedly see some lorries turned away, at least initially”.
The other major unknown is how far the newly imposed hassles of trading with the UK will depress the appetite of EU business to trade with the UK, particularly smaller businesses which — on both sides of the Channel — have less capacity to cope with new paperwork.
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Another thing to watch for in 2022 is the ending of an easement on rules of origin that will require traders to have underlying information to prove that their goods are sufficiently “made in UK” or “made in EU” in order to qualify for zero-tariff access under the TCA.
Businesses will continue to self-declare that their goods do qualify, but anecdotally there’s pretty strong evidence that some smaller businesses aren’t really up to speed on what is a highly complex area.
Britain after Brexit has spoken this week with several UK traders who — despite getting letters and emails from HMRC — are still full of questions and uncertainties about this area, which leaves importers with the liability for paying tariffs on any goods wrongly imported duty free.
That means that a shoe shop in Bristol, say, that imports shoes from the EU which came in tariff-free (but actually were imported from Asia and shipped onwards, so didn’t qualify) may find themselves paying a nasty retrospective bill.
The owner of that shop is already pondering, if that happens, whether they have the lawyers, the cash and the watertight contracts that will enable them to reclaim those losses from their EU supplier. All this adds to the stress of doing business, even if it never happens.
Again, we shall have to see how proactive HMRC is checking that declarations are substantive, but it will also cut the other way — UK companies that export to the EU will have angry EU customers on their hands if they’re unable to prove their goods qualified for zero-tariff access if challenged by EU customs authorities.
All of which is to say that in some ways, Brexit was really only “half done” in 2021, and the second instalment, even if it has rather lesser billing in the media, will still give businesses that trade with Europe plenty to think about in 2022.
Do you work in an industry that has been affected by the UK’s departure from the EU single market and customs union? If so, how is the change hurting — or even benefiting — you and your business? Please keep your feedback coming to firstname.lastname@example.org.
Brexit in numbers
Christmas is approaching and yet the discussion over Northern Ireland rumbles on without any obvious prospect of a resolution, at least on the issues surrounding customs and agrifood checks.
The EU has signalled that it will press ahead unilaterally with a legal patch to guarantee equal access to medicines, even if the British won’t join hands with it on this.
EU insiders say that, despite the de facto extension of grace periods by both sides to ease the burdens of the disputed Northern Ireland Protocol, the pharmaceutical industry wants legal certainty so the European Commission seems determined to push this particular file over the line before Christmas.
What the new year brings is very much less certain, as political pressure builds in Northern Ireland ahead of local elections in May. Lord David Frost — having been sent to seek a mutually agreeable deal — will at some point need to make a determination on whether that has proved possible.
The government routinely talks about triggering the Article 16 safeguards clause as a last resort, but polling this week (see chart) raised interesting questions about whether that was really more of a priority in Westminster than in the region itself.
It was notable that the poll found that 52 per cent in Northern Ireland think the protocol is on balance a “good thing” for the region, up 9 per cent since June, which is perhaps linked to the region experiencing less shortages, particularly fuel shortages, than Britain this summer.
And yet by contrast, as Hayward writes, a majority of MPs polled see the protocol as, on balance, a “bad thing” for Northern Ireland.
This is a potentially instructive gulf in opinion, particularly when allied to the fact that 87 per cent of respondents in Northern Ireland “distrust or strongly distrust the UK government” handling of the protocol, compared with 44 per cent who distrust the European Commission.
If Frost wants to trigger Article 16, and risk a full-blown confrontation with Brussels, Berlin and Dublin, the danger is that it will look like a highly partial act that doesn’t have the support of those who would be most affected.
Indeed, only 39 per cent of respondents to the weighted LucidTalk poll considered that using Article 16 would be justified.
As Hayward observes: “The fact that the opinion of MPs is so out of line with those of voters in Northern Ireland is of concern given that the future of the protocol is so much in the hands of the UK government. What the prime minister and Lord Frost decide to do — particularly over the triggering of Article 16 — will have huge and direct ramifications for Northern Ireland, economically, politically and socially.”
More unmissable Brexit stories
The US has overtaken the EU as the leading destination for UK financial services exports, according to a report by TheCityUK, a lobby group for the sector. Brooke Masters, meanwhile, wrote this week that the rivalry between the London and Amsterdam stock exchanges missed the point — Europe is being left in the dust by the US and the Chinese and Hong Kong markets in equity trading, corporate bond issuance and pretty much every other metric that matters.
The UK is planning to give industry an extra two years to implement a new post-Brexit safety regime for chemicals. The move is the latest in a series of delays to implementing post-Brexit plans, many of which duplicate existing EU safety regimes, as I reported this week.
The British government must put down the megaphone and pick up the telephone to start building a new relationship with Europe that can be the basis of a strong Global Britain, argue former UK ambassador to Washington, Nato and Israel David Manning and Jonathan Powell, chief of staff to Tony Blair from 1995 to 2007.
Can the EU’s €300bn Global Gateway infrastructure investment project launched last week rival China’s Belt and Road Initiative? Martin Sandbu believes it can but says the EU must clearly articulate the benefits for partner countries. For now, he says, “it looks like a list of unrelated building sites”.