Sunday, 6 January 2019

Customs obligations after Brexit for EU – UK trade and the Irish land border.

Pictured above is Hans Maessen (Brexit adviser at SGS Government and Institutions Services,  former chairman of the Dutch Customs Brokers Association and a Customs Broker of 35 years experience) giving evidence at the House of Commons Northern Ireland Select Committee.

I.m pleased and honoured to be able to publish an article by Hans on Brexit and Customs:


Customs issues are at the heart of the Brexit discussion:
  • to facilitate trade between the EU and the UK with minimum costs and interference and
  • to implement a customs land border on the Island of Ireland without infra structure.
Without being complete, this paper describes a general concept to both issues, which can be made operational within the present legal framework, using existing customs infra structure and IT-systems and within the transition period.

The Union Customs Code and its operability by member states.

The EU Union Customs Code (UCC) provides the legal framework for customs. The UK will use the UCC as a basis for its future customs legislation after Brexit. The UCC has direct applicability to EU citizens and businesses. The UCC offers a regulatory framework, supported by IT-systems, which is operational in all member states. Each member state is free to shape its customs organisation as it finds suitable to its specific situation as long as it complies to the UCC. Next to that, the UCC offers a range of simplifications which member states are free to apply if they wish to do so.

A Customs Union versus a Free Trade Agreement

A customs Union is formed by a number of individual countries, or member states. They do not levy duties on trade within the customs union territory. All member states levy the same duties on goods coming from countries outside the customs union. There are no customs formalities within a customs union.

Under a Free Trade Agreement (FTA) two countries or customs territories, agree not to levy any duties on trade on goods originated from each-others territories. Customs formalities are needed under an FTA to determine the origin of the goods and to regulate other laws such as VAT and product compliance.

Registered Export (REX) System

At the moment a new worldwide system is being introduced to state the origin of goods for customs purposes. Under the REX system, an exporter can register in a global database in which he can state what goods he regularly exports. He then can simply declare on the invoice the origin of the traded goods. The REX system will replace the present system with Certificates of Origin. The REX system can be used also for EU – UK trade. The UK already has most companies registered for REX within the EU.

Actors in customs

The following actors play a role in customs:
  • Importers and exporters: they sell and buy the trades goods. They provide the basic data (on the invoice) needed to make a customs declaration. They are ultimately responsible to customs authorities to fulfil all obligations.
  • Logistic service providers: they transport the goods over the border and play a role in bundling goods and communication with brokers.
  • Customs brokers: they are the intermediary between exporters and importers on one side and customs authorities on the other side. They make the actual (digital) customs declarations, streamline all formalities and procedures.
  • Customs authorities: they enforce the applicable laws when goods are exported and imported. They process the digital declarations, perform administrative and physical checks, collect taxes and implement non-tariff legislation on trade.
Regulations for goods traded across a border?

A vast number of laws are applicable at the border such as:
  • Duties: these vary depending on the kind of goods and the origin of goods. Duties are a percentage of the value of the goods.
  • VAT: export is exempt of VAT and import is subject to VAT.
  • Excise duties and other taxes.
  • Security: some (strategic) goods may not be exported, while other (dangerous) goods should not be imported.
  • Regulatory alignment: All imported goods have to comply with regulations such as health, veterinary and phytosanitary laws.
Declarations needed for a border crossing.
  • To exit a customs territory, an export declaration is needed to check if goods are eligible (security) to be exported, but also to proof that the transaction is exempt of charging VAT.
  • To import a customs territory, an import declaration is needed to determine the payment of duties, VAT and other taxes and to check if the imported goods comply with all other laws.
  • Goods can be transported across the EU border with countries like Switzerland and Norway to an interior destination with a Transit declaration. If the goods do not arrive at the point of destination and the applicable obligations are not fulfilled, then the titular of the Transit declaration is held liable for all consequences.

All customs communications are automated

The Union Customs Code (UCC) requires that all customs formalities are automated. For this purpose each member state has developed its own customs IT-systems. The UK is replacing its present customs declaration system called CHIEF, by a new system called CDS (Customs Declaration System), which will become operational from March 2019. Customs declaration systems are complex, since they have to apply many regulations on a real time and on line basis. They communicate with a number of national and EU customs IT-systems. The data these customs declaration systems require for communication are very structured. These data are provided by commercial software applications which are mostly used and operated by large exporters or importers or by customs brokers. There are many of such commercial customs software applications available on the market.
These software programs process the information which can be found on an invoice such as the kind of goods, origin, weight, value etc. This information is coded into datasets that can be processed by the customs authorities IT-systems such as CDS. The processing of one declaration may involve 10 to 20 messages back and forth between the commercial software module and the customs software, communicating stages and findings in a customs declaration process.

