Customs: What the Government position paper told us

Today, the Government published its first Brexit position paper, which covers future customs arrangements. It is a short document, only 16 pages long and intended to be a precursor to a White Paper on trade which is scheduled to appear in the autumn.

What does it tell us? Firstly, the Government has been talking to businesses concerned about a “cliff edge” situation on 29th March 2019 and is seeking to ensure that we will end up with  “the freest and most frictionless trade possible in goods between the UK and the EU, and allows us to forge new trade relationships with our partners in Europe and around the world.”

The paper expresses enthusiasm for striking trade deals with “old friends and new allies” – in other words, the Commonwealth nations and the rapidly growing economies of Asia. We can only do this from outside the EU and particularly, outside the Customs Union. It was announced very early after Mrs May took office that we will be leaving the EU’s customs union – in many ways, this was a bit of a non-issue as it was hardly mentioned during the referendum campaign.

The paper recognises  the challenges of establishing a new relationship with the EU. As a short-term transitional measure, what is proposed is in effect a shadow customs union where by the EU will treat the UK as thought it was a member of the customs union. David Davis, interviewed on Radio 4 today, was adamant that the transitional period would end before the next General election – probably no more than two years – to be replaced by a “deep and special partnership” with the EU. This, the paper admits, will be an innovative but untested approach. It suggests two options:-

  • A highly streamlined customs arrangement between the UK and the EU, streamlining and simplifying requirements, leaving as few additional requirements on UK-EU trade as possible. This would aim to: continue some of the existing agreements between the UK and the EU; put in place new negotiated and unilateral facilitations to reduce and remove barriers to trade; and implement technology-based solutions to make it easier to comply with customs procedures.
  • A new customs partnership with the EU, aligning our approach to the customs border in a way that removes the need for a UK-EU customs border. One potential approach would involve the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU.

There is, in theory, a third option – failure to reach an agreement (see Paragraph 53), but the paper insists that “this is not the Government’s preferred outcome to the negotiations, but it is essential that the UK is prepared for all possible outcomes of customs arrangements.” As for the first option – a high-tech solution, there are some doubts as to whether it really will create frictionless borders, especially as soon as March 2019. As one analyst has said, ” making sure there are no traffic jams in Dover will be more about the arts of management, politics and the law than technology.

The obvious concern on reading the paper through is that this paper is very much a UK wish list. The EU is under no obligation to say yes. What is a particular cause for concern is that its treaty-based structure may not allow it to treat us as an honorary member of its Customs Union.  It is likely that we will be able to devise a system allowing  goods from the EU a reasonably smooth passage through UK customs by March 2019, especially as the if the new customs declaration service using state-of-the-art technology is up and running by then. What is far from certain is that our exports to the EU will enjoy anything like a seamless passage through their customs.  The EU will have to change its customs procedures to adapt to the different  status of the UK on Brexit. Are they prepared to do this?

We will have to wait a while for a formal response. So far, the main comment from Michel Barnier, the EU’s chief negotiator, is that no discussions on customs can proceed until sufficient progress is made on the UK’s exit bill, the Irish border and the rights of EU citizens living in the UK after Brexit. Guy Verhofstadt, representing the EU Parliament, was  very sceptical, dismissing talk of a shadow customs union and invisible borders as “fantasy”.

One also would like to know if the author(s) of this paper are sufficiently aware of the differences between a customs union and a customs clearance agreement.  The latter is essential, the former almost certainly not, even as an interim arrangement.

The CBI has nonetheless described the proposal as “encouraging”.  David Davis’ interview made it clear that his Department still has a few cards up his sleeve and that for tactical reasons, he was not prepared to give anything further away. What has been put into the public domain has shown that the Government is aware of the issues UK businesses will face but offers little detail on how they will be resolved.

Clash of cultures – the root of our Brexit difficulties

Can the conflicting opinions on the EU’s intentions in the Brexit negotiations be reconciled? In my hearing, a staunch Brexit supporter recently referred to Michel Barnier as a “reasonable man” whereas  I have read numerous comments from people convinced that the EU wants to punish us and will deliberately be as unreasonable as possible. Who is correct?

