Questionable whether British businesses will be ready for Brexit on 31 December – and situation even worse for Northern Ireland

Just 878 firms have received assistance with preparing for Brexit – out of the Government’s estimate of 250,000 businesses that need to make changes if they are to continue to trade with the EU – from 1 January 2021 to trade between Britain and Northern Ireland, and vice versa.

The British Chambers of Commerce says the government has “not invested enough” in training for companies faced with new customs requirements and paperwork to complete.

Companies presently trading outside the EU will have some experience of completing the regulatory checks, reporting requirements and, where necessary, the dealing with payment of trade tariffs. HMRC estimates, however, that between 150,000 and 250,000 companies who presently trade only within the EU will be filling in customs forms for the first time.

Planning for Brexit is “not possible” at the same time as navigating the coronavirus crisis according to Alex Veitch, head of international policy at the Freight Trade Association. Jobs which are crucial to preparing Brexit have been furloughed.

Liam Smyth, director of international trade at the British Chambers of Commerce: “Whilst traders are focussed on survival and working out how to deal with the impact of coronavirus, the problem of making millions more customs declarations at the end of the transition period has not gone away.” Traffic will grind to a halt if goods cannot clear by new customs requirements.

For a fee, businesses without in-house capacity to fill in customs paperwork may use an ‘intermediary’ to help them after the end of the transition period. 403 of the 878 companies to have received assistance to date are customs intermediaries. Brexit Minister, Michael Gove, endorsed a suggestion that the UK could well need a further 50,000 customs agents.

Meanwhile, with just 8 months to go until Brexit, the first meeting of the joint UK and EU committee on implementing a Brexit deal in Northern Ireland has been held. Northern Ireland will operate under different trade regulations to other parts of the UK. The UK has said that this approach “will be focused on protecting the Belfast/Good Friday Agreement and gains of the peace process” – while preserving Northern Ireland as an integral part of the United Kingdom.

At the end of the Brexit ‘transition period’ on 31 December, the England, Wales and Scotland will leave the EU’s customs union. Northern Ireland, on the other hand, will continue to follow EU rules on agricultural and manufactured goods – and will also continue to enforce the EU’s customs code at its ports. This effectively sets up a new customs frontier for all good moving between mainland Britain and Northern Ireland – and vice versa.

If there is ‘no-deal’ between the UK and EU, a ‘hard’ border for goods will need to be established between Ireland and Northern Ireland. People may still be able to travel across the border under the ‘Common Travel Area’ arrangements set up in 1922.

We reported in a previous article that the EU has expressed concerns that the UK is not moving quickly enough to prepare for new checks. Michel Barnier: “The exchanges in the specialised committee now urgently need to be followed up by tangible measures”.

The outcomes of the Joint EU-UK Committee meeting were subject to Parliamentary scrutiny on 30 April by the Northern Ireland Affairs Committee. MPs called on industry experts and HMRC to give evidence. The two-hour detailed session highlighted the fact that there are many key issues need to be resolved by Government if internal flow and trade between Northern Ireland and the rest of Britain is to continue anywhere near as freely as it does today.

This throws doubt on the Prime Minister’s and Michael Gove’s repeated assertions that there would be “unfettered access” inside the United Kingdom.

The committee looked at customs arrangements for goods moving in both directions between Northern Ireland and Great Britain under the revised Northern Ireland Protocol. This includes:

• import-export requirements and customs checks, processes and declarations;
• whether the revised Northern Ireland Protocol will allow goods produced in Northern Ireland unfettered access to the rest of the UK internal market;
• what customs checks, processes, declarations and infrastructure improvements will need to be implemented under the revised Protocol by businesses and customs authorities in Northern Ireland mainland Britain in order to export goods between Northern Ireland to Britain and vice versa;
• whether the UK has sufficient customs agents, customs officials, and veterinarians to facilitate the new customs arrangements;
• what effect the new customs arrangements will have on the volume and profitability of trade between Northern Ireland and Great Britain and vice-versa;
• what potential economic effects the revised Protocol will have on Northern Ireland; and
• any other issues and challenges arising from the implementation of the Northern Ireland Protocol.

It was clear that witnesses agreed with EU’s chief Brexit negotiator, Michel Barnier, that with Northern Ireland being at he same time part of EU Customs Union while also part of UK customs area is “very complex” from Customs point of view.