Next to export, import and transit declaration systems, there are IT-systems for veterinary goods (Traces), for Excise goods (EMCS), customs payment accounts, bank guarantees, customs authorisations and permissions etc. To manage the flow of goods there are also (air)port community systems operational which fully integrated customs procedures in the supply chain.

Risk assessment

Since all declarations are filed digitally, customs can base its risk analysis on these (big) data. The combination of different data elements in a declaration, can lead to a specific risk assessment. A high risk good, frequently imported by a trusted trader, does not have to lead to a high risk assessment. A low risk good imported from an unusual country by an unknown trader can lead to a high risk profile. In addition customs will also perform random checks to see if the assessment on the basis of big data is correct. Some goods, such as veterinary goods may have a 100% profile on administrative checks, because of the high priority that is given to health aspects.

Kind of inspections

When a customs declaration is filed, the outcome of the digital risk assessment can be threefold:
  1. There is a low risk assessment which implies that no further information is needed. The goods will be released for trade and transport immediately. In general this is the case with more than 90% of all goods.
  2. There is a medium risk assessment, which implies that customs want to get additional administrative information which is assessed by a customs officer. The declarant, who filed the digital declaration, will have to provide more information, such as the original invoice and origin and transportation documents. If this information is trustworthy, the goods will be released form further customs inspections. If this information is inadequate, a physical inspection of the goods can be ordered. (See 3. Below)
  3. There is a high risk profile so the goods are directly ordered to be physically inspected. This can be done by a scan of the container or truck or by an inspection of the goods when they are unloaded at the border or at the premises of a logistic service provider or on the premises of the importer.
In addition to administrative and physical checks at the time of export or import, customs can also do retrospective administrative checks on the basis of companies administrations over a certain period. These checks have proven to be effective. Most data about transactions and goods are well documented within companies administrations. Under the present UCC retrospective administrative checks can be done up to 3 years after the date of importation.

Border clearance versus inland clearance

Export and import declarations can be filed when the goods are available at a border or at the points of loading or unloading at the premises of a logistic service provider (LSP) or at the premises of the exporter or importer.
  • Clearance at a border.
    • Export: The goods are transported without planning of customs formalities to a border. At the border a customs broker has to make a digital export declaration on the basis of the documents provided by the transporter, such as the invoice and transport and origin documentation. The declaration is digitally filed by the broker and a further customs inspection can take place depending on the risk assessment of the customs IT system.
    • Import: After the export declaration was filed, a similar import procedure is needed. Another risk assessment will be done by the IT-system of the importing customs territory. Checks can take place at the border.
  • Inland clearance.
    • Export: The goods are declared while they are available for customs inspection at the premises of the exporter or logistic service provider. Many export declarations are filed by an exporter himself, since most export shipments are repetitive and thus relatively simple and predictable. Data for the declaration can be easily downloaded from existing administrative systems. If a customs broker makes such an export declaration, he can easily copy a previous declaration or use a simplified format for the declaration, which already contains all standard data. The declaration can be filed before the goods are loaded, so logistic processes are not disrupted.
    • Transit: The export declaration is followed up by an Transit declaration, which facilitates that the goods can be transported to the importing customs territory without any formalities at the border. Since a bank guarantee has to be provided , to cover possible liabilities by the titular of the Transit declaration, such a Transit declaration is usually made by a customs broker. Because of his liability he will take care that all customs obligations are met. A Export and a Transit declaration are often combined.
    • Import: As soon as the goods are available at the premises of the logistic service provider or the importer, an import declaration is filed. This is often done by a customs broker, since he has all necessary permissions from customs to do so, such as the IT infra structure, a payment account for duties and taxes, and all the knowledge required to streamline a compliant declaration process. If an inspection has to take place, the goods have to stay available for inspection by a customs officer for a mobile inspection, until they are made available for free circulation.

General implementation at the EU – UK border

It will be necessary for the UK to participate in the Transit convention after Brexit. The UK has already applied to do so. The UK will also have to implement simplifications which are now available within the UCC, to make inland clearance easily accessible. This accessibility can be realised by offering service opportunities to customs brokers and companies that want to make their own declarations. Member states of the EU with intensive UK trade, such as Ireland, France, Germany, Belgium and the Netherlands, may also want to make inland clearance easily accessible, thus facilitating trade and preventing congestion at harbours and borders.