It cannot be denied that Brits and Continentals do seem to have a different mindset when it comes to negotiations. Our attention was recently drawn to an interesting article on this subject on the Conservative Home website by James Arnell, a lawyer with some experience of negotiating with people from European countries. He claimed that such people begin with unreasonable demands and only at the last minute does a deal emerge.

Fair enough, but this does not get to the heart of the conundrum. The fundamental problem is that many of us don’t understand the difference in culture between our country and the majority of the other member states.

It goes back centuries, possibly longer. Essentially, our Common Law legal system bequeathed to us a love of liberty and flexibility. We don’t like everything to be rigidly codified and prefer laws to which we can adhere to in spirit rather than obeying to the letter. Such a mindset is as inevitable outworking of Common Law with its insistence on equality and inalienable rights.

Across the water, the two most influential figures in the development of law were the Byzantine emperor Justinian (d.565) and Napoleon. Their legal systems, which form the basis of  most of the law codes in Europe, were very top-down. Freedoms were conditional and the concept of everyone being equal before the law was unknown.

The EU’s approach to lawmaking is very much in that tradition and like all such systems, tends to be very exact and very bureaucratic. It will legislate in great detail in areas where an independent UK would not have been so precise or perhaps, not bothered at all. We may have laughed at the cuddly toy sheep depicted in Regulation 1462/2006, but it graphically illustrates the difference in approach which has been one of the biggest problems facing our politicians and civil servants since 1973 and which lies at the root of the lack of progress with the Brexit talks.

Very few UK politicians have appreciated the difference in mindset between ourselves and the rest of the EU – even those who have supported our membership. On one occasion, Sir John Major was taken to one side by Helmut Kohl, the former German Chancellor, and told to go home and read the treaties as he clearly had never done so.

This mindset manifests itself in various other ways, some mildly amusing, others frustrating. The Civil Service did not always find it easy to convert EU directives into UK law and often ended up “gold-plating”  – in other words, interpreting them in an excessively strict manner. A German motorist was once apprehended by the police for driving his Porsche at well over 100mph on a UK motorway. His excuse was that the 70mph limit did not seem to apply as so many other cars were going faster. In other words, he could not get his head round the concept of obeying the spirit but not the letter of the law – a guideline rather than something always enforced to the letter.

The different legal status of a UK policeman compared with a Continental Gendarme is another aspect of the same clash of mindsets. As Christopher Gill, one of the former “Maastricht Rebel” Conservative MPs explains,

“The tradition of British policing has been to protect individuals and their property from criminal activity and to apprehend those who transgress whereas on the continent police act almost like an army of occupation, responsible for public order enforcement, crowd control and generally buttressing the authority of the civil state as opposed to defending the freedom of the individual citizen”.

On a personal note, I can recall during my time working in Brussels how often colleagues used to moan about Belgian bureaucracy. The amount of form-filling required to register for residence or to let the authorities know that you worked for the EU and were thus covered by different tax arrangements was quite staggering. Yet it didn’t seem to bother the Belgians that their taxes were being used to pay the salaries of some public sector workers whose sole occupation seemed to be to stamp forms!

When we joined the EU, however, whether our politicians understood it or not – and most of them almost certainly didn’t – we agreed to play by their rules and in leaving the EU, it is exactly the same. Under Article 50, we have two options – to come to an agreement or leave without one. As M. Barnier has pointed out, it was our decision to leave. If, therefore, we want to leave by the EU’s approved route, our exit negotiations have to be conducted according to EU rules which limit the scope for flexibility. The EU in other words will not be flexible because it CANNOT be flexible in some areas where our ministers would like a bit of “give and take”.

