Saturday, 10 February 2018

Clutching at straws

Perhaps the most intriguing question we will need answered in phase two of the withdrawal process will be whether or not a frictionless Irish border is achievable outside some form of UK-EU customs union. From a Leave perspective this is where we enter more dangerous water as far as maintaining the public appetite for Brexit. Once we concede on replicating the framework of the Customs Union, which would need to cover substantially all the trade between the two parties, we take a huge chunk out of the value of leaving. In other words: bad PR for Brexit.

Something I have noticed in recent weeks is that Remainers appear to have a spring in their step as far as arguing for a retention or simulation of the Customs Union. This is probably partly strategic, because not ever did we hear any praise offered in favour of Customs Union participation in the months which led to the vote. Remainers have stayed quiet about the Customs Union, likely because they know it does not offer much in the way of material or political benefit. As positives go, its use only really stretches to the elimination of a Rules of Origin hurdle and other, tariff-related customs procedures between member states. The bare bones of trade.

Where Remainers are right, though, is that where the preservation of a frictionless Irish border is concerned, nobody can point to an objectively workable alternative to the EU Customs Union. Even quite detailed and authoritative reports, such as the EU Parliament's 'Smart Border 2.0' paper, admit that the off-the-shelf templates are limited in their friction-reducing capabilities. And so we are stuck, with the wonks having fun knowing full well that it gives them a chance to mock and deride childish suggestions from hapless politicians unable to grasp the basics of trade systems.

One good thing is that on all sides we see enormous political will defending the importance of a frictionless border. The difficulty, though, will come in transposing this energy into practical application. Physical infrastructure will denote a step backwards and intricate supply chains will be highly sensitive to the erection of new tariff and non-tariff frontiers. Manufacturers like LacPatrick are engaged in what we call X-crossings, where goods cross the border back and forth as part of the same supply chain. Stoppages will be felt most forcefully in arrangements such as these.

Usefully, this is one aspect of Brexit not bogged down by a lack of clarity. We know exactly the criteria our proposals must meet: there can be no physical infrastructure. I have tried my utmost to find a bespoke, creative technological solution to border friction outside of the Customs Union but have had no luck. I have tried to make the case for auditing systems where goods originating on the island are tagged for scanning and tariff differentials settled between the UK and EU monthly. But this solution, despite its logistical difficulties, ignores the issue of competitiveness (the CET ensures a level playing field within) and would likely violate MFN rules.

One idea which gained a surprising amount of traction today was the potential of 'hi-tech' Canada-US checkpoints for use as a template for a Customs Union alternative. As ever what amounts to very little was jumped on by The Telegraph and a knot of increasingly desperate Tory MPs. Marcus Fysh tweeted:

"Visited this week. V efficient border: only 3% of trucks are pulled aside of which 99% just x-rayed further, adding 5-10 mins to the v short normal clearance time. Need for "hard" border gateways on the border itself is driven by immigration ie people movement controls, which shouldn't be needed in Ireland if Common Travel Area outside Schengen with authorities sharing information on immigration at other external borders is present."

He correctly asserts that much of the infrastructure along Canada's many checkpoints with the United States is designated to dealing with immigration. Canadian and American citizens enjoy visa-free travel between each country but must present a passport upon crossing the border. This will of course not be an issue on the island of Ireland because there appears to be no political support for a cessation of Common Travel rules and I think the Common Travel Area works fine as it is. Customs posts checking people would represent symbolic regression in the same way that other checks would.

But where Mr Fysh misleads us is in his claim that "only 3% of trucks are pulled aside." This is false and a deliberate misinterpretation of what is in reality a staged process. Since there exists no customs union between the US and Canada, documentary procedures are inevitable. Every truck crossing from the United States into Canada must pass through and stop at what is called a primary inspection lane. No exceptions. Fysh makes no mention of this initial stage and so his figure is demonstrably inaccurate and he ought to withdraw his comment and apologise.

Prior to arrival at the primary inspection lane, the vast majority of truckers, that being those carrying low-risk commercial goods, will have signed up to the established 'Free and Secure Trade' (FAST) program. This is a cooperative system set up with the aim of speeding up and simplify the processing of low-risk commercial goods. Effectively it is an American-Canadian Authorised Economic Operator (AEO) equivalent, whereby participants in supply chains are granted fast-tracked customs and security procedures. Eligibility for the FAST program is weighted upon cargo type and clearance with US and Canadian security agencies. FAST lanes are not present at every border crossing.