In addition, it is quite logical that a German importer wants to do his customs declarations in his home country and not at one of the Channel or North Sea ports or at the Irish Sea for trade with Ireland.

Implementation on the Irish land border

Traders will have a natural incentive to comply with the customs obligations, because the VAT rate on export is 0%. This rate can only be applied when an export declaration is filed. Each declaration is registered by customs. Thus VAT authorities can easily check if the information on the monthly VAT declaration of an exporter is correct by simply comparing it with the available customs data. So is no export declaration is filed, then the VAT authorities will not allow the use of the 0% rate.

Every export declaration has to be followed up by a Transit declaration which has to be followed up by an import declaration. In this way the complete flow of goods and connected administrative obligations can be followed on both sides of the border, while no infrastructure is needed.

Veterinary goods

Veterinary goods form a special category for customs, since they are inspected more intensely and frequently then other goods. EU regulations say that these goods should be inspected at border inspection posts (BIP) which should be located ‘in the immediate vicinity of the border’. However, due to the specific geographical situation, these inspections point can be located away from the border. This is for example presently the case Rotterdam, where there are BIP’s located up to 40 kilometre inland. The Irish land border can also be qualified as a specific geographical situation, since it has more than 300 border crossings which are being used at a relatively low frequency for trade in veterinary goods. Inspections can take place at the premises of the exporter and importer or of the logistic service provider where the animals and goods are loaded and unloaded.

Mutual recognition of inspections and cooperation can further help to manage the cross border trade of these goods.

The EU Traces system is designed to track and trace the trade of agricultural products within the EU and with associated third countries. Traces is now fully operational in the UK and the UK could apply to be an associated third country for Traces after Brexit.

Statistics show that the numbers and value of trade and shipments of veterinary, sanitary and phyto-sanitary goods between the Republic of Ireland and Northern Ireland is not so big and thus manageable.
Taking into consideration that the Island or Ireland already is a bio-security zone for veterinary diseases, this can be incorporated in the risk assessment of the customs declarations and thus in the intensity with which administrative and physical checks are implemented. There is no other sector in trade which is so heavily regulated and monitored as the agricultural sector. The data from these sources can be further used to manage the trade in these goods.

Comparison with Norway and Switzerland

The EU has comparable operational borders with third countries such as Norway and Switzerland. These borders offer hybrid facilities. Customs clearance can be done at the border or using inland clearance. At the EU-Swiss border in Basel and elsewhere, there are lanes for border clearance and lanes for trucks carrying goods under the Transit system. It depends on the circumstances and preferences of the actors in trade which method they prefer and apply.

For trade on the Irish land border, inland clearance would de facto become obligatory as there will be no infra structure at the border. Since there is no customs service industry now available in Northern Ireland or at the Irish land border, there is an opportunity for brokers to develop that market.

Transit barcode scanning.

The Transit system was introduced about 2 decades ago and works satisfactory. A special aspect of the system is that there is an obligation to scan the barcode of the of the print of the digital Transit declaration at the border. On the basis of this scan it can be determined what customs territory can hold the titular responsible and liable for the obligations under Transit. Take for example a transport from an inland location in Germany across the border in Basel to an inland location in Switzerland. If the barcode has not been scanned at the border in Basel, then the German customs authorities may hold the titular responsible. If a scan has been made, then the Swiss may hold the titular liable, since there is a registration that the goods have arrived on Swiss customs territory. The barcode scan is an old fashioned administrative obligation that can easily be replaced by an app that follows the truck that carries the goods across the border. If such an app would be developed for the Irish land border, it could also be used at other EU external borders such as Basel.

Examples of implementation of inland clearance after Brexit.
  1. Repetitive trade of car parts.
A German company supplies car parts on a daily basis to a car manufacturer in the UK. The goods are transported by a truck crossing the Channel at Calais and Dover. This kind of trade is documented in detail in the IT-systems of the seller and buyer. The exporter would use commercial customs declaration software to download the data from his IT-system and generate a fully automatic export declaration. Since the risk profile of these transactions is very low, there would be no need for any administrative or physical checks by customs.

The exporter could order the trucking company to take care that a Transit declaration is made available for the transport to the UK. The trucking company would probably ask a broker to make this Transit declaration. The alternative would be that he himself would apply for a customs permission to make the Transit declaration himself. The goods can be transported to the car manufacturer in the UK.

Since the car manufacturer receives goods from all over the world for assembly, he will have his own customs department taking care of the import declaration. A datafile, made available by the supplier is used to download into his customs declaration system. He makes use of the simplification in the UK customs system to report the imported goods on a monthly basis.