For instance, Liam Fox’s claim that an EU-UK trade deal would be “the easiest in history” because we are beginning with zero tariffs and maximum regulatory convergence fails to take into account the simple fact that under EU rules, we become a “third country” on independence and the treaties cease to apply. Whatever the levels of convergence, in March 2019 our entire current relationship with the EU will be no more and any new trading arrangements will need to be put together on a totally different basis.  The EU can’t bend the rules for us, whether it wants to or not.

This clash of cultures shows why it was right to vote to leave last year. It also explains why we are likely to prosper once we have left, even though when it comes to international trade, we will still be subject to any regulation originating with global bodies. David Davis’ “sunlit uplands” are therefore not a total fantasy, but we’ve got to get there first! We will only do so if our negotiating team fully get to grips with the nature of the organisation we are trying to leave. It may be boring, tedious stuff, but if we are to leave smoothly, there is an urgent need for Civil Servants and politicians alike to heed the advice which John Major never took – Go and read the treaties!

 

 

Photo by archer10 (Dennis) 100M Views

Cameron’s legacy of confusion

David Cameron didn’t expect to lose last year’s referendum and banned the Civil Service from devising any exit strategy. That became an excuse for a nine month gestation period by Mrs. May which delivered only repetitions of “Brexit means Brexit”. The official leave campaign, vote.leave, refused to devise an exit strategy either. The only serious research on offer before the referendum which charted a comprehensive exit strategy was Flexcit, which recommended the EEA/EFTA route as a transitional arrangement. Since the referendum, only one further independent, detailed attempt has been made to tackle the issues involved – the Bruges Group’s What will it look like? which claimed that another exit route was possible within the time limit, while recognising a number of potential obstacles.

A recent post by Sir Jeremy Heywood, the Cabinet Secretary and head of the Civil Service painted a very upbeat picture of the work being done by the newly-created Department for Exiting the EU but he didn’t go into any detail about exit strategy. This department has far more staff available than the Bruges Group so it is rather worrying that we still know so little.

As our Chairman, Edward Spalton, has pointed out, when we joined the EEC in 1973, businesses were being briefed over a year in advance about the forthcoming changes.  Recently, a number of businessmen  who  met with government ministers, including the Brexit secretary David Davis, were very concerned about the lack of  detail they had been given. Similar reservations have come from groups ranging from the chemical manufacturers and the Federation of Small Business – the latter including a number of long-standing Brexit supporters.

Mr Davis unquestionably feels very confident about the UK’s prospects outside the EU. In the long term he could well be right. To be free of control by Brussels and able to manage our own affairs will be an inestimable benefit – but only if we are able to chart a sensible course through the choppy waters of what are shaping up to be far more complex negotiations than many Brexiteers ever imagined.

The stakes could not be higher for Mrs May and the Conservative Party.  There will be no backing out of Brexit.  Even though only a minority of MPs campaigned for leave, the majority of her party’s activists are staunch leavers and would not countenance any sort of betrayal. The unexpectedly strong showing by Labour in last month’s General Election only adds to the pressure. Any failure to deliver a competent Brexit as good as guarantees Mr Corbyn the keys to No. 10 in 2022 – or perhaps earlier.

Leaving  the EU  is the biggest challenge Mrs May and her team will face. We do not know what is going on behind the scenes but  the government  needs to have sufficient known policies in view to reassure the public, to avoid disrupting  economic expectations  and to deny traction to the campaign to rejoin the EU. Advice to all industries concerning the effects of government plans needs to be given in plenty of time for them to adjust.

To put it another way, our EU membership has been like a malignant, cancerous tumour. Untreated, it would have led to certain death. That’s why we were right to vote to leave. However, the complex task of cutting it out should  be done by a team of top surgeons who not only know what they are doing but can communicate their knowledge and confidence to the people. At the moment, even though there seems to be a growing agreement that some sort of transitional deal is necessary, no details at all have emerged.

