Documents considered by the Committee on 16 January 2019 Contents

8EU support for customs authorities 2021–27

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny

Document details

(a) Proposal for a Regulation establishing the ‘Customs’ programme for cooperation in the field of customs; (b) Proposal for a Regulation establishing, as part of the Integrated Border Management Fund, the instrument for financial support for customs control equipment

Legal base

Articles 33, 114 and 207 TFEU; ordinary legislative procedure; QMV

Department

Treasury

Document Numbers

(a) (39887), 9929/18 + ADDs 1–3, COM(18) 442; (b) (39928), 10325/18 + ADDs 1–3, COM(18) 474

Summary and Committee’s conclusions

8.1Since 1991, the EU has operated a long-term support programme for the customs authorities of its Member States. This provides financial support for customs training and IT systems, as each EU country relies on the others to safeguard the Union’s external border with respect to the entry of goods since the abolition of intra-EU customs controls as part of the Single Market in the early 1990s.

8.2The European Commission proposed to extend the Customs Programme in summer 2018 for the duration of the EU’s next long-term budget—the Multiannual Financial Framework (MFF) 2021–2027. The main objective of the Programme is to support the full implementation of the 2016 Union Customs Code, the EU’s core rulebook for the operation of its Customs Union and trade in goods with third countries. In particular, the Programme will support on-going work to switch to a fully digitalised customs environment for businesses by removing paper-based procedures (due for completion in 2025, after a 2020 deadline proved impractical), including the launch of the Import Control System 2 (ICS2), a new customs risk management tool.

8.3While the fundamental set-up and purpose of the Customs Programme would remain unchanged under the proposal, there would be a number of changes in the way the EU supports its Member States’ customs authorities. For example, in response to a request by a number of countries, the Commission has also laid draft legislation to create a new funding mechanism—the Customs Control Equipment Instrument—dedicated specifically to the purchase and maintenance of customs equipment such as scanners by national authorities.86 The Customs Programme would also help the remaining Member States pay for the customs-related costs of the UK’s exit from the EU, which will involve “disentangling the United Kingdom as a Member State from all existing customs electronic systems”.87

8.4The draft legislation for both instruments has been under discussion in the European Parliament and the Member States in the Council, which must jointly decide on the final shape of the programmes. The Financial Secretary to the Treasury (Mel Stride) submitted an Explanatory Memorandum on the proposals in June 2018. This states that “there may be a case for cooperating with the EU on shared IT systems”, which the Government “will take into account in negotiating a future customs arrangement with the EU”. The Minister also noted that, if the ‘backstop’ to keep the Irish border free of customs infrastructure ever became operational, the UK’s proposal for its practical implementation would require “continued access to EU shared IT systems”. He added that the application of the proposed Customs Programme during the backstop—meaning the UK’s ability to draw funding from it—”would be subject to negotiation”, presumably because that would require a new UK financial contribution.

8.5The proposed Customs Programme and the Customs Control Equipment Instrument have a combined provisional budget of €2.25 billion (£2 billion) over the 2021–2027 period (of which €950 million would be earmarked for customs authorities’ IT systems and training, and €1.3 billion funding line for customs equipment). However, the final financial allocation is yet to be decided by the Member States and the European Parliament.88

Progress in the legislative process since July 2018

8.6On 22 December 2018, the Financial Secretary to the Treasury (Rt Hon Mel Stride MP) wrote to the Committee with an update on the negotiations on both of the European Commission’s customs support proposals. He explained that “good progress” had been made on both proposals, and that the Austrian Presidency received a mandate from the EU’s Member States for negotiations on the final substance of the Customs Programme with the European Parliament in December 2018. According to the Minister, “few changes” were made to the original Commission proposals, with a focus on better reporting of progress made against the Programme’s objectives to ensure its funding is being used effectively.89

8.7The Minister adds that “the UK could seek to participate in the Customs Programme if we expect to have continued access to shared IT systems following our withdrawal from the EU”. As the proposed Customs Control Equipment instrument is not open to third countries, it has “fewer implications for the UK”. Overall, the Minister notes that the Government “can support” the revised texts for both proposals as a basis for negotiations with the European Parliament, which he expects to begin in the first half of 2019.

Our conclusions

8.8We thank the Minister for his latest update on the negotiations on the Customs Programme and the Customs Control Equipment Instrument under the EU’s next long-term budget.

8.9The UK has participated in the EU’s Customs Programme since its inception in 1991 by virtue of its EU membership. It will cease to do so in December 2020 if its Withdrawal Agreement on an orderly exit from the EU is ratified, or in March 2019 if it is not. The 2021–27 Customs Programme is also open to formal ‘association’ by non-EU countries, including the UK after it leaves the EU. Whether there would be added value in this would have to be decided in light of the future customs cooperation arrangements between the UK and the EU, and especially whether HM Revenue & Customs would have shared IT systems with the EU to facilitate risk assessments and reduce the intensity of customs controls on UK-EU trade.

8.10As we noted in our previous Report on the Customs Programme, the scale of the initial systematic ‘disentanglement’ that Brexit entails in the field of customs is clear from the draft Withdrawal Agreement: in June 2018, the Government and the European Commission agreed on the gradual ending of the UK’s use of, and access to, 20 EU-level ‘networks, information systems and databases’ related to customs, including the NCTS and the EU’s Import & Export Control Systems. The phasing out is intended to allow the UK and EU to finalise customs procedures and processes related to cross-border trade that took place before the UK leaves the Customs Union. This would take place after the end of the transitional period (during which the UK would stay in the Customs Union and therefore retain access to the relevant EU systems).90 If there is no Withdrawal Agreement, the UK would lose its access overnight on 29 March 2019. The necessary technical modifications could be funded from the current or proposed Customs Support Programmes.

