Brexit and a Future UK Customs System

Transcription

1 Brexit and a Future UK Customs System

2 Professor Kent Matthews Professor of Banking and Finance at Cardiff University Wales outside the Customs Union How would Wales fare in a post-brexit world outside the Customs Union? The Jeremiahs would tell us that the UK would fare badly and Wales even worse if Brexit meant non-access to the single market and loss of protection within the Customs Union. Why? Because 61 per cent of Wales exports go to the EU, (which is around 13 per cent of the economy directly affected) which compares with less than 50 per cent of for the UK as a whole. A Brexit without a Free Trade Agreement with the EU means that the UK will be treated the same as other Most Favoured Nation countries exporting to the EU under World Trade Organisation rules. Wales will face the Common External Tariff that other non-eu countries face in trading with the EU. Of course this does not mean that Welsh exporters cannot sell into the EU. It means that they will face tariffs ranging from 2-3 per cent for manufactures (which is roughly 70 per cent of all exports), 10 per cent for automotive products, through to 42.1 per cent for dairy products. A bigger threat is non-tariff barriers that will emerge a few years after Brexit. Perhaps an even bigger threat to the Welsh manufacturing sector will be the loss of Customs Union protection, which means that they would face competition from suppliers from outside the EU. Additionally, without offsetting Treasury compensation the effect on Welsh hill farming would be particularly severe.

3 Costs and Benefits? But is it all costs and no benefits? The negative effects of increased trade costs with the EU would need to be balanced with a number of mitigating factors. First, we know that the tariffs do not come in to play until the completion of Brexit which could take up to two years. Second, the 10 per cent or so depreciation of sterling against the Euro has improved the immediate competitiveness of the export sector and increased orders. This will cushion the effect of tariffs when they are imposed. Third, the complexity of supply chains will make it harder for EU companies importing components from Wales to substitute in the short-term, which means that Welsh exporters have up to two years to explore alternative markets. According to standard trade theory they will divert trade to world markets at world prices. Indeed Welsh exporters will face lower world prices when they lose the protection of the Customs Union. The depreciation of the pound will cushion the impact but in the longer term they will have to raise productivity and move up the value chain to compete effectively. Research shows that competition enhances productivity growth and protection reduces it. Finally, we know that non-tariff barriers impose much higher costs on trade than tariffs, but since the UK is currently in the single market, the EU cannot use non-tariff barriers to restrict Wales s goods exports into Europe, in the near future. The effect of not being in the Customs Union on the rest of the Welsh economy will depend in part on how the manufacturing and agricultural sectors respond to the prospects of tariff impositions. The depreciation of the exchange rate has seen a strong improvement in competitiveness of the export sector in Wales. While data of the production sector (which includes manufacturing) for Wales does not as yet exist post- Brexit it would be reasonable to assume that the improvement in competitiveness will stimulate export orders in Wales, help to find new markets, and also promote tourism.

4 Potential gains to consumers and lower cost of living a major benefit Critics of the hard Brexit strategy concentrate their arguments on the potential losses to producers but fail to see the potential gains to consumers. Being outside the Customs Union means the removal of the common external tariff on imported agricultural goods. This will have a major effect on reducing the cost of living in the UK, even allowing for the rise in imported prices following the depreciation. The gains to households from the removal of trade barriers to the rest of the world could reduce the cost of living by as much as 8 per cent over the long term. Wales being one of the poorer regions of the UK would benefit enormously. Since the instant downturn in the economy following the vote for Brexit failed to materialise, the pundits have been revising their forecasts for the economy upwards. The consensus forecast is closer to 2 per cent for What is driving this buoyant forecast is the reaction of the exchange rate and the assumption of a hard Brexit policy being adopted. There is no reason to believe that Wales will not share in this robust growth outlook. Indeed research using an econometric model for Wales suggests that the local economy is more responsive to UK exchange rate shocks. A Free Trade Agreement with the EU may be a desirable objective for political reasons but if it is unattainable, Wales has nothing to fear from being outside the Customs Union. Professor Kent Matthews - Professor of Banking and Finance at Cardiff University

5 CUSTOMS SYSTEM Introduction and summary The UK trader currently enjoys free access to sell goods to EU countries without customs formalities and minimal licencing requirements. Trade with EU member states is mostly the same as trading within the UK selling goods to a customer based in Berlin or Birmingham follows an almost identical process, with minimal procedures. With the UK leaving the EU, this status quo in our customs arrangements will change and these changes will have significant implications for UK businesses. If not addressed properly, these could result in costly administrative burdens, both for UK businesses and on the UK Border Control infrastructure. As this paper will demonstrate, there are a number of interlinked issues that are at stake for any changes to our customs arrangements with the EU presenting challenges, but also an opportunities to strengthen the UK s capabilities as a trading nation. There are several aspects that must be considered for our future trading relationship with the EU, namely: The nature of customs checks in Wales and the UK; The systems that would allow for reliable and swift clearance at the EU border or in third countries; The provisions for a new UK Customs Code. Current customs procedures that the UK has in place when trading with non- EU countries as well as outline the means to ensure that future customs controls (with both EU and non EU countries), are efficient and effective. There are a number of helpful measures that UK Government will have the opportunity to introduce and maintain, such as: A bilateral EU-UK agreement regulating an advanced Customs cooperation that avoids duplication and where UK and Irish Customs can undertake inspections on behalf of each other; Mutual recognition of Authorized Economic Operators (AEO); A Customs-to-Customs technical agreement on exchange of risk data;

