Triggering Article 50 has transformed Brexit from an ideological concept into a concrete reality with practical consequences. The implications of leaving the single market that have been overlooked, or at least downplayed, include the many regulatory procedures and technological systems that have kept import and exports flowing between the UK and our EU partners. These will be now subject to a massive restructuring which is unparalleled in our recent history.
The UK’s customs code has been long harmonised with the Brussels nomenclature, the most recent development being the Union Customs Code (UCC) that came into force in May 2016, seven weeks before the UK voted to leave the EU and, it now seems certain, the European Customs Union. The referendum result caught HMRC by surprise as they were working in a totally different direction, that of closer integration with the EU.
Understandably, many people have no idea how border control works and how goods end up in their possession, in their homes and lives. They see trucks and containers on motorways and couriers arriving at the doorstep with their latest internet purchases but few realise that the process is part of a highly-systemized set of EU wide procedures that have been woven into the fabric of the single market. We have a shared nomenclature – everything has a classification known as a commodity code, from the most minute and seemingly insignificant item such as bath tap right up to a massive 747 airplane.
This is all codified and referenced in the UK customs tariff, a huge manual in three volumes that lists rates of duty for many thousands of commodities which drill down to multiple sub-headings in the finest detail. The IT system that processes the millions of items hitting our shores is the Customs Handling of Import and Export system – CHIEF – which is primarily used to process goods coming from outside the EU. But taking back control of our borders also inevitably requires taking back control of imports from Europe which have long been exempt from frontier clearance or are subject to minimal regulatory obstacles. This is now all going to change and HMRC have wisely decided that CHIEF is not up to this Herculean task and has to be replaced.
But how to replace an IT system that has worked well for many years with one that must be programmed to deal with a trading arrangement that has not been defined and may well be agreed at the final hour of the final day? And will specific sectors of the economy be exempt from border control because it is in the economic interest of both the EU and the UK to allow the free movement of certain goods?
One of the Brexiteer’s key arguments has been that realpolitik will prevail because economic and political interests go hand in hand. Perhaps so, but the withdrawal of the UK from the single market will it make the situation more complex. Think back to the Millennium 2K bug in 2000 when the addition of an innocuous digit caused global panic in the IT industry. Rewriting a whole system that has to accommodate massive, and yet to be defined, changes is on a different quantum level. And to complicate matters further, most freight companies use third-party software such as Sequoia and Descartes to access CHIEF, integrating customs procedures with full-blown forwarding software and links to accounting packages. The changes that are coming cannot be reverse-engineered. A new IT system of this magnitude can take years to design, debug and test in sandbox mode, and that is with a clear set of objectives that seem to be lacking.
So what could keep the UK show on the road? Ironically the system that would probably be the fall-back mechanism is the EU’s own customs code which is currently the law in the UK and would continue to be adopted after we have left the single market, along the lines of the Great Repeal Bill. With Brexit, the regulatory environment which requires the UK to comply with all of the UCC is no longer subject to the Imperium of Brussels and so, in theory, we can decide what bits of the code we like … and then use, amend, ignore or discard as appropriate. This is precisely the cherry picking that induces apoplectic fits in many in Brussels who see the European Ideal as a summum bonum, an ultimate truth.
Adopting the UCC is may appear unpalatable to some but the alternatives are dire. There is not the physical capacity or space to handle customs clearance at Dover, the UK’s busiest port which operates on a 40 minute turnaround. Congestion, many fear, would bring the UK’s economy to a standstill. One possible solution would be for logistics operators to be given inland clearance depot status and some kind of reporting system for VAT along the lines of the Export European Sales List to HMRC. Otherwise not only would the goods cease to flow but so would the revenue from VAT and taxes which the government will need to help pay for the Brexit process.
Paul Bartholomew is managing director of Superyacht Cargo and advisor to the London Chamber of Commerce on logistics and the Brexit effect