Hard Brexit is still hanging in the air

Despite some cautious optimism on the negotiations between EU and UK, Dutch Customs emphasizes again: “Be prepared for a hard Brexit”.

After the agreement that appears to crown the first phase of the Brexit negotiations, optimism is apparently prevailing. However, the most important message from Customs – ‘be prepared’ – remains in full force, says policy officer Roel van ’t Veld. “Bear in mind, there could still be a hard Brexit, with all the costs that entails.”

The ‘December deal’ that the European Union and the United Kingdom closed last year at the last minute has, among part of the business community and the press, led to the idea that the two parties are on the right track. However, the ‘divorce agreement’ is, for the time being, little more than a ‘letter of intent’, in the words of the British Brexit negotiator, David Davis. “When you zoom in, the risks have certainly not decreased”, according to Van ’t Veld. “In the first phase, progress was made on the subjects of civil rights, Northern Ireland and the financial settlement of the Brexit. However, no amount has been mentioned for the so-called divorce account. Nor has anything concrete been arranged for the Northern Ireland issue, apart from the commitment to look into a smart customs solution for the border with Ireland.”

The clock is ticking
“Moreover, it is all or nothing”, continues Van ’t Veld. “The British Prime Minister said, herself: ‘Nothing’s agreed till everything’s agreed’. In other words, a partial agreement on the conditions for the separation is worth little without agreements about the future trade relationship and the possible transitional arrangement, which are central to the second phase. If they do not come, there will not be a divorce agreement and we fall back onto the hard Brexit scenario. So we have not in the least ended up in calmer waters. And with less than 400 calendar days to go, the time pressure will only increase. We really want to make that very clear to entrepreneurs.”

The chances of a comprehensive deal are not very great, according to Van ’t Veld. “Membership in the EU means participation in the internal market and customs union. The British have repeatedly made it clear that they do not want either of those, but they do want a deep and comprehensive relationship. However, the possibilities are limited within their wish-list. If they do not want to enter into a customs union with the EU – as they have indicated on many occasions – the only alternative is a trade agreement. Then you should think about something like the so-called Canada model, on which the CETA trade agreement is based. This contains compulsory declarations and customs formalities.”

Higher costs, longer waiting times
What does this mean for the business community in the Netherlands? Van ’t Veld: “That is an important question, which was also discussed in the last meeting of the Customs-Business Consultation forum. The answer: the smooth flow of goods and people with the UK, as is now the case in the internal market, will almost certainly be a thing of the past. If there is no comprehensive deal –

and, as said before, that chance is great – the hard Brexit remains a realistic scenario. The border between the EU and the UK will then be restored. In addition to the Marechaussee – which already carries out migration checks – you will also be dealing with Customs there. Companies will be faced with customs formalities, such as export and import declarations – and possibly import duties, as well. They must also comply with product standards and, where necessary, be able to submit veterinary certificates. And that costs money. Recently, a report was published on non-tariff barriers to trade, drawn up by KPMG on behalf of the Ministries of Economic Affairs & Climate and Agriculture, Nature & Food Quality. It warns that the costs for imports and exports will increase by 387 to 627 million Euros annually. This is still separate from customs duties, VAT expenditures and sector-specific market access requirements, such as phyto-sanitary rules for cut flowers or work permits for cross-border accountancy services. And waiting times at the border also lead to financial damages, especially in perishable shipments such as meat and flowers.”

 Practical objections
In the same report, KPMG gives the government some advice for unburdening the logistics. Customs likes to think along with companies, says Van ’t Veld. “In this way, we endorse the recommendation to intensify the provision of information. But, for example, we see an IT system for automated data delivery in the ferry sector as the responsibility of the businesses themselves. Fortunately, the operators got that message. Other recommendations are encountering legal and practical objections. Take the proposed fast lane for fruit and vegetables. Such facilities can only be offered to individual companies with an AEO certificate, not to a complete industry. There, we have the good and bad apples mixed up together. Moreover, a fast lane is an integrated government control, which also include the product boards for phyto-sanitary checks and the Food and Consumer Product Safety Authority.”

“Also, there are all kinds of legal snags connected to the recommendation to inspect shipments during the ferry transport between EU and UK. The point is that goods can only be declared once they have entered the EU – so not when they are in transit. What do you do in such a case, with the findings of a physical check? Save that until after the declaration, and do you only then issue a citation? That is even apart from the health & safety technical challenge of opening the rear doors of a truck on a rocking boat and not being buried under the load. Moreover, the trailers are loaded head to tail, so you really can’t even get a door open easily. And because of the safety issues, you are not allowed on the deck at all. To sum up, Customs also sees the need for innovative solutions. It is just that the time to 29 March 2019 is very short.”

 Work to be done
Companies must not expect miracles. How can they best prepare themselves now? Van ’t Veld: “Every company should consider a number of things. Such as: would it be better if I set up my supply chain in such a way that I am no longer ‘burdened’ by the UK? The most important consideration is: do I handle the customs formalities myself or outsource them? If I choose to outsource, who do I go to? And if I do it myself, do I need a permit or AEO certificate? As Customs, we advise companies to get themselves well informed and to prepare well. For example, anyone who wants to apply for a customs permit, should make sure to give himself enough time. We will continue to engage the market in talking about customs formalities and thinking about the design of processes.”
And what would be the effect of a hard Brexit on the role of Customs? Van ’t Veld: “A process for shipping goods to and from third countries already exists. In that sense, we don’t have to make any adjustments. However, Brexit does require more personnel capacity, among other things. On February 16 the State Secretary for Finance declared that for Customs the way is open to prepare itself thoroughly for the UK’s departure from the EU. The administration is entitled to recruit between 750 and 930 new workers. The first job advertisements have already been published.”

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