Since the UK has introduced postponed accounting for VAT when Brexit took place, the importer does not need to pay VAT upon imports to HMRC. The VAT is registered administratively through the import declaration and can be cleared on the monthly VAT declaration.
  1. Export of veterinary goods from the UK to the EU.
A UK exporter of exclusive beef exports to Austria. The goods are inspected by a UK veterinarian before export. Being an eligible trader, the exporter registers the sale to the likewise eligible Austrian importer in the EU Traces system. An export declaration is made by a specialised customs broker in the UK when the goods are loaded. In the export declaration the code that refers to the veterinary inspection is filed, so the UK customs computer registers that all obligations are met. The broker also makes the Transit declaration which is needed for the transport to Austria. In Austria the truck reports to an authorised inspection point, where the local veterinarian inspects the papers. Since mutual recognition of veterinary inspections is agreed on between the UK and the EU, he sees no need for a physical inspection and the goods are released.
  1. Small trader on the Irish border
A wholesaler of specialised tools for the construction industry, located in Belfast sells once a month to customers in the Republic of Ireland. He uses a logistic service provider (LSP) to deliver the goods to his customers in the Republic. The LSP collects shipments from different exporters and has a daily service from Belfast to Dublin. From there the goods are distributed to the diverse customers in the Republic. He has made a deal with a customs broker to take care of all customs formalities. The LSP collects in his warehouse and gives order to the broker to make the export declaration for each individual shipment on behalf of the exporters. The risk assessment on the goods is so low that almost all declarations are released for export immediately. The broker makes one collective Transit declaration for the daily transport to the Republic. The broker cooperates with a colleague in Dublin who prepares the import declaration, so that the goods can be declared immediately when they arrive at the premises of the distribution centre in Dublin. Occasionally Irish customs want to have more information about the imported goods. Physical inspections took place twice last year.

The brokers invoice their service to the LSP. The LSP adds the customs clearance costs to his transportation bill. Since he has multiple declarations each day, he was able to get a very competitive price from the brokers. All obligations the importer and exporter have concerning VAT are fulfilled through the customs declaration.


Thursday, 19 October 2017

Leaving the Single Market - Product Rules

In my previous posts, I looked at the issues associated with leaving the EU's Custom Union. These issues are not related to leaving the Single Market and so are not mitigated by the EFTA EEA option:
As a third country, UK exports will also face potential regulatory barriers at the border, as set out in the EU Blue Guide "on the implementation of EU product rules", notably in sections 2.4 (products imported from countries outside the EU) and 7.3 (Control of products from third countries by customs).

Definition of  Third Country

Note that the Blue Guide refers to the “Union market”. However, section of the Blue Guide states:
"For the purpose of the EEA Agreement references to the Community (now Union) or the common market in the EU/EEA acts are understood to be references to the territories of the Contracting Parties. Accordingly, a product is not only placed on the Union market, but on the EEA market (i.e. the national markets of the Member States and Iceland, Liechtenstein and Norway)"
In other words, the EEA agreement extends the "internal market" of the EU-28 to the three EFTA EEA states. With regards to EU product rules (as defined in the Blue Guide), EFTA EEA states are not treated as third countries. Hence, we are now looking at regulatory barriers that arise from leaving the Single Market, rather than leaving the Customs Union.

Presumption of conformity

The Blue Guide states that compliance with European harmonised standards is the basis for lawfully placing products on the market, whether they are EU products or third-country products:
"The basic principle of EU product rules is that irrespective of the origins of the products, they need to be compliant with the applicable Union harmonisation legislation if they are made available on the Union market. Products manufactured in the EU and products from non-EU countries are treated alike."  (Section 2.4, page 20)
products manufactured in compliance with harmonised standards benefit from a presumption of conformity with the corresponding essential requirements of the applicable legislation” (Section 1.1.3, page 8)
Products from third countries benefit from “presumption of conformity” if they are manufactured in compliance with European harmonised standards (as produced by CEN, CENELEC or ETSI). There is no requirement for third countries to implement the EEA acquis or even adopt European harmonised standards (EN standards) as their national standards. This is highlighted in the US Trade Department Report for 2016 (page 140):
"Products sold in the EU must comply with the essential requirements of relevant European legislation ... conformity with European regional standards (called European harmonized standards or ENs) provide the method by which such requirements can be fulfilled. If a manufacturer uses the ENs referenced in the Official Journal of the European Union under the relevant legislation, its products are presumed to be in compliance with the requirements. The CE mark is applied ... and ... is a key indicator that the product complies with EU legislation, enabling the free movement of products within the European market."
In theory, it is possible to show compliance with the essential requirements of European legislation bu using other recognised international standards (in line with Article 2.4 of the WTO TBT Agreement).  In practice, as the US Trade Department Report for 2016 also highlights, the EU imposes barriers to use of alternative standards:
"..if a manufacturer chooses not to use an EN, it needs to assemble a technical file through a costly and arduous process indicating how the product meets the essential requirements ... there is no predictability that EU or Member State authorities will treat the product as conforming with essential requirements on the basis of that file. As a result, U.S. producers often feel compelled to use the relevant EN for products they seek to sell on the EU market, even if the U.S. products are produced according to relevant international standards providing similar or even higher safety levels."
By virtue of membership of the EU and CENELEC, the UK already has harmonised EN standards as national standards. Even after leaving the Single Market, UK manufacturers will continue to benefit from presumption of conformity from continued use of EN standards.