Membership of the Single Market, even as an interim arrangement, has been ruled out and significantly, it was the Chancellor Philip Hammond, one of the “doves” in government, who stated this explicitly on the Andrew Marr show last Sunday. So what will it include? Catherine McGuinness, the de facto leader of the City of London’s municipal body, says Britain and the EU must agree the outlines of any transition before the end of the year or as many as 15,000 banking jobs could leave London.

The sense of lack of concentration was not helped by a picture of Michel Barnier and his EU team turning up  for the second round of Brexit talks with  great thick folders of notes while David Davis and his associates had none.

So will some positive signal emerge to calm worried businesses  – and indeed, worried Brexit supporters? If so, the sooner the better, as the opponents of Brexit are gleefully cashing in on the  lack of direction,  communicated by default.   Most people just want to see Brexit done and dusted with reasonable assurance of that steadily performing  economy on which all our livelihoods depend.

 

Michel Barnier’s recent speech – some salient points

Either Michel Barnier, the chief EU negotiator for Brexit, is off his head or there are fundamental misconceptions being held by our government’s Brexiteer Big Beasts.  The following is a summary of the most salient points apparently made by Mr Barnier speaking ‘frankly and sincerely’ about Brexit recently in Brussels to the European Economic and Social Committee.  A more detailed analysis is provided on EUreferendum.com, Brexit: Barnier – “that is not possible”.

Point 1 – on being outside the Single Market and Customs Union

“There will be no business as usual. The UK will become a third country at the end of March 2019”.

Point 2  – on the UK cherry-picking (through negotiations)

“There can be no sector by sector participation in the single market: you cannot leave the single market and then opt-in to those sectors. You cannot be half-in and half-out of the single market”

Point 3  – on being able to ‘influence’ the EU from the outside

“The EU must maintain full sovereignty for deciding regulations: the EU is not only a big marketplace. It is also an economic and social community where we adopt common standards. All third countries must respect our autonomy to set rules and standards. And I say this at the moment when the UK has decided to leave this community and become a third country.”

Point 4  – on the British Side being out of touch with the reality of the EU

“I am not sure whether they have been fully understood across the Channel”. “I have heard some people in the UK argue that one can leave the single market and build a custom union to achieve ‘frictionless trade’, ……that is not possible”.

Point 5  – on the status of UK having left the EU – comprehensive free trade agreement (even if agreed before then doesn’t change this status)

“Whatever the outcome of the negotiations, at midnight on 29 March 2019, the United Kingdom will at the present stage be a third State, which will therefore not have the same facilities and rights as a State Member of the European Union. It’s its choice. Not ours”.

Point 6  – on trading from the outside being more difficult (e.g. customs duties and non-tariff barriers exist)

“A trade relationship with a country that does not belong to the European Union obviously involves frictions”.

Point 7  –  on no deal (trading under World Trade Organisation Rules) being a practical non-starter

“I therefore want to be very clear …to my mind there is no reasonable justification for the ‘no deal’ scenario. There is no sense in making the consequences of Brexit even worse”.

Point 8  – on cutting losses arising from the new relationship between the UK and EU

“Business should assess, with lucidity, the negative consequences of the UK’s choice on trade and investment. And prepare to manage them”.

To conclude

Mr Barnier has a conception of Brexit negotiations that is not shared (publically at least) by our government. The main takeway from M. Barnier’s speech (and assessment) is that he feels the UK is unprepared for Brexit or even to negotiate realistically based on the reality of dealing with the EU. A comprehensive free trade agreement finalised within two years isn’t going to happen, he claims, and would not solve all problems of seamless access to the Single Market. And it will not be all right in the end unless the UK’s Brexit negotiators understand what is actually involved.

Photo by EPP Group in the CoR

The great trade muddle

“We are leaving the European Union… We are leaving the Single Market… We are leaving the Customs Union.” Theresa May has repeated these phrases on numerous occasions since her Lancaster House speech in January.  Only last week, Steve Baker, the new Brexit minister, insisted that there would be no watering down of the Brexit strategy. “It’s like putting blood in the water to even talk about the EEA,” he said. “We don’t want to be a rule taker, for all the reasons that David Cameron gave during the referendum. We mustn’t take up some of those ideas.”

