Brexit White Paper: "frictionless customs" welcome idea but legal experts warn of complications

The Government published its long-awaited Brexit White Paper today, which outlined its hope to create a "free trade area for goods", coupled with a "facilitated customs arrangement" to allow cross-border trade to be as "frictionless" as possible.

Retailers would welcome the idea of "frictionless customs", particularly in the "fragile food supply chain" said the British Retail Consortium (BRC), however the industry body warned that more clarity was needed on how it would work and who would bear the costs.

"A functioning frictionless customs arrangement is essential to ensure our fragile food supply chains are maintained and we welcome the proposal of a Free Trade Area which would eliminate the need for most border controls and delays at the border. However, industry needs further clarity as to how the proposed tracking system would work in practice and an understanding of the costs involved and who would bear these," said BRC CEO Helen Dickinson.

Legal experts say the plan seems to centre on the concept of "trusted traders", so when goods reach the UK border and the destination can be "robustly demonstrated by a trusted trader", it will pay the UK tariff if destined for the UK and the EU tariff if destined for the EU.

"The 'trusted trader' concept has its roots in the World Customs Organisation (WCO).  In Europe, 'trusted traders' are referred to as Authorised Economic Operators. To qualify, businesses must be able to demonstrate that they have both the policies and physical arrangements required to guarantee that goods have been transported securely and are properly accounted for. To qualify for the linked status of Authorised Economic Operators (customs) or 'AEOC' businesses must currently be able to show at least three years' experience of meeting customs obligations," explained Malcolm Dowden, legal director at law firm Womble Bond Dickinson.

However Dowden warned that this test could not be met by 131,000 British businesses who would be brought into customs arrangements for the first time. "It is possible to buy-in expertise or to use intermediaries such as freight forwarders or distribution companies. However, the UK currently has only 630 businesses with AEO status (compared with 6,226 in Germany and 1,563 in the Netherlands).  Consequently, third party AEO status and expertise is likely to be in short supply, potentially increasing the cost of accessing those services," added Dowden.

Attaining AEO status is also not straightforward and can be a lengthy process; in theory it is supposed to take up to 180 days but Dowden has known it to take up to two years and HMRC resources are likely to be under pressure as more businesses apply. In addition the usefulness of AEO status depends on it being mutually recognised, which could not be guaranteed across 27 EU states.

"Any end-to-end process for the import or export of goods works only if it works at both ends. The government's white paper cannot guarantee that AEO status granted in the UK would be recognised by the EU27. Consequently, it merely expresses the hope that the UK will be able to 'agree mutual recognition of Authorised Economic Operators (AEOs)'. Without mutual recognition, AEO status would be of little value – and mutual recognition can only be achieved through a full political agreement with the EU. In the event of a 'no deal' Brexit, or of a deal that did not include mutual recognition, the 'trusted trader' concept that underpins the white paper suggestions would not provide 'frictionless' trade."

As well as the issue of frictionless customs, the BRC has said it is seeking greater clarity on tariffs and what a phased system would look like, and on the movement of workers. "The retail industry is supported by a high percentage of employees from across the European Union. Some 170,000 EU nationals are employed in retail in various roles. A mobility framework which allows retailers access to European employment markets is essential if the industry is to access the numbers of employees it needs," Dickinson added.