Brexit: muddying the waters

20/01/2021

There can be no dispute that EU-UK trade in the post-Brexit environment is an evolving situation of exceptional complexity. It also involves many specialities, disciplines and organisations, so there is no one, overarching guide or single narrative which can be used to explain events.

Nevertheless, where there are many different things happening within a common framework such as Brexit, albeit with different causes and variable effects on the ground, the temptation for the media to over-simplify must be extremely powerful.

With that, one can see several distinct themes emerging. One focuses on the incompetence of government in preparing for the end of the transition period – an obvious and extremely rich vein to mine, of which there are several recent examples.

But one of the most prominent being entertained by the media is the "victim narrative" – much favoured by the BBC - where traders and their representatives are being given free rein to vent their complaints about border controls to which they are being exposed, and related issues, raging against "paperwork" and "red tape" and "bureaucracy".

While no one could begin to dispute that there have not been significant government failures, however, not all traders cannot absolve themselves from all responsibilities, particularly those involved in the shipping of highly perishable goods, particularly in the fisheries sector, and in products of animal origin.

The point here is that, however unjust and miserable the outcome of the EU-UK trade agreement (TCA) might be, there is no excuse for allowing vehicles with valuable and vulnerable cargoes to turn up at EU borders, with inadequate preparation, and expect a free pass from the EU.

Where this has occurred, it really is about time that industry and the media stopped whingeing, and started confronting the reality - that these UK exports to the EU are now subject to pre-existing third country controls, specifically the "official controls" which apply to fisheries and meat products.

As we know, and I have detailed many times on this blog, these are not "new" controls. They are part of the EU's Single Market acquis, reinforced by the Union Customs Code (UCC). They have applied to all third countries and thus are only newly applied to the UK since it acquired third country status.

It is crucially important in this respect to understand that the EU hasn't changed. The UK has. It has purposefully stepped outside the Single Market and thereby willingly and deliberately made its exports to the EU subject to third country controls.

The "official controls" mostly apply irrespective of any free trade agreements, so there was no excuse whatsoever for not being prepared for their implementation. Since January 2017, when Mrs May committed the UK to leaving the Single Market, it was a matter of certainty that they would apply – irrespective of what British politicians might have said.

One can understand and have a small amount of sympathy with the view that business was misled by Johnson's claim of the TCA that there would be no non-tariff barriers, but anyone who believed that – in the face of the evidence – must surely be more than a little naïve.

The Johnson administration, after all, has turned lying into a routine instrument of government, while most statements from Johnson himself on the subject of regulation have served only to illustrate his profound ignorance of the subject. No sane person would believe anything that Johnson said, without extremely strong supporting evidence.

Nor is it sensible or realistic for traders of their representatives (much less government) to ask the EU to be "pragmatic" (i.e., lax) in the implementation of its border controls. The EU is obliged under WTO rules to treat all third countries equally, without discrimination. The UK cannot be given a free pass without breaking the rules.

There are no circumstances, therefore, under which the regime will get easier. The only way UK businesses can continue to export is if they take the existing rules seriously as a permanent feature of our trading relationship with the EU, and learn how to comply with them.

That said, the scope for compliance is restricted to the areas where the controls are well-defined and there is no reliance on failed (or failing) government systems.

Bloomberg, for instance, points up an issue with the application of the Union transit system, which allows carriers to bypass customs formalities at the point of entry to the EU, deferring them to the country of destination.

However, the system (as with the ATA Carnet), requires financial guarantees to be lodged, covering any liability for tariffs and other fees in the event of default. Yet, as a result of the massive increase in what are now "non-Union" goods from the UK, many of the carriers have "maxed out" on their guarantees.

Yet, those firms wanting increase the size of their guarantees, or to apply for a new one, have been unable to do so, as they have been unable to register the details with HMRC, which is experiencing problems with its New Computerised Transit System, as a result of a recent software "upgrade".

At Ashford, southeast England, we are told, drivers have had to wait at a truck park for hours to obtain their transit documents and are regularly being turned back, according to Steve Cock of The Custom House, which has a base at the site.

The firm, which has a 200-million pound ($273 million) transit guarantee, has been turning clients away because it is at capacity, Cock said. He expects chaos as soon as freight traffic rebounds from its current subdued level because as much as 90 percent of goods being moved will need transit documents.

In completely different territory, we have the Irish Times shed some light on the problems supermarkets in Northern Ireland are having stocking their shelves with supplies from Great Britain, bought in bulk and repacked for distribution.

As it stands, under the rules of origin provisions of the TCA, goods purchased from outside GB and caught under the "insufficient production" rule are subject to tariffs when re-exported to Northern Ireland. And while goods imported directly from EU Member States to NI would be tariff-free, if they are repackaged in GB, in a bizarre twist to the rules, they then attract tariffs when sent to NI.

The rules have led to severe disruption in supply chains and food shortages and empty shelves in Irish retail outlets of UK supermarket chains, in the Republic and Northern Ireland, and delayed the shipment of other goods.

Government officials have made "technical inquiries" with officials within the Commission "to see what the possibilities are", says one Government source, though they warned that finding a fix for the issue was unlikely. "This", says the source, "is an issue which was unforeseen or not foreseen to the extent to which it should have been".

These two examples, contrasted with the problems experienced recently by the meat industry, illustrate the nuances affecting border issues, and the diversity of causation.

Meat exporters, for instance, are complaining about a load of pig's heads exported from the UK to European buyers to make products like sausages and pâté. They have been stuck at Rotterdam port for weeks due to Dutch authorities demanding that that they be tested for disease.

David Lindars from the British Meat Processors Association decries "clerical bureaucracy and the misunderstanding of the rules we [the UK] and they [the EU] are operating to", apparently surprised that "All paperwork is checked for 100 percent of products entering the EU" and that "the number of issues raised at the border control posts determine whether a truck is held for hours, days, or even weeks".

Lindars argues that "there are huge issues with a system that is fundamentally not designed for a short shelf-life food", apparently unaware that, until recently, the UK was implementing exactly that system for third country imports, including chilled New Zealand lamb, which has come from the other side of the world.

To an extent, the industry's complaints serve only to cover up its own complacency and lack of preparedness, but they provide easy copy for lazy journalists peddling the "victim" narrative.

There is a long way to go before we are through this mess, and many difficult decisions will have to be made by many traders about the future of their businesses. Many will not survive. But the media muddying the waters with its own superficial narratives helps no one. We need a better understanding of what is going on.

Also published on Turbulent Times.