

Brexit: a "massive overhead for very little gain" 27/09/2016

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There are no experts in Brexit, as such. The issue covers such a wide range of subjects and disciplines that no single person can hope to gain any more than an overall appreciation of the details. Likewise, no one profession – especially not economists, lawyers or even trade specialists – can call the issue their own. And politicians, largely, seem amongst those groups least qualified to comment.

Obviously, though, some individuals will have more to contribute than others, one of whom is John Holland-Kaye, Heathrow's chief executive. He is in the current edition of the



And while, from his comments, it is evident that Mr Holland-Kaye has a great deal to offer, I'm not entirely sure he is correct on focusing on the Customs Union. Much of what he has to say would seem to apply to the Single Market rather than the Customs Union. If that is the case, he would be by no means the first to confuse the two.



Certainly, confusion there is, with the Financial Times declaring that: "Ministers have not announced a decision on whether the UK should leave the customs union, which allows UK exporters to sell into the European Single Market without having to fill in forms or customs checks".



This is an absurd conflation of two different things. The Customs Union, of course, deals only with tariffs, removing tariff barriers between members, while imposing a common external tariff applicable to all third countries.



Crucially, the Single Market goes much further, covering a wide range of non-tariff barriers – as well as tariffs – so it would appear that the main issue is indeed the Single Market.



However, just to complicate things, in terms of having to filling in forms and customs checks, much of this depends on the



However, since an AEO programme can be a stand-alone agreement, there is no need for it to be tied into the Customs Union and can just as well be attached to Single Market – as indeed it is for Norway via the EEA Agreement.



When Holland-Kaye gets into the detail, however, he is not wrong when he says that a decision to apply customs checks on goods passing between Britain and the EU "would be burdensome". It's when he then says that "an alternative to leaving the customs union probably needs to be found" that he confuses the issue.



Mixing the good with the bad, though, Holland-Kaye notes that customs checks and tariffs have to be applied for goods coming into the UK from China, when he says: "No one's going to want to be doing that for EU goods as well. That's adding massive overhead for very little gain".



Holland-Kaye then adds: "I've had no indication that there's an expectation that we will be putting up customs controls for goods coming in and out of the UK. Can you imagine operating something like the Euro[tunnel] if you had to suddenly build in all these checks in place? It would be completely unmanageable, which is why I think, pragmatically, [ministers] will find another way round it".



At the moment it is as easy to send a truckload of goods from London to Munich as it is from London to Manchester. But, we are told, "if the UK leaves the customs union, businesses will have to fill in additional documents and clear additional checks - in particular, to prove the origin of the goods - even if the UK strikes a favourable trade deal with the EU. Delivery companies say additional tax hurdles - such as paying VAT and duties - are particularly time-consuming".



Thus continues the confusion between "Customs Union" and "Single Market". But, essentially, this is about the Single Market. Obviously, though, some individuals will have more to contribute than others, one of whom is John Holland-Kaye, Heathrow's chief executive. He is in the current edition of the Financial Times , warning that a decision by Britain to leave the EU's Customs Union would mean "adding massive overhead for very little gain" at the UK's ports and terminals. He thus urges the government to avoid imposing major new costs on business.And while, from his comments, it is evident that Mr Holland-Kaye has a great deal to offer, I'm not entirely sure he is correct on focusing on the Customs Union. Much of what he has to say would seem to apply to the Single Market rather than the Customs Union. If that is the case, he would be by no means the first to confuse the two.Certainly, confusion there is, with thedeclaring that: "Ministers have not announced a decision on whether the UK should leave the customs union, which allows UK exporters to sell into the European Single Market without having to fill in forms or customs checks".This is an absurd conflation of two different things. The Customs Union, of course, deals only with tariffs, removing tariff barriers between members, while imposing a common external tariff applicable to all third countries.Crucially, the Single Market goes much further, covering a wide range of non-tariff barriers – as well as tariffs – so it would appear that the main issue is indeed the Single Market.However, just to complicate things, in terms of having to filling in forms and customs checks, much of this depends on the AEO programme which is currently embedded in the Union Customs Code (UCC) and could therefore be regarded as part of the Customs Union.However, since an AEO programme can be a stand-alone agreement, there is no need for it to be tied into the Customs Union and can just as well be attached to Single Market – as indeed it is for Norway via the EEA Agreement.When Holland-Kaye gets into the detail, however, he is not wrong when he says that a decision to apply customs checks on goods passing between Britain and the EU "would be burdensome". It's when he then says that "an alternative to leaving the customs union probably needs to be found" that he confuses the issue.Mixing the good with the bad, though, Holland-Kaye notes that customs checks and tariffs have to be applied for goods coming into the UK from China, when he says: "No one's going to want to be doing that for EU goods as well. That's adding massive overhead for very little gain".Holland-Kaye then adds: "I've had no indication that there's an expectation that we will be putting up customs controls for goods coming in and out of the UK. Can you imagine operating something like the Euro[tunnel] if you had to suddenly build in all these checks in place? It would be completely unmanageable, which is why I think, pragmatically, [ministers] will find another way round it".At the moment it is as easy to send a truckload of goods from London to Munich as it is from London to Manchester. But, we are told, "if the UK leaves the customs union, businesses will have to fill in additional documents and clear additional checks - in particular, to prove the origin of the goods - even if the UK strikes a favourable trade deal with the EU. Delivery companies say additional tax hurdles - such as paying VAT and duties - are particularly time-consuming".Thus continues the confusion between "Customs Union" and "Single Market". But, essentially, this is about the Single Market.





