After the prime minister’s statement on leaving the EU to the House of Commons on 9 October, a Customs Bill White Paper was published, together with a separate paper on trade policy (which we have covered here). It reflects the position paper on the Irish border (the “Position Paper”) and the future partnership paper on customs cooperation (the “Future Partnership Paper”) published by the government and directed to the EU negotiators earlier this year.
The White Paper underlines the challenges that will be faced by the drafters of the eventual Customs Bill. There is still a wide range of possible outcomes from the Article 50 process, from no deal to temporary customs union. The White Paper presents proposals for the full spectrum, from implementation of a negotiated arrangement to contingency scenarios if no agreement is reached.
The customs legislation currently in place, the Union Customs Code ("UCC”), is an EU regulation which will not be carried into UK law by the EU Withdrawal Bill because matters of taxation are carved out. So standalone customs legislation will be required, although the intention is still to replicate the UCC in domestic law, with only those changes necessary to make it work autonomously.
The White Paper envisages delegated powers to set tax rates and administrative matters in connection with collection and enforcement, which is usual in taxation legislation. It also sets out delegated powers to enable the government to implement negotiated outcomes, if a deal is reached. No doubt the scope of and scrutiny over the exercise of such powers will be closely analysed by MPs and lawyers when the draft bill comes before Parliament.
Non-tax border issues – such as anti-counterfeiting, drugs and firearms activities and animal and public health checks – will not be covered in the Customs Bill, although the White Paper acknowledges that these matters are vital for trade, safety and security, and will be addressed, working with devolved administrations, in future proposals.
The most interesting aspects of the White Paper relate to the proposals for a negotiated outcome, an interim implementation period and a contingency scenario where no agreement is reached with the EU (although a mutually beneficial outcome to negotiations is still what the government “hopes for and expects”). Broadly, existing policy as outlined in the Position Paper, the Future Partnership Paper and elsewhere is restated.
The intention of the implementation period is to ensure that businesses and people only have to adjust to a new customs relationship once. One proposed model is a “new and time limited customs union”, whereby the UK would continue to maintain the EU’s Common External Tariff on imports from the rest of the world, so that there would be no need for customs processes between the UK and the EU, while the necessary arrangements to effect the new agreement (or absence of agreement) were put in place. The end state arrangements envisaged include the “two broad approaches” put forward in the Future Partnership Paper:
- A “new customs partnership” is an innovative approach that the Future Partnership Paper first put forward as a way of avoiding customs formalities between the UK and EU without tying the UK to the application of the Common External Tariff. It would involve differentiating goods entering the UK from the rest of the world that are destined for the EU (on which the EU CET would be applied) from those that will be placed on the market in the UK (on which the UK external tariff will be applied). This model is not developed further, as it is acknowledged that it is “innovative and untested” and that work is required to understand the “practical complexities” of making it work.
- A “highly streamlined customs arrangement” would involve customs formalities being reintroduced to UK/EU trade but with facilitations and simplifications to reduce the burden of compliance. For example, the government is looking to
- Negotiate a waiver from the requirement to submit entry and exit summary declarations for goods moving between the UK and the EU;
- Remain a member of the Common Transit Convention, to allow goods to continue across member states;
- Negotiate the mutual recognition of accredited Authorised Economic Operators (traders who have met the criteria to benefit from certain simplifications such as self-certification of origin and aggregated payments); and
- Agree the joint implementation of a technology solution for roll-on, roll-off (“ro-ro”) ports like Dover and Calais that would allow vehicles to pass through without stopping.
The government also wishes to continue to contribute to the wider safety and security agenda by way of mutual assistance and data sharing. Such measures would be intensified for the Irish border. The White Paper also sets out some unilateral measures that are available, such as self-assessment (allowing traders to calculate their own duties and make declarations in aggregate), increased automation and better use of data.
The options outlined for the contingency scenario include measures to avoid holding vehicles at ro-ro ports, like requiring pre-notification of consignments, presentation of goods at inland locations and implementation of the other simplifications outlined above in respect of the highly streamlined customs arrangement. Together they would form a stepping stone to the technology solution for ro-ro ports envisaged as a negotiated solution in the Future Partnership Paper.
The White Paper does not advance further the proposals for the Irish border in the Position Paper, but reiterates the UK intention not to establish physical infrastructure on its side of the Irish border, and that it will have the “flexibility to determine its own border arrangements for the purposes of goods movements”. Together with the proposals in the Ireland Position Paper to exempt small businesses and carry out enforcement and inspection on larger businesses away from the border (and its rejection of the idea of a customs border between Northern Ireland and Great Britain), this suggests that, in the absence of agreement on the matter, the UK will challenge the EU and the Republic of Ireland either to reciprocate in deploying solutions away from the border, or to impose a border on the Irish side only.
A series of considerations is put forward in respect of parcels, which will be of particular interest to e-commerce businesses. It is expected that air freight customs operations will be broadly similar to those already in place at airports. The government intends that even in the contingency scenario, for individuals carrying goods into the UK for personal use, no tax will be payable, in line with current practice.
Although continuity is the immediate priority, longer term reforms to the UCC are envisaged, and some businesses have already highlighted areas of the UCC that were not supported by the UK (treatment of third party licence fees and royalties, the withdrawal of drawback and procedures for end use transfer of liabilities and discharge) that could usefully be amended. It is arguable that such measures should be reprioritised in the ‘no deal’ contingency scenario, to mitigate the additional compliance burdens that would fall on trade with the EU and improve efficiency for rest of world trade.
There is a summary of VAT and excise duty impacts on transactions, where changes in accounting treatment may be required outside the EU framework. As with customs duties, the aim will be to retain existing EU-derived laws in domestic law as far as possible.
The White Paper concludes with a series of questions seeking engagement from businesses and consumers on areas including operational impacts, experiences of best practice in existing non-EU trade, use of intermediaries like freight forwarders and best uses of technology. Responses to the questions and generally to the content of the White Paper are encouraged before 3 November, although there is no formal deadline.
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