Brexit: the customs challenge Contents

Chapter 4: Mitigations open to the UK Government in the event of ‘no deal’

The UK Government’s ‘trilemma’ in the immediate term

97.Mr Thompson stated that in the event of ‘no deal’ the Government would face a ‘trilemma’: “Ministers would need to make a decision about the free flow of trade, the security of the United Kingdom and the raising of revenue, because those are the current three objectives at the border … some choice may have to be made between those three objectives”.138

98.This was acknowledged by Mr Mel Stride MP, Financial Secretary to the Treasury and Paymaster-General, who told the Committee that, in the case of ‘no deal’, in the short term:

“The priority will be to keep the flow moving. There is a trade-off between keeping the flow moving, raising revenues, and security. We will not compromise on security, but particularly in a place such as Dover, where you have to keep flow moving very quickly or you end up with all sorts of problems, there may be a trade-off between keeping the flow going and revenue protection.”139

99.Ms Morley presented a unilateral reduction in regulatory checks as “a choice we can make” to keep the flow of trade moving, based on an assessment that the risk to the UK from EU goods entering the UK will be unchanged.140 However, Mr Lowe cautioned that such unilateral decisions “cannot just be on a whim”, but would have to be taken within a framework “setting out that, if you meet certain criteria, these are the checks that we would apply to your product upon import”. Simply deciding to waive any checks unilaterally without such a framework would risk the UK breaching the WTO’s anti-discrimination rules: the UK could not just decide to “discriminate in favour of the EU absent a preferential trade agreement”.141 If it did, Joe Owen told us, “Other countries have a rightful opportunity to try to take you to the WTO and say, ‘No, this is discrimination’.”142

“A border is like a tango—it takes two”143

100.The smooth flow of goods across borders relies on the two sides of the border co-operating. As Ms Morley pointed out, even if the UK decided to put in place unilateral facilitations to minimise disruption in the event of ‘no deal’, “we cannot influence it where we export to the EU27. They have been quite clear on this and have said they will instigate checks.”144

101.Mr Thompson described how additional checks being conducted in, for example, France, could adversely affect the capacity of UK roll-on/roll-off ports to process the flow of traffic and, therefore, the amount of goods entering and exiting the UK:

“It would be reasonable to speculate that traffic would slow, because it is a closed-loop system in which vehicles exiting France may be subject to the EU’s checks … what happens then is that you end up with a French operations stack, the speed of the ferries slows down and there is an operations stack on the United Kingdom side.”145

102.This point was echoed by the Port of Dover, which stated that, as a result of this closed-loop system, “the Port could be equally affected by checks and delays in Calais or Dunkirk”.146

Contingency planning

103.James Hookham, Deputy CEO, Freight Transport Association, estimated that the EU27 were currently “about nine months behind us” in thinking about how Brexit would affect the UK-EU border.147 Mr Owen explained that a bilateral arrangement between the UK and France to keep the flow of goods through Dover and Calais moving was not an option, as “customs is exclusive EU competence”. He suggested that the European Commission “has been quite keen to prevent substantive dialogue … because customs is a future-relationship issue”. There was, however, potential for officials to work together to understand how each side was going to cope.148 The Port of Dover told us that “at an industry level, the ports of Dover, Calais and Dunkirk are working more closely together”, and this work would be accelerating over the summer.149

Moving away from the border

104.Dr Lars Karlsson, President, KGH Border Services and Managing Director, KGH Global Consulting, and Mr Adams agreed that a shift was taking place “from transaction control to system-based controls”.150 According to Dr Karlsson, trusted trader programmes could facilitate a “move away from doing those formalities at the border, to doing them before and after in the natural process of the company itself, of course based on trust, which you have to prove”.151 Mr Adams agreed that this would “take the strain off the point of border crossing and transaction”.152

105.Mr Owen observed that AEO programmes provided more than just information about separate consignments, but rather intelligence about the trader: “Often an organisation is a far better indicator of whether something is going to be dodgy or dangerous than the list of what is included in that consignment.”153 This allowed for “risk management” to be done before the actual trade transaction, which would mean “again moving away from the border issues”.154

106.For businesses to reap the full benefits of trusted trader schemes in the case of ‘no deal’, as Mr Harra explained, such schemes would have to be mutually recognised,155 for example via a bilateral agreement with the EU. Unilateral facilitations introduced by the UK “would help to some extent, but they would not be as good as mutual recognition of those facilitations, which is what you would seek to reach in an agreement”.156 New trusted trader programmes are considered in more detail in Chapter 5.

