While preparing to leave the EU, one of the challenges faced by the UK is the need to design a domestic legislation supporting standalone, fully functioning customs, VAT and excise regimes, a matter that up to Brexit has been governed either directly by EU law (the Union Customs Code), or indirectly by Directives (for VAT and excise rules). In this respect, the Financial Secretary to the Treasury prepared a white paper that was presented to the Parliament in October 2017, outlining the Government’s approach to the future Customs Bill, due to enter Parliament later this autumn. The white paper focuses mostly on the UK-EU future customs arrangements.
In negotiating UK’s future customs relationship with the EU, the Government is guided by three strategic objectives: (i) ensuring UK-EU trade is as frictionless as possible; (ii) avoiding a hard border between Ireland and Northern Ireland; and (iii) establishing an independent international trade policy. The white paper outlines two options for the UK’s upcoming customs arrangement with the EU that most closely meet these objectives, namely a “highly streamlined customs arrangement” or a “new customs partnership”. Moreover, the Government is seeking to agree with the EU on a time-limited interim implementation period that will allow people and businesses in both the UK and the EU to benefit from a smooth and orderly transition. Additionally, the UK is also preparing for the so-called “contingency scenario” in the event that no negotiated agreement will be reached with the EU.
The “highly streamlined customs arrangement” approach would mean minimising as much as possible customs formalities and additional requirements to UK-EU trade. In practice, the following arrangements are considered: a continued waiver from the requirement to submit entry and exit summary declarations for goods being moved between the UK and the EU; remaining a member of the Common Transit Convention (CTC); negotiating mutual recognition of Authorised Economic Operators (AEOs); bilateral implementation of a technology-based solution for roll-on, roll-off ports (e.g. pre-arrival notifications); customs co-operation, mutual assistance and data-sharing replicating existing levels of UK cooperation with other Member States; unilateral measures to reduce time and cost customs compliance (e.g. self-assessments, data automation, simplified procedures, etc.)
The second model envisioned is an innovative “new customs partnership” with the EU, based on operating a common customs regime for imports, thus removing the need for customs processes at the border. This approach would apply to imports destined ultimately for the EU market, and implies that the UK would need to apply the same tariffs as the EU, and provide the same treatment for rules of origin for those goods arriving in the UK and destined for the EU. On the other hand, the UK would be able to apply its own tariffs and trade policy to UK exports and imports from other countries destined for the UK market, in line with its strategic goal to have an independent trade policy.
Additionally, in the event of a negotiated solution, the UK Government aims to ensure that people travelling between the UK and the EU can continue to carry on as they currently do, and that the movement of goods as small parcels, via Royal Mail and fast parcel operators, can operate effectively.
Regarding the Northern Ireland-Ireland border issue, all parties involved aim to avoid a hard border. Under the “highly streamlined customs arrangement”, the UK intends to agree on a specific cross-border trade exemption for the Northern Ireland-Ireland land border, in consideration of the fact that many of the movements of goods across the land border are operated by smaller traders. The alternative option of a “new customs partnership” arrangement with the EU would allow for the border to remain seamless in relation to customs.
Regarding the contingency scenario, the UK Government expressed clearly that this is not its preferred outcome of the negotiations. In case no acceptable deal can be reached with the EU, the white paper outlines the following possible implications:
- the UK would apply the same customs duty to every country with which it does not have a trade deal;
- traders working with the EU will be subject to customs declarations and customs checks, may need import or export licenses, while exporters to the EU would have to submit an export declaration;
- Ro-Ro ports would require pre-notification of consignments and pre-arrival safety and security declarations;
- for individual travellers entering and exiting the UK, tax processes will be kept unchanged as much as possible;
- the Government would not extend the current rules for low value parcels from non-EU countries to include parcels sent from the EU, since the EU’s geographical proximity could potentially undermine the UK’s high street business;
- the UK Government expressed a strong preference to avoid a physical border between Northern Ireland and Ireland also under a contingency scenario.
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