Ibec - for Irish business
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Priority 1: Trade and Customs

19 June 2017

The UK is not only a member of the EU Single Market but also of the EU customs union. This involves a common external tariff on goods coming into the EU and, in turn, facilitates the free movement of imported goods throughout the EU, without the need for customs checks or tariffs when crossing internal EU borders. It means the EU negotiates trade deals as a bloc. Individual member states do not have the legal authority to strike their own individual trade agreements.

Irish business wants the UK to remain in the customs union, maintain tariff free trade and minimise non-tariff barriers with the EU. However, the UK has indicated that, while it wants to maintain as frictionless trade as possible with the EU post-Brexit, it also wishes to agree its own trade deals and decide its own rules and regulations for doing business. This would exclude the UK from the EU customs union as we know it and necessitate a new external EU customs border between the Republic and Northern Ireland, and on the East-West aviation and maritime trade routes between the Republic of Ireland and Britain.

Ireland’s geographic position, with the use of the UK as a land bridge to other EU states, and the reliance on UK suppliers and markets, in addition to the land border with Northern Ireland, means it is uniquely exposed to the cost, complexities and disruptions associated with applying and administering a customs border. The economic implications are potentially enormous.

The backdrop of the Northern Ireland Peace Process, underpinned by the Good Friday Agreement, and the removal of border checks as part of that process, combined with deeply integrated all island supply chains will mean that unique, tailored and imaginative solutions will be needed to manage the transit of goods across the island of Ireland.
Challenge: A Brexit day trade ‘cliff edge’

If the UK exits the customs union, a customs agreement between the EU and the UK must be in place on the day of exit. If there is no agreement in place there will be no agreed procedure to land goods entering the EU from the UK or goods exported from the EU to the UK. This will lead to major disruption and legal uncertainty at entry and exit ports, airports and along the land border.

Solution Given the overwhelming economic rationale for both parties, the UK should remain in the customs union to enable tariff free trade to continue.

Solution If the UK exits the customs union, business and governments will need time to prepare. The customs requirements, procedures and processes to be put in place, including along the land border, must be dealt with early in Article 50 negotiations, with the express aim of eliminating uncertainty, the risk of trade disruption and additional costs on business.

Solution The UK should remain part of the European common transit system to ensure smooth transit of goods to, from and through the UK from the first day that the UK is no longer a member of the EU.

Solution A ‘cliff edge’ scenario in the absence of an EU-UK deal, whereby WTO tariffs would apply to EU-UK trade on the day that the UK exits, must be avoided. Comprehensive transitional measures are needed to bridge the gap between a UK exit and a new EU-UK free trade agreement (FTA) coming into force. This transitional deal must provide continuity with existing trade arrangements, until the point that any new arrangements take effect. The transitional phase must be long enough to allow ample time for companies to plan and prepare for new FTA arrangements.

Challenge: Costly, disruptive EU-UK tariff barriers

A poor post-Brexit EU-UK trade deal could result in crippling tariff barriers on certain products. Key sectors of the economy are particularly vulnerable as traditionally the sectors hardest hit by such barriers are food and drink. These are key job intensive sectors, heavily reliant on the market in Britain as an export destination and on Northern Ireland as a source of raw material and processing location.

Solution The trading relationship between the EU and the UK should be as close as possible post-Brexit. An ambitious, broad and comprehensive EU-UK FTA must involve minimal tariff and non-tariff barriers to goods being processed and goods going to market. It should also cover services.

Solution If tariffs and tariff rate quotas are a feature in a new EU-UK FTA, the tariff rate quota(s) volume, structure and definition must take into account existing trade flows and market requirements. This is important to minimise the risk of product displacement in the post-Brexit EU27 Single Market.

What are tariff rate quotas and why do they matter?
  • In its free trade agreements (FTAs) with third countries the EU works towards tariff liberalisation for industrial and agricultural products. For example, in CETA the EU and Canada agreed to eliminate 100% of industrial tariff lines. For agricultural products, both the EU and Canada agreed to eliminate over 90% of tariff lines. Some sensitive products (e.g. certain dairy, beef and poultry products) will be liberalised under a tariff rate quota (TRQ).
  • Under a TRQ system parties agree a quota and a two-tier tariff regime for certain products. Imports within the quota enter at a lower (in-quota) tariff rate while a higher (out-of-quota) tariff rate is used for imports above the concessionary access level.
  • TRQs are administered through the European Commission or through relevant authorities in member states. This can be done on a first come first served basis or through an import licensing system.