Truckers are expected to have with them a form of identification, as well as customs documentation like an export declaration and a certificate of origin. Often some form of commercial invoice is necessary to prove the validity of information provided. They must also make note of the weight of their vehicle in order to assure conformity with Canadian requirements and legislation. All of these this are presented to the customs broker: a physical person in a physical cabin with physical and technological equipment at his or her disposal. Again, every driver is subjected to this primary check.

Beyond this is a stage known as 'secondary inspection'. This is only necessary when requested by customs officials and is likely the source of Fysh' 3% figure. After procedures in the primary inspection lane are complete, almost all vehicles are waved into Canada. But some are not and it is here where further infrastructure is used for the purpose of additional, security-related checks. Selected drivers are then directed to a secondary counter, a separate examination dock or an X-ray machine, usually used for detection of stowaways. Occasionally, more suspect vehicles will make use of two or more of these stations.

Despite the technical detail, the picture painted here is a pretty simple one. The mechanics of the US-Canada border ensure it is no precedent for Ireland and no useful alternative to the EU's Customs Union. I must also add that Canada and the US make up two thirds of NAFTA, itself a Free Trade Area. Notice once again how the existence of what is essentially a modified FTA does not in any way produce frictionless borders. We also see in action the kinds of documentary requirements presumed unnecessary between EU members by virtue of their participation in the Customs Union.

Where there is scope for learning from arrangements in place on the Canadian border is in the development of AEO-type schemes which relieve some of the pressure on sensitive crossing points. The UK will need to explore ways in which it can organise burden-lifting systems for its border with France which can deal with customs procedures and possibly thornier areas of trade like VAT protocols. The good thing is that we have workable templates which will aid us here. Mutual recognition of AEO programs will be an essential feature of friction-reduction post-Brexit. As will the Common Transit Convention.

Of course, this only goes part of the way to preserving frictionless trade and certainly is no adequate solution for Ireland. I don't underestimate the significance of avoiding physical infrastructure on the Irish border and have never pretended that there is an easy answer. Our politicians have a duty to themselves and to border communities to take this issue seriously. Which is exactly why it is crucial we spend time rubbishing bogus proposals.


  1. Thanks for the information. Do you have a link to this info so I can read up on it further.

    1. Hi John. Check out the EU's Smart Border 2.0 paper

  2. Additional - If the UK leaves the SM, but NI stays in the SM; will NI need a 'special' customs union agreement with the EU to cover the CET (Common external tarrif) etc.

    1. Yes. For the sake of the border issue.

  3. I agree that the US-Canada border is limited and although it may have some nice technology the best solution to build on is the Norway-Sweden border. So Marcus Fysh is wrong.

    But what would a Customs Union bring that a trade agreement with billateral cumulation would not? There would be no tariffs, and the VAT and Rules of Origin requirements would be a paper based exercise - and checking the dockets can be done away from the border.

    You won't be able to check whether 500 litres of paint has Chinese emulsifier or American dye except through the company maintained records, it just can't be done at the border. So you are back at the case of checking a docket - and this is a case of advanced clearance and deep customs cooperation and not border inspections.

    I can see the political attractions of the Customs Union, and I can see that there is a more credible case that a temporary or NI specific Customs Union could make the Irish border issue go away (but only if we were also in the Single Market). But I'm unsure whether the Customs Union is necessary, and this blog doesn't lay out the reasons apart from physical infrastructure exists on other borders.

    1. Competitiveness is the main issue which undermines the case for technology. Peeling back some of the CET opens a backdoor which will enable circumvention.

    2. "Would be a paper based exercise - and checking the dockets can be done away from the border"
      They already are and pretty much always have been. If you are applying for an EUR1 for example through a chamber of commerce you have to declare that goods are in compliance with the public notices and that you have documentary back up which gets audited later. That EUR has to go forward with the goods for clearance, things similar with ATRs for Turkish trade although slightly different in that anything in free circulation can get that (unlike an EUR which is more about origin rules) but we have to provide a copy of the Customs entry showing CPC 100001. Again the goods will not be allowed into Turkey duty free without an ATR.

      The important thing here is that these documents are completed before export

  4. Marcus Fysh is a dishonest ass. People like him spreading what are essentially lies and half truths are damaging the brexit they claim to support.