The Customs Union is a red herring. It never came up during the referendum debate last year and, one suspects, it has only re-surfaced recently because some people may well not know the difference between it and the Single Market.

The Single Market is another matter. It is not true, as suggested by a number of senior EU figures  including Michel Barnier, the chief negotiator, that the four “freedoms of movement”  – goods, services, capital and people – are indivisible.  They may be for EU member states, but not for the non-EU countries in EFTA. Iceland imposed restrictions on the movement of capital when its banks collapsed and Liechtenstein still imposes restrictions on immigration from the EU. Furthermore, no Brexit campaigner suggested that the “Norway Option” or even the “Liechtenstein Solution” should be anything other than an interim arrangement to get us safely through the EU’s exit door within the Article 50 timescale.

It is certainly not an ideal arrangement, and some leave campaigners, including CIB Committee member Ian Kealey, have offered a number of reasons why it should be avoided even as a temporary solution.  Carolyn Fairbairn, the Director General of the Confederation of British Industry, which represents large employers,  has nonetheless been pushing hard for us to adopt this approach. Some leavers are naturally suspicious of an organisation which campaigned for us to stay in the EU, arguing that the real motive of the CBI is to stop us leaving the EU at all. For all the objections to re-joining EFTA and accessing the Single Market via the EEA agreement, the fact is, countries which use this model are most definitely outside the EU as this helpful comparison by CIB Committee member Anthony Scholefield illustrates

Mrs May, however, has not shown any enthusiasm for this route, although she mentioned the possibility of an interim arrangement as far back as November of last year, without going into any details. Her  recent pronouncements have been very much about the long term, stating her desire to sign a “bold and ambitious” trade deal with the EU by March 2019 and only yesterday, at the G20 summit in Hamburg, she said she wanted a “deep and special partnership with the EU, a comprehensive free trade agreement with the EU, so that we can continue to trade with the European Union. That’s not just in our interests in the interest of the other 27 member states as well.”

Fair enough, but only two days ago, Michel Barnier said that “There will be no business as usual.” To underscore the point, he later continued, “I have heard some people in the UK argue that one can leave the single market and keep all of its benefits – that is not possible.”

It has been argued that many other countries trade with the Single Market without being members of it. This is true, but they do not get 100% access nor of the benefits. There will inevitably be obstacles. Most people who have looked at this complex subject accept that being outside the Single Market will involve some loss of trade access to the EU. The big question is whether or not they can be minimalised.  The Bruges Group has come up with an alternative which, its authors claim, can be implemented in eighteen months and which would address the main concerns of business, including non-tariff barriers. However, it does not deny the presence of significant obstacles.

We do not know whether or not this report is being digested by the Civil Servants of David Davis’ department. What we can say is that there has been precious little comment from the government on its  proposals regarding this important subject. To date, the Bruges Group proposal is the most detailed study of a non-EEA  solution to the trade conundrum which would avoid the need for any interim arrangement.  If it isn’t going to be adopted but something better has been produced, it clearly hasn’t reached the ears of the CBI or some other concerned politicians who advocate our remaining in the EEA.

What is worrying is the lack of a detailed response to these concerns. Could it be that even a year on from the referendum, the Government still doesn’t have any idea of what its Brexit trade strategy should be? When we joined the EEC (as it was) over forty years ago, businesses were given increasingly detailed guidance, starting over a year before entry. If the transition to independence is to be seamless, businesses need adequate notice to comply with whatever the new arrangements will be. Regulation has become a lot more complex since 1973 and the process of informing them of what needs to be done will surely need to start no later than March next year.

With some economists suggesting that the UK economy is slowing, some leave campaigners have expressed a concern that Brexit may not actually happen given the additional challenges which lie ahead. We do not believe this to be the case as any backtracking on Brexit would be suicidal for the government and the Conservative Party. Nonetheless, the Article 50 clock is ticking away and if the government is still in a muddle about trade, we may end up going down the EEA/EFTA route as an “off the peg” solution which, due to time constraints, could end up by default as the only way of preventing a “cliff edge” scenario in March 2019.

