The House of Commons Treasury Committee has held an evidence session to look at the UK’s proposed customs policies and procedures once the transition period expires on 31 December 2020. Witnesses in the session on Tuesday (22 September) were Allie Renison, Head of EU and Trade Policy, Institute of Directors (IOD); Elizabeth de Jong, Director of Policy, Logistics UK; Tim Reardon, Head of EU Exit, Port of Dover; and Dr Anna Jerzewska, trade expert.
Asked by Chair Mel Stride, Conservative, if UK companies are ready for Brexit, trade expert Dr Jerzewska said the border operating model raises as many questions as it answers. We are still missing vital guidance on how to apply for different things, she said. There are several things that companies need to do, and that message has not been delivered as clearly and as urgently as it should have been, she said.
Port of Dover’s Reardon said the Government needs to be ready with several things that are currently at a planning stage but are not finally delivered. For example, Dover port does not have wharf approval (designation that is required by any port handling inbound or outbound goods on an international journey) from HM Customs as yet. He added that Dover port is not a depot where lorries can park up while somebody waits for somebody else to do a declaration. That side of it does need to be done before the lorry even sets out on its way. A key point will be to have parking sites on all the main trunk routes that serve the UK’s main gateways in Kent.
Rushanara Ali, Labour, remarked that around two thirds of customs brokers say, according to a survey, that they do not have enough staff to handle the extra paperwork. Ali asked about the capacity of the customs intermediary sector.
Elizabeth de Jong explained that there are 8,000 international road haulage companies in the UK and there are then 85,000 VAT-registered trading businesses. Many of them will not have experience of rest-of-the-world trade procedures. There are nine separate systems and requirements of the freight industry, for customs, for safety and security declarations and exports, and De Jong claims ‘the systems will be ready by the end of 2020, but ‘I believe it will be down to the wire. The risk is that delivery could be too late for industry to have time to fully prepare to use them. That was our concern about Smart Freight in particular’. IOD’s Allie Renison said the ‘missing link in the armour’ is about how you ensure that there is end-to-end readiness across the supply chain. She estimates about 30 to 40 per cent of IOD members say they cannot prepare with current incomplete information. She stressed it is ‘not just the FTA. It is about the implementing guidance that HMRC does with that FTA’. If we have all of it by mid-October, then you are in a better position than you would be at the end of November, she said.
Angela Eagle, Labour, asked about the consequences of a ‘no deal’. Logistics UK’s De Jong said it is exports at the busy short strait crossing of Dover, as well as Eurotunnel, that is her concern. She added that some 85 per cent of trucks crossing the Dover strait are EU-registered, so there is a big piece of work to do in making sure the EU businesses are as ready as UK businesses. EU trade associations want more preparedness guidance. EU exit preparations are just not as visible in the EU media landscape as they are in the UK, so there is still quite a lot to do there, she said. But she said we are going to be doing a phased approach to imports for traders who are importing things, so they have time to complete customs declarations. The Smart Freight is being prepared now for Kent. That is a system by which you log to check that you have all the paperwork and all the electronic information that you need, to make sure that you are border-ready before you go into Kent. There will be a kind of Kent passport for HGVs, but De Jong said it unclear how it is going to be enforced at the Kent border.
Renison explained that the border operating model removes some of the financial liability that intermediaries such as freight forwarders, for example, can carry now, so a lot of the financial liability for making sure that you understand and are giving correct, new information to the people who are completing these simplifications on your behalf is now wholly and entirely with the trader, more so than it was before.
On immigration, Reardon explained that for a driver coming into the UK, their passport will be checked by UK Border Force in Calais or Dunkirk before they get on a ferry, so that, on arrival in Dover, they can drive straight off and proceed inland to their delivery destination without needing to have their passport checked again, because it has already been checked in France. Similarly, on the way out of the country, the French police operate in Dover and they check lorry drivers’ passports for people going to France. The agreement that gives rise to that—the Treaty of Le Touquet—is a straightforward Anglo-French treaty. It is unconnected in any way whatsoever with the UK’s membership or ex-membership of the European Union, so there is no reason, constitutionally, why that should be impacted.
Dr Jerzewska told Eagle that if a company needs to update something like the UK’s external tariffs, we know that the current version of the UK external tariff may or may not be the final version. We also do not know whether there will be tariffs between the UK and the EU. If a company needs to update something like that and it gets the information in November, it is not, unfortunately, as easy as clicking a button and uploading this information into the internal IT systems such as SAP. It takes weeks, if not months, to update companies’ internal systems. The bigger the company, the more of an issue.
De Jong said agents have a big role to play in getting prepared for EU exit, particularly for those who had not considered themselves as importers or exporters before, because they had been trading with EU countries without having to do those formalities. Initially, many businesses will use a customs agent, because customs are a specialist area requiring specialist IT systems and specialist training. Larger traders may invest in-house, but many others will be unable to do so or will choose to use a third party instead. But she expects that, quite quickly, customs will become a usual, essential corporate service, perhaps along with finance, and have its own department or dedicated person running it in-house.