8.11While the Customs Programme 2021–27 is likely to part-fund the complete technical ‘disentanglement’ of the UK from EU customs systems after the end of the transition, it could also have a role to play in implementing any subsequent UK-EU customs cooperation agreement. Some form of cooperation between HM Revenue & Customs and its counterparts in other EU countries will remain necessary even after Brexit irrespective of the shape of the future economic partnership. In particular, by definition, the UK cannot unilaterally replace information-sharing or risk assessments that rely on exchange of data with the customs authorities of the remaining Member States via shared EU systems. The Government’s intention is to negotiate a new customs cooperation agreement with the EU which may involve “shared IT systems” even after the transitional period ends.

8.12Moreover, the controversial Protocol on Ireland and Northern Ireland in the Withdrawal Agreement would de facto keep the UK as a whole in the EU’s customs union at the end of the transitional period. This would be the approach “unless and until” a new free trade agreement supersedes it, by removing the need for physical customs-related infrastructure on the border in Ireland even when the UK has become a separate customs and regulatory territory with its own tariffs and trade protection measures.91 To facilitate the practical implementation of the ‘backstop’ if necessary, Article 15 of the Northern Irish Protocol states that the EU can give the UK “full or partial access” to “any network, any information system, and any database established on the basis of Union law” (i.e. the Import Control System92 and the Automated Export System)93 if this is considered “strictly necessary to enable the United Kingdom to comply with its obligations under this Protocol” and the exchange of information cannot “cannot be facilitated by the [UK-EU joint consultative] working group”. The Customs Programme could provide financial support for any modifications to the systems to provide UK officials with such access, meaning the overall cost of these technical works to the British taxpayer would be less.

8.13Even if the Withdrawal Agreement is not ratified, and the Irish Protocol is rejected, it will be in the interest of both the UK and the EU to discuss new customs cooperation agreements to facilitate trade in goods, given the UK’s geographic proximity to the EU and the scale of the bilateral trade flows. In the absence of formalised cooperation on customs risk management, UK exports to the EU (and vice versa) could face a relatively high proportion of checks once the UK leaves the Customs Union and Single Market, adding costs and delays. We accept, however, that due to the wider political uncertainty around the circumstances of the UK’s withdrawal from the EU in March 2019 and the shape of a new customs arrangement in those circumstances, it is impossible to judge at this stage the potential benefit of UK participation in the EU’s Customs Programme from 2021.

8.14In any event, the Minister has made clear that the substance of the Customs Programme and the associated Customs Control Equipment Instrument are not controversial, and the legislative process is it entering its final stages. We are therefore content to clear both proposals from scrutiny. Any British participation in the Programme would require a specific legal agreement to that effect, including the modalities of a financial contribution towards its operational and administrative costs.94 We expect the Government to notify Parliament as and when a decision is made whether to apply for ‘third country’ association with the 2021–27 EU Customs Programme (and other EU funding instruments) in due course.

Full details of the documents:

(a) Proposal for a Regulation establishing the ‘Customs’ programme for cooperation in the field of customs: (39887), 9929/18 + ADDs 1–3, COM(18) 442; (b) Proposal for a Regulation establishing, as part of the Integrated Border Management Fund, the instrument for financial support for customs control equipment: (39928), 10325/18 + ADDs 1–3, COM(18) 474.

Previous Committee Reports

See (39887), 9929/18 + ADDs 1–3, COM(18) 442: Thirty-seventh Report HC 301–xxxvi (2017–19), chapter 14 (5 September 2018).


86 In addition, the Commission has also proposed to add an explicit legal basis for the use of the Customs Programme to fund the necessary modifications to extend partial access to EU customs systems to third countries or international organisations.

87 The total costs of this, the Commission says, are not yet known because the substance of a future UK-EU customs cooperation agreement could negate the need for total ‘disentanglement’.

88 The proposed €2.25 billion budget for the two programmes would be significantly larger than the 2014–2020 Customs Programme (€523 million).

89 With respect to the Customs Control Equipment Instrument, the Minister notes that “particularly the Eastern Member States” have welcomed the proposal, others had “expressed concern over a number of matters, including the budget to be set, the process to determine whether equipment is required and the general administrative burden”. In the light of this, the Minister says, the original Commission proposal “has been revised to make clear that customs controls remain a Member State competence, and that the reporting requirements should aim to provide feedback on the effectiveness of the Instrument without being overly burdensome”.

90 The transitional period is due to end on 31 December 2020, with a possible extension to December 2022, providing the UK and the EU with more time to prepare for the UK’s gradual removal after the end of the transition, which in many cases involves only partial access—such as ‘read-only’ permissions—for a limited amount of time.

91 Article 1(4) of the Protocol. Other provisions of the Protocol serve to keep Northern Ireland effectively in the Single Market for goods, requiring it to continue applying EU legislation in areas like food safety and animal health, Value Added Tax and excise duty.)

92 The Import Control System 2 (ICS 2) is an upgrade of the current system (ICS) that is responsible for the capture and processing of pre-arrival safety and security declarations. Importantly, it includes risk analysis of incoming goods and allows the results to be shared across Member States.

93 The Automated Export System under the Union Customs Code is an upgrade to an existing system that will enable the full automation of export procedures and exit formalities when goods are exported from the EU.

94 The proposed Customs Control Equipment Instrument is not open to participation by ‘third countries’.




Published: 22 January 2019