Want to avoid border checks? Then full customs union membership is essential

With regard to customs formalities, there are only two options after Brexit: either the UK remains in the customs union with the European Union and in the single market, or it doesn’t. The first of these options eliminates the need of border formalities between the UK and the EU. The second necessitates them.

Let us have a look at why this is.

Barring a “no deal” scenario, the UK will, under the terms of the draft withdrawal agreement, remain until the end of 2020 in the customs union and the single market, so the practical consequences of Brexit will be felt only after this period.

When the UK ceases to be in the customs union with Europe, as is currently the plan, three scenarios are possible: a customs union agreement between the UK and the EU (as is currently the case between the EU and Turkey); a free trade agreement between the UK and the EU (as it is currently the case between the EU and Canada, Norway and Ukraine); or no agreement and so World Trade Organisation rules would apply.

Neither a comprehensive customs union agreement, nor a comprehensive free trade agreement can provide the same degree of trade facilitation as full-on customs union membership. There is a big difference between remaining in the customs union with Europe and concluding a customs union agreement. This difference is often blurred in discussions.

If border formalities are to be avoided on the island of Ireland, Northern Ireland must remain in the customs union with Europe, with the consequence that trade between Northern Ireland and the rest of the UK would be subject to border formalities; however, ports and airports are easier to control than a land border with many crossing points. Or the whole of the UK must remain in the customs union, with the consequence that border formalities are avoided but the UK cannot pursue its own customs and trade policy.

Assuming that the UK (possibly except Northern Ireland) will not remain in the customs union with Europe, and will also leave the single market, this will lead to customs formalities and controls in trade between the UK and the EU member states. The different types of possible arrangements (or a lack thereof) will have an impact on whether a customs duty is to be paid on importation, the type of proof to be presented in case of preferential treatment, and on the extent to which non-tariff barriers are aligned or not. Under any of these alternatives, export formalities will have to be performed on goods leaving the territory of the UK or the EU, and import formalities will have to be performed on goods entering the territory of the UK or the EU.

Even if, due to a free trade or customs union agreement, most goods are duty-free, import VAT and, on certain goods (eg alcohol, tobacco, energy products), excise duties will be collected or guarantees will have to be provided. Transit and customs warehousing procedures will be used in order to defer duty and tax payment. Furthermore, special documents may be required for live animals, food and pharmaceutical products, etc.

In order to decrease administrative burdens and delays at the border, the UK government has proposed two options for “future customs arrangements”: the so-called “maximum facilitation” option, consisting of streamlining and simplifying requirements and using modern technologies, and a new “customs partnership,” under which the UK would mirror the EU’s requirements for imports from the rest of the world where their final destination is the EU. A recent variant considered by David Davis is the creation of a 10 mile-wide trade buffer zone along the Northern Ireland border in which EU and UK regulations would be applied at the same time.

The “customs partnership” is unrealistic for many reasons, inter alia, because it would require that the EU does the same with regard to goods passing through the EU to the UK, because of cumbersome refund procedures, and because it leaves the issues of import VAT, excise duties and divergent regulatory requirements unresolved. Likewise, the idea of applying two sets of regulations on the same territory is impractical, and raises serious legal issues in case of non-compliance.

The “maximum facilitation” option consists of using facilitations for trade with third countries, such as mutual recognition of Authorised Economic Operators, enabling faster clearance of their goods at the border and simplifications for business, such as self-assessment to allow traders to calculate their own customs duties and aggregate their customs declarations.

The UK envisages the eventual implementation of technology-based solutions. This could be the use of number plate or cell phone recognition, radio-frequency identification of goods or containers, cameras, fast lanes for reliable traders, the electronic exchange of export declarations, as well as joint customs offices between neighbouring countries (eg at the entrance of the Channel tunnel or at the border with Ireland). The implementation of such solutions will, however, take time beyond 2020, and will be expensive, both for the government and for traders.

Even if all these simplifications are implemented, trade between the UK and the EU will be more complicated and costly than at the time when the UK was a member of the EU customs union and single market.

Brexit is therefore a bad deal for importers and exporters. Only customs and IT specialists will benefit.