It will have to operate two sets of standards in parallel – especially onerous for food, chemicals and animal related products under ‘Sanitary and phytosanitary’ (SPS) requirements. There is clear evidence that the additional costs of dealing with regulations will drive up costs – in a region where the general population has a lower disposable income compared to the remainder of the UK. Goods moving for retail sale accounts for 70% by value of goods entering Northern Ireland.

The impact was illustrated by taking a lorry heading to a supermarket at random – and looking at its manifest. There were 1392 products on board.

As far as declarations and paperwork are concerned, in extremis, each will need a separate ‘export declaration’ which presently costs between £15-£56 per item. Of the 1392 items, 500 were of animal origin, requiring an SPS based ‘export health certificate’ – presently each costing around £200.

As far as trade tariffs are concerned, items fell into many different WTO ‘tariff codes’ – payable by the importer at the point of entry – and not, as with some other taxes, paid at the point of sale – resulting in a significant cashflow issue.

In addition to certification costs, many more staff are needed to complete the paperwork. The additional new costs will mean goods becoming unprofitable.

The UK Government’s mixed messages are creating confusion – several references were made to the Prime Minister’s repeated assurances of “unfettered access”. The reality is different – no clear indication as to how the new regime will work, not how the additional costs might be met. There has been little engagement with the trade bodies in Northern Ireland – and none with UK businesses trading with the Province according the MPs on the scrutiny committee. Discussions have been kept within the civil service and what information has been forthcoming about how future arrangements might look was said to be “bureaucratic and civil service heavy”.

There was reference to responding to Covid-19, necessarily, taking up all available energy and focus, “an interrupt to preparations”.

HMRC reported that they were aiming for “minimum intervention”. The Protocol allows them to grant ‘unfettered’ movement of goods providing it is intra-UK and with an end destination of Northern Ireland. However, they conceded that there is no way to know this from looking at the outside of a wagon. They will need at least some ‘basic data’ in order to make a judgement. As the end destination is immaterial within EU at present, there is no recorded data to that might help assess the extent of future reporting requirements.

HMRC conceded that as present, there were no thoughts yet on how “Red” and “Green” lanes will operate in ports on either side of the Irish Sea – ‘procedurally, legally or practicality’.

There was speculation as to whether the ‘Trusted Trader’ scheme could be used – although it was pointed out that this a costly process and registration can take up to a year.

Good in transit between the UK and Ireland often use the shorter crossing between the mainland and Northern Ireland. Any additional burdens of costs and delays will drive transport towards direct crossings to Ireland and impact on the Northern Ireland ports and economies. Additionally as the UK begins to conclude trade deals beyond the EU, there will be a requirement for proof of origin in order to comply with WTO rules.

Chair of the Committee, Simon Hoare MP, noted the heartfelt “cri-de-coeur” for information from all sides.

There was no witness able to represent the Northern Ireland Fishing Industry which the Chairman noted as a gap to be addressed.

It was clear that the revised ‘Protocol’ of October 2019 – with its promise of ‘unfettered access’ – may have to begin operation ‘working by exception’ in January 2021 – allowing free movement of good unless HMRC have a specific reason to believe it is not an intra-UK movement – albeit that there is not yet a published list of what will comprise a reportable product.

There was an acceptance that the Protocol as part of an overall UK and EU Brexit ‘deal is better than a ‘no-deal’ scenario – but not much better.

‘No-deal’ means that the Protocol won’t apply. This will mean implementing a ‘hard border’. A number of observations on the UK stance – as viewed from outside the negotiating team – felt like the UK Government was “running down the clock” on reaching a deal with the EU. There were stark warnings that the socio-economic impact of a no-deal Brexit will “hit the people of Northern Ireland hardest”.

There was unanimity that Brexit must not carry a “penalty for being a citizen of Northern Ireland – effectively a ‘tax on citizenship’.

There was doubt expressed that there is time to recruit and enough vets and customs officers before the end of the year. And the inevitable conclusion drawn between more officers meaning more bureaucracy leading to more costs. In 8 months. Trade that is not ‘unfettered’ means the process has failed.

The impact of Covid-19 should not be ignored nor underestimated: it has demonstrated the ‘fragility of supply chains and consumed resources needed to prepare for Brexit. The impact will not be evident by December, nor yet will we know the ‘new normal’. The Northern Ireland economy is “about slots on boats, and a missed boat isn’t only cost – it’s about broken supply”.

References:

https://www.parliamentlive.tv/Event/Index/667f5b0e-2e89-463c-a9ce-e71737c9c572

Figures obtained by the BBC under freedom of information show 878 firms have received assistance with preparing for Brexit.