Challenge: Burdensome, costly customs procedures for companies

A new customs border between the EU and UK will present major challenges to how business operates, which will impact exporters and importers. Many exports and imports are now delivered ‘just in time’; with some companies operating within a 30 minute window for delivery of goods to customers based in the UK, and vice versa. In many cases, for example, medical devices and fresh food products, time delays would be extremely disruptive. Burdensome customs procedures, including veterinary and other checks, along with associated administrative costs and delays, and disruptive alterations having to be made to production, would have significant and far reaching economic costs. The land border between the Republic and Northern Ireland presents numerous additional challenges, which will demand particular attention during the negotiations.

Solution The movement of goods must not be unduly hampered by customs procedures. Simplified procedures must be sought within the bounds of the Union Customs Code to ensure the smooth flow of goods. Local clearance or pre-clearance procedures should be granted to sensitive sectors to facilitate management of their new customs obligations onsite.

Solution The EU and the UK must agree to recognise each other’s Trusted Trader status (or Authorised Economic Operator (AEO) status in the EU framework) under exit and transitional arrangements to facilitate continuation of business operations. Trusted traders are recognised as satisfying necessary standards and having secure supply chains. Benefits of having trusted trader status include reduced customs inspections and priority processing for inspections when required.

Solution Within the existing AEO framework, a simplified status for EU SME exporters to the UK should be made available. This would benefit SMEs with regular consignments to the UK. For example, this should include provisions for local customs clearance (where customs officials clear goods for export at the site of the company) or periodic declarations (where a customs declaration is not needed for each regular consignment). Businesses with this status would benefit from a simplified regime for export to the UK. There must be effective coordination between EU and UK revenue authorities in granting AEO status to ensure ‘imports’ have equivalent simplification.

Solution Also within the existing framework, a category of AEO should be created for firms which have integrated production and supply chains and move goods back and forth across the border between their production sites. A process can be created for these movements to occur by adapting existing customs through a special type of bond and/or transit procedure.

Solution Micro SMEs, i.e. companies that employ less than 10 employees, especially on the island of Ireland, carry out a significant amount of cross border service, repair and support business requiring the movement of personnel and professional equipment. These companies operate on both sides of the Republic of Ireland/Northern Ireland land border and also play an important part in the regional economies. As such, specific simplified customs arrangements and supports are needed to ensure that this business flow is not inhibited post-Brexit by restrictive and costly new customs compliance and control. This should include distinct customs arrangements for activities below a certain economic value, such as minimum and/or simplified data being required by customs for their processing.

Solution To mitigate the impact of any disruption to operations, EU-sponsored trade finance schemes should be introduced to help businesses adapting to the new trading and business environment.

Solution There are certain customs economic supports that can be introduced in Ireland to enable businesses to manage cash flow. For example, the extension of duty benefits to Irish companies importing into Ireland for processing (inward processing) and companies sending products to the UK for processing and subsequent re-import into Ireland (outward processing) by sea, air and land. This would enable companies to temporarily import/export for processing without paying customs duties or charges. At present, there are significant restrictions on the use of such reliefs in certain industries. A more flexible approach will be necessary after Brexit.

Solution The imposition of import VAT on trade with Britain and Northern Ireland will impose very significant cash flow costs on business in the Republic. To alleviate this, a mechanism should be made available to all VAT registered companies in Ireland, whereby import VAT from a third country (the UK) is paid and accounted for in a simultaneous transaction. This would minimise cash flow and working capital implications as the eligible trader could claim the VAT as an input credit at the same time as declaring the VAT liability.

Challenge: Lack of business expertise to manage new custom rules

The UK is the first and only export market for many Irish SMEs. Depending on the new EU-UK trading relationship, many may have to upskill and develop new expertise in areas such as certification and rules of origin to comply with new customs procedures. SMEs and companies that have experience in exporting to third countries will also need time to adjust existing practices to comply with the new customs regime. Ireland’s exposure to the UK market means these companies are disproportionately affected.

Solution EU-backed training, logistical and financial supports will be needed for businesses to upskill and adjust their practices in light of the new EU-UK trading relationship.

Challenge: Divergent food and agricultural standards

The EU applies strict sanitary and phytosanitary (SPS) standards and is a sealed zone for the production, sale and consumption of food and agricultural products, including plants, animal products and cereals. An agreement must be in place between the EU and a third country to import goods of this nature into the EU. Even with an agreement in place, there are onerous obligations on those exporting into the EU to meet the EU standards required. This includes inspection of premises and acquirement of approved premises status as well as inspections at the border. As there is currently no external EU border between the UK and the post-Brexit EU27 there are no approved premises in the UK, including Northern Ireland. This presents significant uncertainty as to how such standards will be applied post-Brexit. To avoid the cliff edge scenario in trade in agricultural products, it is critical that early consideration in EU-UK negotiations is given to the application of official food and feed controls on EU-UK trade.

