Despite the government’s plan to leave the Customs Union, Prime Minister Theresa May still believes “frictionless” transportation of goods between the UK and EU is possible.
However, EU chief negotiator, Michel Barnier, has inferred it is not possible to leave the Single Market and build a Customs Union, begging the question “how frictionless will trade get?”.
Author of “Brexit: The implications for UK ports”, Oxera partner Andrew Meaney, says that since the Single Market was established in January 1993, goods leaving the UK for the EU, and vice versa, have not been subject to customs checks on either side.
This will change post-Brexit, however it is not yet clear precisely what customs checks will involve. Lorry loads of goods coming into Dover from outside the European Union will be subject to checks which, after Brexit, could become lengthy and cause delays.
And substantial food exports come out of Ireland and move through the UK before hitting the Continent, while the Netherlands and Belgium are two major hubs for fresh produce supply into Britain. This means the nature of customs and security checks is a major point for industry all across Europe.
It’s not yet clear what the border situation will be post-Brexit and having hard borders between the EU and UK is a possibility which would mean that 2.6 millions trucks that passed through the Port of Dover each year would have to go through security checks, according to Buczek.
She has already warned there is no space at port to accommodate a rise in lorry volumes or system in place on how to handle delays. She calls for the speedy installation and operation of a long-term IT system that could handle significant increases in traffic.
“We recognise there is a need for checking goods but our mantra is that those checks simply cannot happen at the port. We have to move with the future and think about frictionless borders and long-term IT solutions,” she said.
“Shipping time between Dover and Calais is one hour and a half so checks or pre-clearance is very difficult to carry out in such a short space of time.”
Oxera’s four scenarios
Meaney considered four different “degrees of frictionless”, all of which assume that some type of deal will be in place by March 29, 2019.
The first is about minimal friction where there is low regulation and enforcement where customs checks are performed away from the port. This could lead to large lorry parks having to be built in and around port areas.
The second involves low regulation with high levels of enforcement which is either carried out at ports or randomly. This would lead to lengthy checks which would need higher staffing levels.
“We estimate the impact of such a scenario to be at least £1bn per year,” says Meaney.
“This is an extremely conservative estimate — it does not account for the economic costs of the uncertainty involved, the extra staff needed (for hauliers, ports and customs officials), the congestion associated with calling Operation Stack (put at £1bn over four days in a recent study by Conservative MPs), the land required for the additional customs checks, or of the wider economic impacts of jobs moving overseas due to uncertainty over the operation of just-in-time logistics.
“The full cost is likely to be much higher.”
The third scenario Oxera names as “uncertain passage: high regulation, low enforcement”. This is where enforcement is undertaken on a risk basis only intercepting lorries where necessary and could be similar to what happens currently with the Department of Environment, Food and Rural Affairs (Defra) in how it handles non-EU imports that need import licences, phytosanitary requirements and certification.
In any case, the prospect of goods being deemed non-compliant is high, reducing the appetite for import and export, says the report.
“The degree of uncertainty—in an industry that relies on goods being delivered ‘just in time’—could lead hauliers to change their business model. Before the Single Market was introduced, many lorries were sent across the sea (to Ireland or France) unaccompanied — so just the trailer was put onto the ferry, and was picked up by a domestic haulage company at its destination.
“Arranging for this reverse in working patterns will cause ports to face the costs of changing their facilities, while job opportunities for UK-based lorry drivers may decrease,” Meaney adds.
The fourth possible structure could involve extensive regulation of products combined with increased levels of enforcement and would lead to a significant increase in the requirements at borders.
“The Port of Dover has called this scenario ‘Armageddon’,” says Meaney.
“Achieving even a low-friction outcome will not be easy, and business in both the UK and the EU need to know very soon the customs rules under which they will be trading. The decision cannot be part of a last-minute deal on the eve of Brexit, due to the time it will take to get trade moving under the new arrangements.
“The costs to logistics businesses and their customers, users of the road network and, eventually, jobs in the UK of a relatively limited increase in friction will be considerable.
“And ‘no deal’ on a customs union would have extremely serious consequences for the UK economy. Providing a policy direction in this area should be a priority for the government when Parliament returns from recess.”
With regards to the new government IT system to help facilitate checks, the Oxera report, says it is due to replace the current HMRC customer clearance system (CHIEF) in March 2019.
“It’s now due to be delivered just before we leave the EU and, having been planned to deliver 60 million clearances per annum, it will now need to deliver 300 million per year, with no understanding yet of what the customs deal with the EU looks like.”