A small step – the denunciation of the 1964 Fisheries Convention at last!

Within a week of taking up his new post as Secretary of State Environment, Food and Rural Affairs, Michael Gove, has finally denounced the London 1964 Fisheries Convention. This is a small and welcome step towards Brexit, but one which should have been done at the same time as Article 50, as both require two years’ notice of termination. It means that unless we get a time extension to the Article 50 process, there will be a 3-month overlap.

The 1964 Convention was an agreement between the UK and some other European countries about fishing rights in each other’s waters. It was disadvantageous to UK fishermen and very beneficial to the French, possibly as a sop to General de Gaulle, who was not at all keen to see us join the European Community, with which we were currently in negotiations with at the time.

There are some grounds for saying it may make little difference as the Convention is vessel-specific and very few, if any, boats mentioned in the 1964 agreement are likely to be commercially active.

Of course, our membership of the EU has superseded it. Michel Barnier tweeted yesterday:-

UK denunciation of London Convention=no change: EU law/Common Fisheries Policy had superseded it. EU 27 interests=my priority for negs

This is a very telling. In one sense, Barnier is correct, as the detail of the Convention was transferred into EU regulation. On Brexit day, however, the regulation ceases to apply, and we revert to previous domestic legislation which, if it had not been denounced today, would have continued the right of access to our 6 to 12 nautical mile limit.

Note again, “EU 27 interests=my priority for negs.” Given that France gained most from the 1964 Convention, in any negotiations for a post-Brexit fishing settlement, you can expect France to demand access rights to fish in UK waters.

So while today’s move has cleared the way for UK control of our waters up to 12 nautical miles from the coast, there is still the question of control of our seas between 12 and 200 nautical miles (or the median point where the sea is less than 400 nautical miles wide). The Great Repeal Bill will repeal the European Communities 1972 Act, but at the same time will repatriate EU law into UK law – in other words, EU legislation will still be on our statute books but will take its authority from Westminster and not Brussels. This means that while Article 50 would take us out of the Common Fisheries Policy, the Great Repeal Bill, unless it excludes fisheries, would more or less take us straight back in again.

The separate Fisheries Bill will counter that, as long as it takes effect at exactly the same time as, or before, the Great Repeal Bill. If there is any overlap, this will result in huge problems of continuity and legal challenges.

As the time ticks away towards 30th March 2019, ministers need to remember the Kent Kirk case. This Danish skipper deliberately fished in UK waters to test the situation when there were uncertainties following the termination of a fisheries agreement without anything being put in its place.

Once we reach the end of the Article 50 period in March 2019, all EU treaties and regulations will cease to apply to the UK, and we revert to our own UK legislation. It is vital to sort out a fisheries policy before then and the timetable is short. Under Article 50, unless there is unanimous agreement among the 27 members to extend the two year period, we have 21 months left to achieve a withdrawal agreement. When you consider all that needs to be done in such a short space of time, it raises the question as to whether this is possible.

The EU is in the driving seat when it comes to determining the terms of withdrawal. The UK can say yes or no and even then, the Council and the European Parliament have a vote. While the EU is obliged by treaty to conclude a deal, it could make life so difficult that the UK either has to submit or say no.

However, circumstances have dealt us a strong hand as far as fisheries is concerned. If there is no fisheries agreement, no EU vessel will be able to fish in our waters. Given the French fishing Industry needs access to UK waters to survive, it will be putting a lot of pressure on the EU’s negotiators to fight hard on its behalf. It is vital that our side does not give in. Gove has thrown down the gauntlet and even today’s action has ruffled a few feathers. He will need to steel himself for a far worse reaction if he is to see this through to the bitter end and reclaim full control out to the 200 nautical mile/median point limit.

(See also this press release from Fishing for Leave)