Declaration of Conformity

The topic of conformity assessment and EU product rules is covered in great detail in a series of excellent posts by @andrewchapman50 on his "Door To Freedom" blog.

Chapman's post "conformity assessment and the wto option (part 1)" describes how EU product Directives and Regulations all use the 8 basic Modules (A – H), defined in Framework Decision 768/2008/EC.  The great majority of products (possibly as high as 95%) are covered by Module A, where the manufacturer performs conformity assessment, self-certifies and attaches the CE mark. The remaining modules (covering the small minority of remaining products) require the involvement of a Notified Body in the assessment procedure.

Chapman's second post on WTO option & conformity assessment demonstrates that for the great majority of products (i.e. covered by Module A), UK manufacturers will still be able to self-certify, attach the CE Mark and issue a Declaration of Conformity after leaving the Single Market, just as they do today. 

Chapman's third post on WTO option and conformity assessment addresses the small minority of products which require the involvement of a Notified Body. The manufacturer still attaches the CE marks and issues a Declaration of Conformity, but must also declare the details of Certificates issued by Notified Bodies. 

Chapman points out that on leaving the Single Market, UK Notified Bodies will no longer be recognised by the EU, but suggests it is highly unlikely that existing certificates will suddenly lose their validity at Brexit (re-confirmed in Chapman’s response to Richard North’s blog).  Chapman also points out that UK Notified Bodies could still continue to assess products for the EU market, provided they have a subsidiary or sub-contract relationship with a Notified Body located inside EU territory (which most already have). This is of course assuming the EU will not enter into a Mutual Recognition Agreement (MRA) on conformity assessment, which means UK notified bodies and their certificates would continue to be recognised in the EU (and vice versa).

On leaving the Single Market, conformity assessment activities within the UK for manufactured products exported to the EU will remain essentially unchanged.

Role of Importer

A key difference for manufactured products from third countries is the requirement to use an EU-based importer : 

"For products imported from countries outside the EU, Union harmonisation legislation envisages a special role for the importer. The latter assumes certain obligations which to some extent mirror the obligations of manufacturers based within the EU" (Blue Guide section 2.4, page 20)
"The importer is a natural or legal person established in the Union who places a product from a third country on the EU market" (Blue Guide section 3.3, page 33)
The importer ensures that the third country manufacturer has: (i) undertaken appropriate conformity assessment procedure; (ii) provided relevant technical documentation; (iii) affixed CE marking including product & serial numbers; (iv) provided instructions and safety information.

The importer must also: (i) ensure his own name, trade name/mark & address is on the product, packaging or documentation; (ii) retain a copy of the manufacturer’s Declaration of Conformity (typically for up to 10 years); (iii) provide the manufacturer's technical documentation upon request.

The Blue Guide (page 33) states that importer obligations do not imply importers undertake physical control/testing of the products themselves.  In a few cases, EU harmonised regulations require sample testing of products already placed on the market - this is normally an obligation on the manufacturer, but in the case of third country imports, sample testing is arranged by the importer, or if necessary, can be undertaken by the importer.

These points are also covered in detail in Chapman's blog posts on conformity assessment.  On leaving the Single Market, UK exporters will need to use an EU-based importer. But the obligations of an importer (described in Article R4 of Framework Decision 768/2008/EC), do not seem onerous and could be fulfilled by an import agent, a freightforwarder, an EU-based office or subsidiary of the manufacturer, or even the purchaser himself.