Joining the Common Transit Convention

107.Mr Thompson said that “besides the authorised economic operator scheme … we would still seek to become members of the common transit convention”.157 Mr Owen and the Freight Transport Association agreed.158

108.The Common Transit Convention159 facilitates the flow of goods between the EU (where goods may need to cross several countries) and six common transit countries: Iceland, the former Yugoslav Republic of Macedonia, Norway, Serbia, Switzerland and Turkey (which are also signatories to the Convention). The Convention allows for the temporary suspension of customs duties for goods in transit—otherwise applicable at the point of entry into a customs territory—to the point of clearance at the destination.160

109.UK membership of the Common Transit Convention could decrease some of the documentary burden for traders and maintain the UK’s access to EU declaration systems such as the New Computerised Transit System (NCTS).161 We note that joining the Common Transit Convention would also be of benefit to Irish trade with the rest of the EU after Brexit, as two thirds of Irish exporters choose to transport their goods via the UK land bridge, which takes on average 10.5 hours—compared to 20 hours to Cherbourg, France, or 38 hours to Zeebrugge, Belgium, when going around the UK. Using the land bridge is also the more cost-effective option.162 Holyhead, Milford Haven and Liverpool process the majority of Irish trade,163 with EU-destined goods being transported from there to ports like Dover, for onward delivery across the Channel.

110.Mr Thompson thought that joining the Common Transit Convention “could make some difference, and there are ongoing negotiations … After that, I am slightly struggling with whether there is much more that you can do.”164 Mr Owen concluded: “there are some levers that you could pull in a no-deal scenario, but they would far from mitigate it.”165

HMRC preparedness

111.In the case of a ‘no deal’ Brexit, HMRC has estimated that it will need to process a five-fold increase in customs declarations.166 Mr Thompson and Mr Harra were confident that they would be able to cope with the additional workload. A recruitment drive was underway and a total of 1,113 additional staff had been recruited by the end of May 2018, with job offers having been extended to almost a further 1,500. Mr Thompson told us: “I expect us ultimately to need between 4,000 and 5,000 additional staff to cope with the volume of increased administration from the increased numbers of customs declarations.”167

112.Mr Harra told us that HMRC would carry out this recruitment plan regardless of the final shape of post-Brexit customs arrangements “If, as we expect, we end up in an agreement with the EU, we will put those staff to other work and get the benefits to the Exchequer from that, but we are not waiting for certainty to execute our no-deal plan. We are making progress on it as we speak.”168

Longer term improvements to customs controls

113.While HMRC reassured us that a plan was in place to introduce customs controls between the UK and the EU from March 2019 if necessary, Mr Harra confirmed that “it would not be optimal from day one. We would need to make a number of improvements from March 2019 to try to reduce friction and costs in that system.”169

114.Mr Stride referred to an “end-state model with no deal” that would include “a very highly streamlined and very facilitated and efficient border”, but recognised that this would not be ready for 29 March 2019. He added:

“One component would be an inventory-based system at the port that allows you to match pre-declarations made en route to Calais, via vehicle number plate recognition technology, to the inventory system, which would tell you what is on the particular truck. That would help to control the whole process and keep it moving.”170

115.We note that this ‘end-state model’ does not take account of the specific sensitivities relating to surveillance at the Northern Ireland/Ireland border.171

Future digitisation of customs procedures

116.Witnesses also discussed the increasing digitisation of customs procedures, which is happening independently of Brexit and which could be of some benefit to the UK in the longer term.

117.Ms Morley, for example, expected the need for customs declarations, as they exist today, to be gone “in five or 10 years’ time … because it will be all about technology, data flow and risk management. It will almost be untouched by human hand, because it is data flow.”172

118.HMRC officials explained that they were seeking to build a business case for emulating the Singaporean model of single-window technology. Mr Thompson said: “Singapore has very much thought about the trader and integrated all of government around the trader. That is the fantastic thing they have done there.”173 Mr Owen said this meant “a single point of contact” for traders,174 which would integrate all of the 26 Government organisations involved at the border.175 While in the UK, some Government agencies at the border require a “a so-called wet stamp … an actual stamp on a piece of paper”, in Singapore “everything is done electronically and you can remove the wet stamp”.176 Yet Mr Thompson also cautioned that the technology would be costly and take time to implement:

“We have set out the bones of it and Ministers are very interested, but, to be transparent with you, it is a significant technology programme—hundreds of millions of pounds—and will take five years to implement, to be up front about it.”177

We note that while this will facilitate the interaction between traders and Government agencies, it will not remove the need for checks of goods, where necessary.

