Newington's Claudia Hyde summarises the first of the UK's position paper on Brexit negotiations.

Future customs arrangements

• Yesterday (15 August), the Department for Exiting the European Union published a paper setting out the Government’s proposals for a future customs relationship with the EU.
• The position paper is the first of 12 expected papers which will be published before the European Council summit taking place in October.
• At the summit, the Council will rule on whether talks on the UK’s exit from the EU have made sufficient progress to proceed to the next stage of negotiations.
• The details of the new customs arrangement have been eagerly anticipated following confirmation last week from Chancellor Philip Hammond and International Trade Secretary Liam Fox that the UK will leave the customs union after Brexit.
• The ministers outlined that they want a transition deal following Britain’s exit from the EU to limit uncertainty and increase ease of doing business, further details of which were released in the paper.

Key provisions

In the short-term, the paper proposes “close association” with the customs union for a limited period while preparatory steps are taken for the longer-term solution. This will be put in place to ensure that businesses “only have to adjust once to a new customs relationship.”

As briefed to the press prior to its release, the paper sets out two options for the future of the UK’s customs arrangement with the EU in the longer term, in both of these cases, the UK would maintain independent trade policy objectives:

• A “highly streamlined customs arrangement”-
  • This option would closely mirror the current arrangement with the EU and promote the free flow of trade.
  • The UK would manage a new customs border with the EU, with trade facilitated through a series of measure that would diminish barriers between the UK and EU (potentially negotiated unilaterally). Examples given include wavering entry and exit requirements, a mutual recognition agreement for authorised economic operators and membership of the Common Transit Convention.
  • The EU would have to implement equivalent arrangement with the UK, and there would be an increase in administration compared with being inside the EU Customs Union, but the Government sets out that this would support facilitating trade with other countries in the world.
• “A new customs partnership with the EU”­
  •  This option proposes that the UK and EU trade as third parties but that the UK mirrors the EU’s customs arrangements at its external borders, guaranteeing that goods entering the EU via the UK have paid the correct duties.
  • The UK would be free to apply its own tariffs to imports and exports from countries outside the customs union, where they are destined for the UK market. This approach would reduce the need for UK-EU customs processes, but would require establishing a “robust enforcement mechanism.”

Analysis

An article in last week’s Sunday Telegraph, authored jointly by Hammond and Fox as a display of unity, outlined that the UK would definitely be seeking to exit the customs union during negotiations but the alignment detailed in this starting position and the desire to agree on an interim period has tempered this position and should go some way in assuring business of the Government’s intention not to allow a customs union membership to fall off a “cliff edge”.

However, both options in the long-term could cause logistical problems. The Government has outlined that a “new customs partnership” would be an untested approach and would take time to develop and implement. The enforcement mechanism referenced could also incur unexpected costs to apply. The proposals contained in the paper have been dismissed as “fantasy” by Guy Verhofstadt MEP, the European Parliament’s negotiator, and the European Commission’s reiterated that “frictionless trade is not possible outside the single market and customs union.”

Next steps

The Government is now embarking on a programme of consultation in order to gather intelligence from the business community and to invite the views of stakeholders on how the Government can best enable streamlined business to continue between the UK and the EU and on what an interim period should look like.

If you would like to speak to Newington about how your business could best outline its position to the Government please get in touch with our dedicated Brexit team at [email protected] or call Lizzy Roberts on 020 7234 3332.

The next round of negotiations begins in the final week of August. For now, the Department is keeping guidance on which policy papers will be released when, away from the media, but are sending out briefings on each paper a day head of release to journalists. The crucial European Council summit where progress will be reviewed is taking place on 19 and 20 October.