Control of products from third countries

Manufactured goods from third countries are subject to controls at the border under EU product rules: 

Customs authorities and market surveillance authorities have the obligation and the power, based on risk analyses, to check products arriving from third countries and intervene as appropriate before their release for free circulation. (Blue Guide Section 2.4 page 20)
Market surveillance ensures products placed on the market are compliant with product rules. Whereas EU/EEA manufactured goods are subject to market surveillance by the relevant national market surveillance authority when first placed on a national market, manufactured goods imported from a third country are subject to market surveillance at the border, as set out in Regulation (EC) No 765/2008 (requirements for accreditation and market surveillance) :
  • Article 19(1) requires market surveillance authorities in member states to undertake checks on products placed on the market - taking account of established principles of risk assessment, complaints and other information.
  • Article 27 “Controls of products entering the Community market”. Article 27 (1) requires customs authorities to undertake checks on products from third countries entering the EU in accordance with Article 19(1).
  • Article 27 (3) requires customs authorities to suspend the release of products imported from third countries when:
    • they suspect a serious risk to health, safety, environment or other public interest;
    • and/or products do not fulfil documentation and marking requirements;
    • and/or the CE marking has been affixed in a false or misleading manner.
The important point to note here is that customs inspections are intelligence led - consignments are selected for inspection based on risk assessment. Even EU origin consignments may be subject to inspection based on a risk assessment of fraud and criminal activities. Consignments from outside the Single Market are also assessed for the risk of non-compliance with product rules.

Current non-EU imports to the UK provide a useful measure: Customs Declarations are 99% electronic with 96% cleared in seconds; 4% are subject to checks, with clearance standards of 2-3 hours (maximum); the vast majority of checks are documentary checks rather than physical inspections (See HMRC evidence to the House of Commons Treasury Committee). At Dover today, Lorries carrying goods from outside the EU that are subjected to checks are cleared within 45 minutes on average (see Oxera report on Brexit impact on ports).

Non-EU imports come from a range of countries with differing national product standards and enforcement regimes. It should be emphasised that EU member state national authorities administer their own customs regime and make their own decisions regarding risk assessments and frequency of checks - this is not dictated by EU regulations. Under the current risk assessment process, customs and market surveillance authorities focus their attention on consumer goods from the Far East and Africa, considered to be high risk for illegal and non-compliant products.

So will UK & EU member state authorities decide that a high rate of consignment checking for each other's manufactured goods is required the day after Brexit ? When both parties remain harmonised on EN standards ? When manufacturers / traders have an established track record of product compliance ? Will goods that were acceptable the day before suddenly be deemed high-risk, requiring diversion of customs/market surveillance resources away from "high-risk" prducts from Asia/Africa at the same time impacting on supply chains your own country relies upon ? It seems unlikely to me that existing UK-EU trade in manufactured goods will face a sudden cliff-edge of increased consignment checking at the border.

Market Surveillance co-operation

Co-operation is promoted within the Single Market to strengthen Market Surveillance. Regulation (EC) No 765/2008 requires "efficient cooperation and exchange of information" between member states and also with the Commission and relevant agencies (Article 24); between customs and market surveillance authorities within a member state (Article 27). Better information will allow better targeting of "high-risk" consignments from third countries.

Interestingly, Article 26 provides for national authorities to cooperate and exchange information with authorities of third countries to promote and facilitate "access to European systems" and "activities relating to conformity assessment, market surveillance and accreditation". 

The EU views ”compatibility of market surveillance measures and supervision practices” as a condition for open international trade. For example, the Canada-EU Trade Agreement (CETA) Ch 6 Article 3 states “The Parties shall strengthen their co-operation in the areas of technical regulations, standards, metrology, conformity assessment procedures, market surveillance or monitoring and enforcement activities in order to facilitate the conduct of trade between the Parties, as laid down in Chapter XXX (Regulatory Co-operation).”

By virtue of current EU membership, the UK already has close co-operation with other national authorities and is aligned in conformity assessment procedures, market surveillance,  monitoring / enforcement activities. Continued co-operation post-Brexit would aid in risk-analysis targeting and maintaining mutual trust - assuming the EU is willing to reach agreement.


While the Blue Guide applies to most products covered by EU regulations, there are some exceptions: "The Guide does not attempt to cover ... Union legislation on motor vehicles, construction products, REACH, and chemicals" (section 1.5).

Similarly, Regulation (EC) No 765/2008 (requirements for accreditation and market surveillance) applies only where EU regulations do not contain specific provisions, for example: "drug precursors, medical devices, medicinal products for human and veterinary use, motor vehicles and aviation." (para (5) of preamble).