Chair Stride intervened to ask about capacity of the agents’ market to provide the services that will be required. De Jong replied that there is not yet enough capacity, saying the consensus is that at least double the existing number of customs agents will be required.
Reardon said we still need to have the clear definition from HMRC of who puts data into the IT system and who needs to do what with the outputs of that system at various points along the supply chain, so that the practical, physical flow of lorries continues smoothly. It needs to be in place for 1 July on the Government’s current timescale. He reiterated that the key definition that is missing now is who precisely does what to interface with the IT systems that Government are developing.
De Jong provided the committee with an update on GVMS. It is going to be used for GB-to-Northern Ireland flows first, and then all imports and exports from July next year. Our assurance is that it is progressing well, she said. The technical specs for it have been published, followed by official user guidance shortly. For that system and Smart Freight, she said we still have to get all of our systems, as businesses, traders, hauliers and all parts of the logistics, feeding into that to make it work on the day.
IT (Northern Ireland/Ireland border)
Conservative Julie Marson asked whether technology can help with Northern Ireland/Ireland trade. Renison said for goods crossing the Irish Sea, there is more legroom for technology to pick up facilitating the impact of those new controls, but to understand that in detail we first need to know what the agreement is between the UK and EU on those new controls.
De Jong told Conservative Anthony Browne that she would like greater clarification about the amount of checking from Great Britain to Northern Ireland and vice versa. In terms of some of the agrifood checks that have been proposed, it could be that there need to be documentary checks on 100 per cent of these types of consignments for live animals and animal products, and physical checks on about 30 per cent. Similarly, on the safety and security declarations (GB to NI), she is hoping for some simplification. Currently, the carrier needs to do a safety and security declaration for every consignment. A lorry may have 1,000 different consignments on it, and each of these declarations has 36 data fields, so she is really hoping that the border operating model or the Joint Committee can give some easements. She has concerns about the amount of checking. There are fewer checks being proposed now for NI to GB trade.
Renison said in the protocol, it says, depending on whether you see this as a guarantee, that nothing in this protocol shall prevent the unfettered access of goods from NI to GB. The ability to guarantee that depends on the extent to which you think it is in the Government’s gift to guarantee that versus needing to agree it with the EU, she said.
Dr Jerzewska spoke about the Trader Support Service: “Because the system will be available to traders for GB-NI and NI-GB movements, as well as the rest of the world, we are removing the incentive for the local customs brokerage service to develop or to exist in general. We are removing the need for the market to do its share, which means that, if anything goes wrong—if there is not enough capacity or if the system is delayed for any reason—these businesses that could have been hiring people and using government grants to develop their capacity in Northern Ireland have no incentive to do it right now. They actually have the opposite incentive.”
SNP’s Alison Thewliss asked if it makes sense to postpone the imposition of tariffs and align them with the customs declarations. Renison said there is not enough awareness and understanding of the businesses that will now be much more liable for duty payment, etc. Reardon said the key outcome of the decision to defer processes from 1 January next year to 1 July is in the context of the physical movement of things into the country. The practical outcome is that, for the first six months of next year, anything that reaches his port, and indeed any other port, will be able to continue on its way to delivery without anybody standing in the way. That means that critical supply chains can and will continue unobstructed, and everybody else can rely upon them.
Harriett Baldwin asked about the UK’s new external tariff schedule lodged with the WTO, asking if witnesses think the balance has been struck correctly between the interests of UK consumers and the interests of UK producers? Renison said that ‘in a world where we did not have Brexit, it would have been pretty spot on’.
Conservative Felicity Buchan asked the panel if they are in favour of freeports. Reardon is in favour of the concept of a freeport. He proposes that the designation and status of a freeport should be available more broadly than has historically been the case and, essentially, should be available in a manner that is not specific to site and geography. He has in mind the concept of, effectively, a virtual freeport, so that the economic benefits of freeport status, and stimulus of traffic that comes from it, are not confined to any one site but could be available on a nationwide basis to all traffic that comes through any particular gateway to the UK. But he said if the scheme were to be confined purely to temporary relief from customs tariffs, the value is likely to be substantially less than if it were to take a more holistic approach to making life easier to generate new activity. He is open to more than 10 freeports, maybe as many as 25. But Dr Jerzewska remarked that freeports have not been successful in the UK in the past and there are other customs procedures, such as inward processing, that do pretty much the same thing and are preferable because they are simpler to use and require less investment.
Asked about whether freeports will encourage tax evasion and or smuggling, Rension said: “There have been instances in the past, and this has been a dimension to look at. It would be worth looking at some of the more advanced countries in this space—for example, Singapore and the further east—where they have tried to develop a twin-track approach to dealing with some of those considerations. It is certainly one of the reasons why we have not seen a huge expansion of them, because of state aid rules, over the last 40 years. They do exist but we have not had a huge amount added since countries went into the EU with some of those concerns. The EU tends to take a fairly heavy-handed approach in terms of looking at this as part of its tax evasion and tax avoidance agenda, so it remains to be seen what kind of approach the Government will take. However, the track record means those concerns are always omnipresent.”
The full session is here.