6 Pre-registration of operators (AEO) and people (Commercial Travellers programme in combination with a Certified Taxable Person programme); Identification system by the border; A Single Window with one-stop-shop-elements; A Unique Consignment reference number (UCR); A simplified Customs declaration system (100% electronic) with re-use of export data for imports; Mobile Control and Inspection Units; Technical surveillance of border (CCTV, ANPR etc)

7 Customs clearance: current procedure when goods enter a non-eu country Even in cases where the importer is responsible for paying duty on the goods in the destination country, the UK trader must provide the right documentation. Non-EU ( third ) countries may have import duty regimes in place, but in some countries the company s exports may qualify for a reduced rate of duty or be classed as duty free. The trader will need to provide evidence of the product s origin to claim relief by completing a trade preference movement certificate form such as a EUR1, available from Chambers of Commerce and from HMRC. UK traders would need to consider the Rules of Origin that are applied to any Free Trade Agreement when applying for preference. Terms such as documentation and certificate forms are in some respects misleading as these forms are, for the most part, now digital. Over the last decade, there has been a digitalisation of nearly all documentation save for a small number of countries that only allow paper forms. These documents are provided in a competitive marketplace, overseen by government departments (HMRC, DIT), as well the British Chambers of Commerce, and UK businesses have a range of documentation providers they can choose from. The current arrangements are considered best-in-class around the world and help guarantee the reputation of UK business in export markets, where the importer can rely on the UK supplier providing documentation that ensures swift customs clearance when entering their country. Some countries require a Certificate of Origin showing in which country goods are manufactured/produced in under non-preferential rules of origin quoting the European Commission law (these are also available from Chambers of Commerce). For instance, many Arab countries require exporters to supply an Arab-British Certificate of Origin with each shipment of goods. The certificate must be authorised by the Arab-British Chamber of Commerce, via Chambers of Commerce across the UK. Special Preference Certificates (ATRs) cover trade with Turkey. In some circumstances, such as when the value of goods is below a specified amount, the preference declaration can be made on the commercial invoice for the goods. A trader can apply to become approved to make their preferential origin declarations on invoices for consignments of any value.

8 Traders that wish to temporarily export goods from the EU, for example, samples for an exhibition, can do so by using a temporary export Customs Procedure Code (CPC) in the declaration to the National Export System, or move the goods under an ATA Carnet. ATA Carnets are provided by London Chamber of Commerce, via Chambers of Commerce across the UK. The ATA carnet will simplify the export and temporary import of goods into a country of destination. This type of carnet is valid in most major countries and will enable deferment of up to a year of import duties that might otherwise have applied. A trend with recent trade agreements is to build in systems that depend on organisations reaching Authorised Economic Operator (AEO) status. Whilst this status significantly helps reduce customs-based controls, the process for obtaining it resource-intensive, with onerous requirements disadvantages small and medium sized companies. In addition, HMRC has limited capacity to process applications from companies seeking this status; according to HMRC itself, just over 500 companies have qualified for AEO to date.

9 Goods undergoing customs checks in the UK In terms of customs clearance in the UK, efforts must be focused on using technology to deliver a frictionless or virtual border: an example would be the way licence plate scanning technology can be used to pay tolls without the need for vehicles to be held up. Using this, customs registration can be done electronically in advance of trucks crossing a border. It is likely that there would remain some physical controls, with computer programmes helping to assess and manage risks. If necessary, checks could be more discreet at a roadside station, as in many cases ports have little space to carry out additional inspections. The goal of this Inland Clearance would be to decrease the administrative burden, both on the exporter and on customs controls, whilst recognising that there is likely to be some increase in physical inspections. Customs duties could be accounted for in a manner similar to VAT, whereby return and payments are made in arrears. Export Processing Zones (also known as Free Trade Zones and free ports) can play a long term dynamic role in the UK s trading process and in developing local areas near key port facilities if they are appropriately set-up, well managed, WTO compatible in their incentives, and used as an integrated part of national reform. Configured appropriately at UK ports and airports, they would allow cargo to be reconfigured or processed and then shipped onwards outside of the UK without the need for UK customs clearance or alternatively brought into the UK for customs clearance at a later stage, once processing has been completed. Of particular relevance for the border on the island of Ireland is the consideration that those vehicles that belong to transport companies that have been accredited to the Transports Internationux Routiers (TIR) System can avail of the harmonised international convention that allows goods to travel through multiple countries without losing time with lengthy customs procedures. At the outset of a journey, the cargo is sealed in a container, or approved load compartment, displaying the TIR plaque and is protected with a customs seal. Customs officials then only need to check the customs seals, and the external conditions of the load compartment and the accompanying TIR Carnet. Paperwork is more easily managed as all transit declaration information is contained in a single document, the TIR Carnet, as well as electronically, in advance, with TIR-EPD (Electronic Pre-Declaration).