In these exceptional cases, typically product registration is required with an EU agency or a notified UK authority recognised by the EU. Outside the Single Market (and assuming EU do not agree to mutual recognition of registrations), UK exporters will need to use an EU-based operator/representative to register products  (not dissimilar to the role of importer described above). 


In summary, navigating the EU's product rules from outside the Single Market is relatively straightforward: continue using EN standards; use an EU-based importer; UK Notified Bodies should establish sub-contractor or subsidiary relationships with EU-based bodies. Agreements with the EU for continued co-operation on market surveillance and an MRA on conformity assessment would be beneficial to both parties - but the lack of them does not provide an insurmountable barrier. There is no reason to expect UK-EU manufactured products to be classified as "high-risk" for non-compliance, hence no reason to expect an upsurge in consignment checking for manufactured products on Brexit day one.

While there are some exceptions to the general approach laid out in the Blue Guide, similar mitigation is available for these cases. The details of navigating these exceptions from outside the Single Market will be the topic of my next post.

Monday, 24 July 2017

Leaving the Customs Union (part 4) - A Comprehensive Customs agreement

It is perhaps surprising that so much attention has been given to the Single Market, yet so little attention has been paid to the EU Customs Union. Particularly as leaving the EU Customs Union has potentially greater impacts on UK trade than leaving the Single Market.

In my previous posts, I looked at how leaving the Customs Union results in:
In this post, I will look at need for a comprehensive customs agreement to mitigate the impact of a new customs border.

What agreements are needed ?

The UK will need to continue a number of European agreements / arrangements as a third country outside the EU. I've listed those I know of to date below:
  • Common Transit Convention The EFTA states, EU-28, Turkey, Macedonia & Serbia are signatories to this convention, which allows the movement of goods though these states with customs formalities (payment of duties and VAT) suspended until the goods either reach their destination or are exported outside the territories of the signatories, avoiding stops / checks at every frontier crossed en-route. Note that UK will remain a signatory to TIR (Transports Internationaux Routiers, International Road Transport), a United Nations Economic Commission for Europe (UNECE) initiative pre-dating the EU, covering over 50 countries (including the EU-28) which also allows transit with suspension of customs formalities. TIR cannot be used for movements within the EU, but is used for movements involving third countries and the EU
  • Road Haulage Under the current EU Community Licensing scheme, truck drivers are licensed to drive throughout Europe without the need for permits at every border. The Road Haulage Association (RHA) have proposed a Land Transport Agreement to allow continued unfettered international road haulage for licenced UK and EU operators. The proposal excludes cabotage as the RHA does not believe the EU will allow UK haulage operators to compete for domestic haulage business within EU member states.
  • Continued Customs Co-operation will be a crucial element of maintaining trade.
There are other areas where agreements could minimise the impact of introducing customs formalities, especially for the Irish border & SME's, including :
  • Expand the AEO scheme to a trusted trader scheme and extend the benefits to SMEs, combined with common technology for identification and reserved/fast-track lanes at customs borders.
  • Agreement between HMRC and EU tax authorities to continue current arrangements to collect VAT and excise away form the border and reconcile in arrears. Potentially, continue to allow VAT registered companies to trade with vat registered counterparts on other side of border without need for VAT payment and subsequent refund.
  • Special origin status for certified trusted traders each side of the Irish border where goods are of origin within either of the UK/RoI jurisdictions. Allow fast-track of these consignments across the border and avoid Rules of Origin paperwork.
  • Special transit status for freight movements within the island of Ireland.
Staying in the Customs Union ?

There has also been much discussion of the UK remaining in the customs union in order to avoid the impact of a new customs border. But is this realistic? Peter Holmes (University of Sussex) argues that Article 28 of the Treaty of the Functioning of the European Union means the EU customs union is the same as the EU itself in terms of the definition of membership. Countries like Turkey, San Marino and Andorra have customs union agreements with the EU, but they are not in the EU's customs union.

Holmes also points out that to remove a customs border requires more than just the adoption of the EU's Common External Tariff: “Any customs union agreement with the EU would firstly have to be totally comprehensive to avoid the need for customs checks. The UK would have to follow all EU trade policies, at the WTO, in bilateral deals and in anti-dumping.” The UK would have no independent trade policy.

Clearly, this would not be a suitable long term arrangement. But, as discussed in my previous post, we might need an interim Customs Union arrangement to provide time for implementation of Technology, IT, Infrastructure and Trade Facilitation measures to mitigate the impact of customs formalities – March 2019 is not far away for such a significant logistical challenge.