Solution Current SPS standards must be recognised and maintained by both parties on exit day and during the transition to an FTA. Any new FTA must involve maximum collaboration on SPS standards and minimal divergence in the application of such standards into the future to ensure minimal disruption to trade and production. To avoid disruption, the application of standards across the island of Ireland will demand special consideration and tailored solutions. Prior to the conclusion of an FTA between the EU and UK, the continuation of the seamless production, sale and consumption of food and agricultural products by way of a transition agreement will be essential.

Challenge: Negative impact on trade transit and facilitation
The smooth movement of goods may be impeded post-Brexit due to changes in transport and transit procedures. This will impact business directly and do harm to firms in Ireland, through the costs associated with transport, and indirectly through the potential time lost at borders. Once the UK leaves the EU it will potentially leave the European transit system. The system reduces administrative obligations and costs by allowing goods to move within the transit system (i.e. between different customs territories), with taxes and charges payable at the final destination only.

Solution The UK should remain a member of the European transit system post-Brexit and the associated guarantee waiver scheme should be extended as widely as possible to traders in Ireland who must use the system.

Solution The current excise duty movement and control system (ECMS) allows seamless movement of excise products throughout the EU (including the UK) and is a major facilitation for beer and spirits producers including those organised on an all island basis, such as the Irish whiskey industry. Any new EU-UK arrangements must maintain this system and its key features.

Solution Given the volume of trucks carrying goods by sea in and out of Ireland and the existing infrastructure challenge at Irish ports, every effort must be made to avoid unnecessary delays and stopping of vehicles. Customs procedures at ports in Britain, Northern Ireland, the Republic and on the Continent should be aligned to operate on a seamless basis to ensure the overall integrity of the system.

Solution Specific transit arrangements will be needed to facilitate the continued use of Britain as a land bridge to continental Europe for many Irish exports. In this regard, cooperation between customs and veterinary authorities to avoid duplicative and burdensome checks, such as veterinary inspections, will be important.

Solution Preclearance on boats is one possible mechanism to mitigate delays at ports. This could improve processing times and facilitate movement through the ports.

Solution EU-backed funding supports should be made available to ports and airports which will have to provide significant new infrastructure to adapt and prepare for changes in customs practices. Regional infrastructure funding that derives from several existing EU frameworks should be used and, if necessary, re-evaluated to ensure that connectivity between Ireland’s regions and Europe is not damaged by Brexit.

Challenge: Capacity pressure on customs authorities

The UK leaving the EU customs union and becoming a third country would dramatically increase the workload on customs authorities and raises significant issues around the capacity of customs officials in Ireland and the UK to manage the new relationship. The potential application of any new arrangement on the land border between the Republic and Northern Ireland demands a careful, detailed and imaginative approach.
The number of Single Administrative Documents (SADs) processed by Irish customs authorities is likely to increase dramatically post-Brexit. The result will be substantial additional pressure on customs personnel, technology and physical infrastructure.

Solution To support inter-agency cooperation, a legal framework for future close customs collaboration between EU and UK authorities must be agreed early in negotiations. The duplication of any customs procedures on both the EU and UK side must be avoided. The principles that have underpinned the simplification of customs procedures to facilitate trade and business should continue to be applied (e.g. trusted traders, simplified data requirements and processing procedures, risk based physical checks etc.). The exchange of information, data processing and transmission, should also inform the customs agreement between the EU and the UK. The existing and long standing EU-UK relationship should form the basis for uniquely close cooperation into the future. The customs collaboration agreement should provide guidelines on how duplication can be avoided. Business must be closely involved in this process. Agreement on this should be reached prior to the conclusion of the Article 50 negotiations.

Solution The EU and UK must apply global best practice and new technology to ensure the smooth flow of goods between the two jurisdictions under any new arrangements. This might include the use of number plate recognition and communication with drivers to ensure smooth operation at exit and entry points with minimal delays. Current EU-UK ties should form the basis for uniquely close future collaboration. The most universally visible and impactful application of new checks and controls will be for the land border between the Republic and Northern Ireland. International best practice will also need to be adapted to its particular circumstances and conditions.

Solution Customs authorities must ensure adequately trained personnel and technological capacities are in place at the time of the UK exit, and allocate human and financial resources accordingly. Electronic customs procedures already in place must not be jeopardised by increased workload generated as a result of Brexit.