10 Goods undergoing customs checks in other countries In terms of customs clearance outside of the UK, based on the current procedures as outlined above, we would recommend the following three-route approach to facilitate UK-EU trade in the future as well as provide continuity for businesses in trade around the world: 1. Authorised Economic Operators (AEO) Some form of self-assessment (this introduces notification and payment of customs duty on a periodic basis. Businesses to calculate customs duties and other import charges themselves and retain the customs declaration data within their commercial records), pre-clearance (before goods are given documented permission to leave the country) and post-reconciliation (after the necessary forms have been filled in by the trader), would be needed to support the virtual border concept, so as to shorten the current customs declaration process set out above. As mentioned earlier, some elements of a faster customs clearance process (both in and outside the UK) are available to Authorised Economic Operators (AEO). This status has useful benefits, particularly for multinational companies with long supply chains, but as mentioned previously, the accreditation system for AEO is difficult and onerous particularly for SMEs. 2. Trusted Trader regime HMRC are currently reluctant to provide faster pre-clearance and postreconciliation facilitations to traders that do not have AEO status, citing risk issues and risk appetite. It is possible that a trusted third party such as Chambers of Commerce could oversee a new Trusted Trader accreditation process, which would assist more traders particularly SMEs to achieve an accredited status that gives them permission to avail of these customs facilitations. Adjusting to the new level of custom checks with the EU will impose a significant strain on businesses and all efforts must be made to facilitate seamless yet reliable checks for traded goods.

11 Border Posts Sweden and Norway Norway and Sweden require the provision of a summary declaration (i.e. pre-arrival information) at least one hour prior to arrival at the border. Most goods traffic travelling across the border are cleared, on average, within 3-9 minutes, with longer waiting times at peak periods. These regimes release prior to clearance. In both Norway and Sweden businesses can apply to participate in deferred duty payment regimes and the payment of VAT can also be incorporated into a company s VAT account for later payment. To facilitate this process a full declaration must be made within a defined period of time after the goods have been released (in Norway this is ten days). A small percentage of goods are selected for documentary control or physical control by customs. The approach to controls taken by Swedish and Norwegian customs is heavily riskbased, relying on risk-management technology to identify those vehicles to undergo documentary or physical checks. In order to facilitate this fast movement when physical controls (i.e. checking of the goods) does take place, vehicles selected for physical controls pass through a scanner first and only undergo further physical controls if necessary. Heavy investments have been made in technology to facilitate the shared operations. Pre arrival information and declarations are submitted electronically (with no supporting documents) and are then visible to both customs agencies to facilitate clearance by the country s operating a particular border. In 2011, Norway commenced the use of automatic number plate recognition (ANPR) cameras along border crossings that do not have either Norwegian or Swedish customs posts. These are used to identify suspicious vehicles and have been used to detect customs violations. The ANPR system is linked to a national motor registry database enabling checks on vehicles and Norwegian customs are reported as stating that they plan to integrate ANPR technology

12 Smart Border A Smart Border is normally described as a high-technology enabled border crossing with fast track solutions for specific registered traders and travellers meeting some pre-defined requirements. One-Stop-Shop A One-Stop-Shop is a coordinated border management approach where businesses, at import and/or export, have a single contact with one government agency also representing other agencies at the release of goods. Gateway solution The Gateway solution is a solution using existing infrastructure, such as mobile networks, for customs and government related information messages to and from businesses involved in import and/or export. It was first tested by Swedish Customs for Authorized Economic Operators at the Sweden-Norway border in It can also be used to track vehicles in real time through GPS positioning. Green Corridor The Green Corridor is a solution to speed up supply chains through a fast track approach for AEOs and which re-uses export data as the basis for border processing and imports throughout the supply chain. It was tested between Sweden, Finland and Russia for a number of years. Authorised Economic Operator (AEO) Authorised Economic Operator (AEO) is a compliance management concept where companies on a voluntary basis register as trusted traders with customs (government) and, through self-assessment and customs validation, receive accreditation as Authorized Economic Operator giving predictability, speed and service in exchange for a certain level of compliance. The AEO concept is part of an international standard from the World Customs Organization (WCO) called SAFE Framework of Standards. The standard also makes it possible for two programmes in a technical Mutual Recognition Agreement (MRA), which makes it possible for a company to be granted the status in one country and being recognised in the other, avoiding duplication of controls and additional costs. There are countries that have implemented or have plans to implement multi-tier programmes, making it possible to have a lower level of registration, with fewer benefits that is better suited to SMEs or other businesses. Trusted Traveller Program (TTP) A compliance management concept similar to AEO where citizens voluntarily pre-register in a database with screening to get a fast track service when travelling. Trusted Commercial Traveller Program (TCTP) A specific sub-set compliance management concept to TTP above, for people commercially involved in international trade. Can be connected with AEO. Certified Taxable Person program (CTP)

13 A compliance management concept to identify and pre-register a reliable tax-payer profile. Could be designed, developed and implemented in combination with the other compliance management concepts above and used for a Smart Border solution.