What is not understood fully by many of the pundits that have explored this issues, is that the decision as to whether to check consignments at the borders rest exclusively with Member State customs officials. The entire edifice of control rests on Article 46 of the … examining goods, taking samples, verifying the accuracy and completeness of the information given in a declaration or notification and the existence, authenticity, accuracy and validity of documents, examining the accounts of economic operators and other records, inspecting means of transport, inspecting luggage and other goods carried by or on persons and carrying out official enquiries and other similar acts. The Article goes on to say that the controls, other than random checks, "shall primarily be based on risk analysis" performed within "a common risk management framework, based upon the exchange of risk information and risk analysis results between customs administrations and establishing common risk criteria and standards, control measures and priority control areas".



The "take-home" point from this is that, if the UK is foolish enough to adopt the WTO option, it will be cutting itself off from the "common risk management framework" and all that goes with it. Member State customs authorities thereby will be entitled to take a pessimistic view when applying their risk analyses, stepping up physical checks to whatever levels they deem appropriate.



Yet,



At the UK end, we learn from the Financial Times that Treasury officials are exploring the possibility of widening customs facilities at the UK border, especially at Dover, where space is limited. This might involve recruiting hundreds, if not thousands, more customs officers to conduct border checks.



However, it is acknowledged that such "efficiency gains" would depend on EU destination countries co-operating and paying for similar upgrades of staff and capacity. France, as we know, has limited infrastructure to deal with the extra customs requirements. And European officials admit they are only just beginning to understand the scale of the Brexit challenge.



Apart from anything else, employing more customs officers would be especially costly for the UK government. The UK has a comparatively lean operation by EU standards, employing only 5,000 customs officers. Germany employs 35,218 and France 16,500, according the World Customs Organisation. An extra 5,000 officers could cost as much as £250 million every year. Additional costs could run to several billion pounds per year.



Yet still, confusion reigns. In a masterful blurring of the issues, the Financial Times asserts that senior Whitehall officials are convinced "ministers have little choice but to leave the customs union because remaining would leave Britain with little autonomy over trade".



If this bizarre analysis represents the actual thinking in Whitehall, we are in serious trouble. It would mean that those planning for Brexit haven't even touched first base. To what extent additional checks will apply if we leave is not known, and we cannot know until the shape of the Brexit plan is clear. But it is certainly the case that, if the UK drops out of the Single Market and relies solely on the WTO option – without seeking a negotiated settlement - paperwork will multiply and the number of border checks will increase.What is not understood fully by many of the pundits that have explored this issues, is that the decision as to whether to check consignments at the borders rest exclusively with Member State customs officials. The entire edifice of control rests on Article 46 of the Regulation (EU) No 952/2013 of the Union Customs Code, which defines customs controls as consisting of:The Article goes on to say that the controls, other than random checks, "shall primarily be based on risk analysis" performed within "a common risk management framework, based upon the exchange of risk information and risk analysis results between customs administrations and establishing common risk criteria and standards, control measures and priority control areas".The "take-home" point from this is that, if the UK is foolish enough to adopt the WTO option, it will be cutting itself off from the "common risk management framework" and all that goes with it. Member State customs authorities thereby will be entitled to take a pessimistic view when applying their risk analyses, stepping up physical checks to whatever levels they deem appropriate.Yet, a study of US-bound container traffic indicated that if, routinely, as little as 1-2 percent of containers in a major overseas port were examined before loading, it would almost certainly overwhelm the inspection facility. Transfer that finding to, say, Calais, and only a modest increase in inspections could bring chaos.At the UK end, we learn from thethat Treasury officials are exploring the possibility of widening customs facilities at the UK border, especially at Dover, where space is limited. This might involve recruiting hundreds, if not thousands, more customs officers to conduct border checks.However, it is acknowledged that such "efficiency gains" would depend on EU destination countries co-operating and paying for similar upgrades of staff and capacity. France, as we know, has limited infrastructure to deal with the extra customs requirements. And European officials admit they are only just beginning to understand the scale of the Brexit challenge.Apart from anything else, employing more customs officers would be especially costly for the UK government. The UK has a comparatively lean operation by EU standards, employing only 5,000 customs officers. Germany employs 35,218 and France 16,500, according the World Customs Organisation. An extra 5,000 officers could cost as much as £250 million every year. Additional costs could run to several billion pounds per year.Yet still, confusion reigns. In a masterful blurring of the issues, theasserts that senior Whitehall officials are convinced "ministers have little choice but to leave the customs union because remaining would leave Britain with little autonomy over trade".If this bizarre analysis represents the actual thinking in Whitehall, we are in serious trouble. It would mean that those planning for Brexit haven't even touched first base.





