Originally published by Brexit Central.
The UK Government has now made proposals for resolving the Irish border to the EU. They have been characterised as creating two borders for Northern Ireland, one with Ireland and one with Great Britain. In order to understand why this is not the threat that some suggest, we need to understand how borders have evolved over the years, and what is the difference between customs formalities and what is a customs check. Borders are in reality a series of transactions, not a line in the sand.
There is general consensus that border procedures can be implemented away from the border. The existing Transit system is available for this in legislation and IT. Since the UK will join the Common Transit Convention (CTC) it will be available in Northern Ireland and Ireland after Brexit. No new technologies or investment is required. It is essential that customs in Northern Ireland and Ireland facilitate the necessary procedures and that a customs industry is made available to help traders use the required procedures.
Post-Brexit border formalities are necessary due to international standards and the global trading system and are applied all over the world. The procedures are similar to other known business routines, like registration and reporting for VAT. The EU wants to apply its standard customs procedures after Brexit. Thus, export and import declarations will be required for all transactions across the border. The declarations will provide both the EU and the UK detailed information to monitor trade and apply all relevant regulations. The declarations will replace present VAT and statistical obligations traders have to fulfil now.
Most traders have repetitive export and import transactions, so for individual traders, standard formats for customs declarations will apply in most cases. Traders can be provided with free customs software and supported in the setting up of these standard declarations and procedures. However most traders will prefer to outsource this activity to a Logistic Service Provider (LSP).
International customs regulations, including in the EU Union Customs Code (UCC), provides for numerous ways for stakeholders involved in international trade to voluntarily register to receive simplified procedures for the formalities when trading across borders.
The information to make a standard and repetitive customs declaration can be found on the invoice that accompanies the exported goods. Since this invoice is needed anyway, a trader would face only limited additional obligations if he uses a customs service provider. We have suggested a Transitional Adjustment Fund to support small traders in this transition which would apply to businesses on both sides of the border, and which could be used for the hiring of an LSP or to expand staff in the business itself.
The LSP often collects partial shipments to fill a full truck. The export and import declarations can be filed on the hub of the LSP where the goods are transhipped. On the basis of the digital information in the declaration, customs can make a of risk assessment of the trades goods and perform an inspection which can take place at the hub, where the goods are easily available.
It is crucial to understand that physical export customs checks are rare (less than 1%) as there is hardly any fiscal interest. This is to be differentiated from regulatory checks where UK government proposals mean Northern Ireland would remain subject to EU Single Market rules until four years after the transition period at which time the Northern Ireland Assembly and Executive would make a decision as to whether to follow the UK in its divergence or to continue in the EU regime. In the former case, regulatory checks would have to be done away from the border in the ways suggested in our Alternative Arrangements Commission report, but this would be five to six years away (including the transition period).
If transit is being used, the (full truck load of) goods can pass the border under customs control, using a single Transit declaration. A Transit declaration informs customs at both sides of the border that goods will be transported from the place of loading to the place of unloading within a timeframe of mostly one or two days. If the goods do not arrive, customs can immediately intervene and ask the LSP about the whereabouts of the goods. Inspections upon import can be done at the import hub and may be more frequent, depending on digital risk assessment of the transaction. Within the CTC and EU customs law, declarations and inspections can take place at any location, which includes traders’ and LSP premises or any other place as long as customs has the ability to inspect the goods. So there is maximum flexibility to integrate customs procedures in the logistic process, and there is no need for posts close to the border.
The Transit procedures require that when a shipment crosses an external border, the barcode of the hard copy of the digital Transit declaration has to be scanned at an office of Transit at the border to proof the border is crossed. However, the information this action provides is of no practical use for the procedure. Either this unnecessary obligation can be abolished, or a simple track and trace app on the truck drivers mobile phone can proof that goods have crossed the border.
All customs declarations are digital and can be performed from any remote location. Customs can have a central unit to assess the digital information and send out mobile teams to inspect the goods. No formal customs offices are necessary to present or inspect goods. Trusted trader programmes also offer a wide range of alternative ways of replacing transaction controls and inspections with system-based controls, self-assessment, delegated inspections and audits.
Agricultural goods and those of animal origin do require additional regulatory checks. To safeguard public health, the EU requires that veterinary goods are checked at a Border Inspection Post. But in case of specific geographical circumstances inspections can also take place away from the border. Inspections of agricultural goods are mainly based on additional administrative documents about the quality of the goods. Additional physical inspections can also take place at the points of loading and unloading in combination with the customs declaration. Mutual recognition of each other procedures and inspection results can increase efficiency. To safeguard consumer health, the present Traces system already is available to track and trace agricultural products across EU borders and between EU traders. Traces can be used to further increase monitoring the trade in agricultural goods.
EU customs law provides for ways to make repetitive procedures more efficient. For this traders or customs service providers have to be certified as a trusted trader. This is a voluntary model in line with international standards from World Customs Organization, generating a status as Authorized Economic Operator (AEO), which makes it possible to lower cost for the involved formalities while still ensuring compliance with rules and regulations. The model is open for all stakeholders involved in the supply chain. By recognising each other’s certifications, these simplifications can be made available for transactions that between the EU and the UK, inclusive the Irish land border. The requirements for certification are high but larger companies, LSPs and customs brokers can fulfil the requirements.
There are other procedures as well which facilitate the necessary requirements of cross-border trade. These models makes it possible to move formalities, controls and inspections away from the border, while still ensuring the purpose of the rules and regulations and protecting the interests of the countries involved. International experience demonstrates that system based controls are more efficient for both traders and Government. Modern border management strategies do not remove border formalities, controls and inspection, but instead replace these traditional transaction based activities with more efficient models and programmes.
Agricultural trade is highly regulated within the EU. Large agricultural companies need to have full insight and control about for example milk that is at present produced on one side and processed on the other side of the Northern Irish border. Customs procedures can then be based on the existing internal procedures to safeguard all agricultural standards.
Customs procedures are primarily designed for regular trade which makes these procedures more challenging for small or incidental traders. However, through certified customs service providers compliant traders can make use of facilitations for certified companies, as if they were certified themselves. A well-organised service sector, matched by cooperative customs authorities, can facilitate this trade. We have suggested am exemption for the smallest traders, operating below the VAT threshold on both sides of the border. These traders are not a threat to the integrity the internal markets of the EU and the UK.
Ultimately, the Free Trade Agreement (FTA) which the UK proposes would further simplify customs operations. As duties are reduced, the financial impact of customs procedures decreases. Both the UK and Ireland can further decide to introduce postponed accounting to reduce the need for the payment and refund of VAT.
There is a political need to agree on common procedures and to build trust regarding their implementation. In addition, the procedures have to be facilitated by an adequate customs organisation and customs industry. If a deal is done, these can be effected in the transition period, but we will need to work on this immediately.