This would also be dependent on EU agreement – we cannot simply shadow the EU's trade policy and demand the EU suspend customs formalities and rules of origin (as at least one commentator has suggested). Essentially the EU would be trusting the UK to maintain its customs border in line with EU policy. The EU would likely demand continued oversight via OLAF (EU's anti-fraud body) and European Court of Auditors (ECA) and may also demand we continue to send the bulk of import duty collected to Brussels. Any interim customs union arrangement should be strictly limited to the minimum time possible.

Does EFTA EEA help with customs ?

While many promote the benefits of EFTA EEA, this option does not remove the need for routine custom controls & formalities:
  • EFTA's EEA Factsheet on Free Movement of Goods: “..whereas in the EU Customs Union, the EU Member States have abolished customs borders and procedures between each other, these are still in place in trade between the EEA EFTA States and the EU, as well as in trade between the three EEA EFTA States.”
  • CBI's case study of the Norway option:Not being part of the customs union, EEA EFTA exporters and foreign companies exporting to them have to go through customs procedures such as import/export declarations, including rules of origin for all goods exports and payments of VAT.”
  • Swedish National Board of Trade Brexit Analysis comments on the EEA option: “Customs formalities would need to be completed though, in connection with border passage of goods and proof of origin of goods has to be presented for exemption from customs duty or reduced customs duty.
Nor does EFTA EEA provide a comprehensive customs agreement. As EFTA's web page on Customs Matters states: “The EEA is not a customs union, thus most of the activities in the customs field are not relevant to the EEA Agreement …. Norway and Switzerland were able to find simplified solutions through bilateral negotiations”.

The EEA agreement does include 2 protocols on customs matters, which are similar to the many EU customs co-operation agreements with 3rd countries in providing a framework for co-operation and mutual assistance :
  • EFTA EEA Protocol 10 - simplified inspections and formalities for carriage of goods. Over 15 of the 24 pages of this protocol are dedicated to Norway's bi-lateral agreements on customs security measures, covering AEO recognition and Entry/Exit summary declarations. But Article 2.1 also limits the scope of these customs security measures to EU-Norway – other EFTA EEA states do not benefit from this.
  • EFTA EEA Protocol 11 - mutual assistance in customs matters. Seven pages - essentially a replica of other EU third country agreements on this topic.
Access to the Common Transit Convention and the EU Community Licensing scheme would probably come courtesy of joining EFTA, but would not require rejoining EEA (Switzerland also have access to these schemes). However EFTA EEA does not provide a comprehensive customs agreement. As the Norway example shows, a UK-EU customs agreement could be added as specific protocols in the EEA agreement – requiring unanimous consent from EFTA EEA states and the EU Commission. But why choose this route when a standalone UK-EU customs agreement can be agreed via Qualified Majority voting in the EU council ? Moreover, leaving EFTA EEA would mean losing access to protocols in the EEA agreement, including those holding the UK-EU customs agreement. Which rather neatly proves the theory that those promoting the idea of EFTA EEA option never actually intend the UK to leave.

Should the UK wish to pursue a transitional customs union arrangement, there is another problem as pointed out in Peter Holmes article – Article 56/3 of the EFTA Convention requires EFTA members to harmonise their third country FTAs – which clashes with the need to align with EU third country FTAs while in a customs union. After leaving the EU, the UK can have a transitional customs union arrangement – or it can join EFTA EEA – but not both.


There is a wide range of agreements needed in forming a comprehensive customs agreement with the EU that will minimise the impact of customs formalities. The UK could enter into a customs union agreement with the EU (assuming the EU agree) but that would mean no independent trade policy - this might just be needed as a short-term interim agreement, but should be limited to the minimum time possible.

The EFTA EEA option does not avoid the need for a customs border with customs formalities. Nor does EFTA EEA provide a comprehensive customs agreement – and embedding a UK-EU customs agreement into the EEA agreement means that agreement would be lost when we left EFTA EEA. Furthermore, an interim customs union agreement is not compatible with EFTA membership.

The primary feature of EFTA EEA is regulatory harmonisation with the EU. EFTA EEA imports to the EU are still subject to routine customs controls and checks based on risk assessment (fraud, criminal, security etc), but EFTA EEA imports are essentially regarded as being zero-risk of regulatory non-compliance in the risk assessment calculation. Food safety regulations are also harmonised, meaning EFTA EEA imports are not subject to border inspections (although other third countries such as Switzerland, Chile, New Zealand have equivalence agreements which remove or reduce the need for border inspections for food safety).

Regulatory harmonisation is the point at which we move away from discussing the impact of leaving the Customs Union to discussing the impact of leaving the Single Market – which will be the topic of my next post.