Conclusions and recommendations

119.There are only limited options available to the Government to mitigate the disruption that would be caused by a ‘no deal’ Brexit. The Government would face a ‘trilemma’ between keeping trade moving, ensuring security of the border, and the collection of revenue.

120.The Government’s position that, in the case of ‘no deal’, customs checks of goods arriving from the EU could be unilaterally suspended, may be in breach of WTO rules. We call on the Government to set out its plans to ensure fair and equal treatment of all imported goods coming in on most-favoured nation terms.

121.Even if the UK decided unilaterally not to introduce customs controls in the case of ‘no deal’, the EU has indicated that it would introduce such controls. As the ports of Dover and Calais operate as a ‘closed-loop system’, this would lead to delays on both sides of the Channel. To mitigate this, the ports of Dover and Calais will need to collaborate on contingency arrangements and we urge the Government to support such efforts. The Government should also articulate a plan for continued co-operation with EU customs authorities in the event of a ‘no deal’ Brexit.

122.Globally, there is a trend towards moving some of the physical controls and risk assessments of goods away from the border. This can assist with the goods clearance process. The Government should consider utilising and building on such systems at the UK-EU border in the case of ‘no deal’.

123.We welcome the Government’s intention to join the EU’s Common Transit Convention after Brexit.

124.We also welcome HMRC’s recruitment of additional staff to prepare for a ‘no deal’ Brexit, and the assurance that these staff will be put to good use even in the (preferred) event of agreement being reached.

125.Customs procedures are likely to rely increasingly on electronic data in the future, rather than on paper declarations. We welcome the Government’s consideration of single-window technology, which would provide traders with a single point of interaction with various UK Government agencies. At the same time, we note that this technology is untested in the UK, will not obviate the need for checks and will not be available in the short term.

141 Ibid.

142 Q 77 (Joe Owen)

143 Q 37 (Stephen Adams)

145 Q 87 (Jon Thompson)

146 Written evidence from the Port of Dover (BCA0007)

148 Q 77 (Joe Owen)

149 Written evidence from the Port of Dover (BCA0007)

150 Q 47 (Dr Lars Karlsson and Stephen Adams)

151 Q 47 (Dr Lars Karlsson)

152 Ibid. (Stephen Adams)

154 Q 36 (Dr Lars Karlsson)

155 Mutual recognition means that two customs administrations agree to recognise the AEO authorisation issued under the other administration’s programme and provide reciprocal benefits to AEOs of the other programme. The EU has concluded and implemented Mutual Recognition of AEO programmes with Norway, Switzerland, Japan, Andorra, the US and China, with further negotiations currently taking place: European Commission, ‘Authorised Economic Operator (AEO)’: [accessed 24 August 2018]

156 Q 87 (Jim Harra)

157 Q 87 (Jon Thompson)

158 Q 77 and written evidence from the Freight Transport Association (BCA0001)

159 The Common Transit Convention was agreed in 1987. It has subsequently been amended on numerous occasions to accommodate changes in EU membership and legislation, most recently in December 2017 by EU/EFTA Joint Committee Decision 1/2016 which aligned it with the Union Customs Code. Convention between the European Economic Community, the Republic of Austria, the Republic of Finland, the Republic of Iceland, the Kingdom of Norway, the Kingdom of Sweden and the Swiss Confederation, on a common transit procedure (OJ L 226, 13 August 1987).

160 European Commission, ‘What is customs transit’: [accessed 24 August 2018]

161 Joe Owen, Marcus Shepheard and Alex Stojanovic, Implementing Brexit: Customs, p 18, p 29: [accessed 5 September 2018] The report also notes that not all EU customs systems can be accessed by non-Member States.

162 Written evidence from Port of Dover (BCA0007)

163 Freight Transport Association Ireland, ‘Brexit: Briefing note’: [accessed 12 September 2018]

164 Q 87 (Jon Thompson)

166 Q 82 (Jon Thompson)

167 Q 88 (Jon Thompson) By contrast, the Freight Transport Association, in its evidence to the Committee, was more sceptical about the resourcing of customs teams. See Q 14 (Clive Broadley)

168 Q 88 (Jim Harra)

171 Some of the Committee’s concerns were raised in the letter from Lord Boswell of Aynho to the Rt Hon Karen Bradley MP, Secretary of State for Northern Ireland, on 27 February 2018:

175 90 (Jon Thompson)

176 Q 89 (Jon Thompson)

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