The UK government’s position paper on a future customs regime with the EU is a good start but businesses cannot afford to relax because of it.
How should business react to the government’s draft plan on the future of EU-UK trade? The paper’s publication was encouraging, offering us more clarity on the UK’s position as well as a signal to business that the government understands the seriousness of the issue and is working to fix it. The fact that it proposes a transitional period was especially important.
A good start is only a start, however. A potentially long, and probably rocky, road lies ahead, so it would be a brave business leader who sat back and relaxed at this point. My advice to clients remains “press on” with contingency plans for what could be a very different customs landscape in a few years’ time.
The first obstacle is political. Here in the UK, we can debate the pros and cons of the proposals as much as we like. But it is the reaction in 27 other capitals that we need to hear. Leaving aside the cost and technical hurdles that may put them off, the EU27 understandably retain a basic position that life outside the EU should not feel better than inside. In that case what will they make of the UK proposing an interim arrangement in which it effectively remains inside a Single Market for goods (with no customs duties or declarations) while it negotiates trade deals with third countries on the side?
From a technical perspective, the government’s proposals are also highly ambitious. The new Customs Declaration System needs to be able to cope with post-Brexit estimates of 200 million extra declarations a year (a five-fold increase). The paper says it has the flexibility to cope with future trade flows, setting out two potential avenues. However both the proposed “highly streamlined customs arrangement” and the “new customs partnership” would require significant process and IT changes from both HMRC and thousands of businesses in the UK and EU. Automation would help, but the necessary investment in technology, infrastructure and skills to establish these yet-untested systems is daunting. Short transitional timescales would further ratchet up the pressure and cost.
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We will need to remain on our toes: the final outcome could be anything from a continuation of a something that looks very similar to today, through to a vacuum of any agreed system if talks collapse … and everything in between. There will come a point, where companies will have to commit to one of these options, but we’re not near making that call yet in most sectors.
In the meantime, the first task of any business is to understand and quantify the exposure of operations and supply chains to international trade. After that they need the right infrastructure in place and skills to react. Increasingly it looks like technology will play an important role in any new arrangement and if that is the case, companies with AEO status will likely hold an edge. Becoming an authorised economic operator isn’t easy – quite a few applicants drop out along the way because of the high bar they have to hit. Yet being able to pre-clear goods and preparing access to special customs facilities such as customs warehousing in a potentially confused situation immediately after Brexit could be crucial. Just the rigour of applying for AEO gives companies a much better understanding of their trade infrastructure and exposure and therefore what they need to do between now and Brexit Day 2019.
No trading operation can park this issue with government, not only because they need to prepare but also because the government needs the input of business to help shape the UK’s approach. The best way to get the trading relationship business needs is for business to be at the heart of the conversation in the first place.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.