Chapter 1: Introduction
1.The EU is the UK’s largest trading partner for goods. From June 2017 to June 2018, UK goods exports to the EU accounted for 49% of the total value of UK goods exports, while imports from the EU were worth 54.9% of the total value of all UK goods imports.1 The Government’s White Paper The future relationship between the United Kingdom and the European Union, published in July 2018,2 makes it clear that once the UK leaves the EU, it will no longer be a member of either the EU’s customs union or the EU Single Market. But to preserve the close trade relationship with the EU after Brexit, the Government is seeking to ensure “the most frictionless trade possible in goods between the UK and the EU”, based on a new customs arrangement.3
2.In August 2017 the UK Government put forward two options for a post-Brexit UK-EU customs relationship in its Future customs arrangements—a future partnership paper.4 The first option, commonly referred to as ‘Max Fac’ (‘Maximum Facilitation’) aimed to decrease, as much as possible, the need to check goods at the border by implementing technological solutions. This option—even with the most advanced technological solutions currently available—would not have removed the need for the establishment of a customs border. The second option outlined by the Government was the ‘New Customs Partnership’. Under this option—characterised by the Government as ‘unprecedented’ and ‘challenging to implement’5—the UK would charge two different sets of tariffs on imports, depending on whether goods were destined for the UK or the EU market. This would include the UK collecting revenue on behalf of the EU, thus eliminating the need for a border for goods.
3.In its White Paper published in July 2018, the Government unveiled a new customs proposal—the Facilitated Customs Arrangement. This Arrangement incorporates the principal elements of the New Customs Partnership proposal alongside the use of new technology. It is proposed to be implemented alongside a free trade area for goods, including agri-food, as part of a wider UK-EU economic partnership.6
This inquiry
4.This report considers the Government’s proposed Facilitated Customs Arrangement (FCA), together with customs processes under a ‘no deal’ scenario. Given the similarities between the previously proposed New Customs Partnership and ‘Max Fac’ options and the new FCA, most of the evidence collected by the Committee on the two previously proposed options in 2017 is still relevant and has, therefore, been used in preparing this report. Follow-up written submissions on the FCA were also received from a number of witnesses who had provided oral evidence on the former proposals.
5.Chapter 2 introduces the EU’s customs union and its main characteristics, reflecting the current position for UK-EU trade. Chapter 3 considers the consequences of a possible ‘no deal’ scenario for UK-EU trade, with a focus on customs requirements for trade under WTO rules. It also provides a baseline against which the UK Government’s proposed FCA can be assessed. Chapter 4 sets out the options available to the UK Government to mitigate the adverse impact of customs controls that would be imposed if trade defaulted to WTO rules. Chapter 5 explores the Government’s proposed FCA, its challenges, the implications for UK businesses and how it might affect the UK’s ability to strike free trade agreements with third countries. It also considers the feasibility of the FCA from an EU perspective, as well as the EU’s initial response to the proposal. Where relevant, this report also touches on those aspects of trade (e.g. rules or origin or trade preferences) that may have an impact on customs procedures. It does not cover trade in services.
6.This inquiry was conducted between April and August 2018. The Committee took oral evidence from customs and trade experts, trade bodies and membership organisations, HM Revenue & Customs (HMRC) officials and Government representatives. While there was no open call for written evidence, the Committee approached a number of experts, businesses and organisations for written submissions (see Appendix 2). Members of the Committee also visited the Port of Felixstowe in May and the Port of Dover in July to gain a first-hand understanding of the impact of any new customs arrangements on the operations of container and roll-on/roll-off ports—the main route through which goods enter and leave the UK.
7.The Committee is grateful to all those who contributed and provided evidence to its inquiry (see Appendix 2).
8.We make this report for debate.
1 Office for National Statistics, Statistical bulletins: UK trade: June 2018, Figure 10—UK goods exports and imports, percentage split by EU and non-EU countries, 12 months to June 2018 (10 August 2018): https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/june2018#exports-and-imports-of-goods-to-and-from-the-eu-increased-by-more-compared-with-non-eu-countries-in-the-12-months-to-june-2018 [accessed 24 August 2018] In terms of UK global trade, trade in goods accounted for almost two thirds (64.9%) of the value of total UK trade between June 2017 and June 2018. Office for National Statistics, Statistical bulletins: UK trade: June 2018 (10 August 2018): https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/june2018#rising-exports-for-both-goods-and-services-led-to-a-narrowing-of-the-total-trade-deficit-in-the-12-months-to-june-2018 [accessed 24 August 2018]
2 HM Government, The future relationship between the United Kingdom and the European Union, Cm 9593, July 2018: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/725288/The_future_relationship_between_the_United_Kingdom_and_the_European_Union.pdf [accessed 24 August 2018]
3 Ibid., p 16
4 HM Government, Future customs arrangements—a future partnership paper, August 2017: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf [accessed 24 August 2018]
5 Ibid., p 2
6 HM Government, The future relationship between the United Kingdom and the European Union, Cm 9593, July 2018: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/725288/The_future_relationship_between_the_United_Kingdom_and_the_European_Union.pdf [accessed 24 August 2018]