Brexit: The Customs Challenge (European Union Committee Report)

Baroness Verma Excerpts

Monday 1st April 2019 Lords Chamber

Moved by

[Baroness Verma]

That this House takes note of the Report from the European Union Committee Brexit: the customs challenge (20th Report, HL Paper 187).

[Baroness Verma (Con)]

My Lords, I am grateful for the opportunity to debate the EU Committee’s report, Brexit: The Customs Challenge, this afternoon. As chair of the EU External Affairs Sub-Committee, I extend my thanks to the members of the committee for their important contribution to this report, to Members speaking today, and to everyone who provided written and oral evidence to the committee. I also thank the committee’s secretariat, as it was constituted at the time—Jennifer Martin-Kohlmorgen, Julia Ewert and Lauren Harvey—for its assistance with the inquiry and preparation of this report.

Last year, the EU External Affairs Sub-Committee investigated the customs challenges in the event of no deal and considered the Government’s Chequers proposal for a facilitated customs arrangement. I strongly regret that—even though the committee published its report in September 2018, and despite the rule that commits the Government to respond within two months of a report’s publication—more than six months on the committee is still awaiting a response. Not only is the response outstanding, but the Government have not proposed an alternative date for its submission. I urge the Minister, who I know will take this seriously, to provide the official government response as soon as possible and ask him to confirm when he expects to provide it to the committee.

The first half of the report covered what trade with the EU under WTO rules, commonly referred to as “no deal”, would look like. Despite the various votes in the Commons on avoiding no deal, a no-deal Brexit will continue to be a risk unless and until a withdrawal agreement is passed. I also remind the House that, even if there is a transition period, if the two sides fail to agree on their future relationship, there could still be a delayed no-deal Brexit.

Our report warned that no deal would cause significant disruption and be costly. Tariffs would apply and traders would be required to make customs declarations, with customs and regulatory checks also to be carried out. Overall, HMRC has estimated that if customs declarations were introduced between the UK and the EU, there would be a cost to businesses running into billions each year. The completion of customs declarations would raise the cost of UK-EU trade by £13 billion a year. Half of that—£6.5 billion— would be shouldered by UK businesses. There would also be additional tariff costs. HMRC originally estimated an additional £5 billion per year in such costs, though the UK Government’s intention to reduce 87% of tariffs by value in the event of no deal should lower the amount somewhat. Having said this, UK businesses will still face tariffs on most exports to the EU by value. Although EU tariffs are generally low, some sectors, such as the agricultural and automotive sectors, will be disproportionately affected.

I also emphasise the report’s finding that no technology currently exists, or will be available in the short term, which would dispense with the need for border checks. In all cases, some form of physical infrastructure will be required. This is of particular relevance to the Northern Ireland/Ireland border, where trade under WTO rules risks reintroducing a hard border. We also found that the introduction of new customs checks at the border under no deal would cause congestion and delays at roll-on roll-off ports. The Port of Dover’s ability to handle its trade volume, for example, depends on vehicles flowing through the port without stopping for customs controls. Even if the UK adopts a light-touch approach to these checks, roll-on roll-off ports such as Dover operate in a closed loop with their French counterparts in Calais or Dunkirk. Congestion on the French side will inevitably have a knock-on effect on the UK. This poses a significant challenge to just-in-time production and agri-food businesses, and could lead to the disruption of highly integrated supply chains. In turn, this could make UK businesses that are part of such supply chains less attractive.

Mitigation options are limited, but it is critical that the UK Government have contingency arrangements in place to manage the negative impacts of no deal. While no specific plans were in place at the time of publication of the report, I welcome the fact that the UK Government have now set out their contingency arrangements and provided guidance to businesses. Last month it was announced that, in the event of no deal, the UK would set temporary tariff rates that would be in place for up to 12 months from exit date, leading to the elimination of tariffs in 87% of imports by value, which compares with 80% before Brexit. Consequently, in practice many importers will be exempt from paying customs duty, yet this approach is not without risks. While there are some protections for the car industry and the agricultural sector, this unilateral reduction of tariffs, which under WTO rules applies to EU and non-EU goods, could affect the competitiveness of UK production. Will my noble friend confirm when the Government intend to publish an impact assessment of their tariff reduction plan?

The elimination of 87% of tariffs will go hand in hand with simplified customs procedures for traders importing goods from the EU into the UK. These simplified transitional procedures will be in place at least until July 2020. However, they will not eliminate the need for customs declarations altogether, but simply reduce the amount of information that importers will have to provide during a defined period. In summary, the costs, the disruption to the flow of goods and, potentially, the imposition of customs checks on the Northern Ireland/Ireland border in the case of no deal all underline the need for the Government to reach an agreement with the EU on the terms of our withdrawal and the future economic relationship.

As regards the future economic relationship, a facilitated customs arrangement was put forward by the UK Government in July last year. However, the initial reaction from the EU has been sceptical at best, and the parliamentary deadlock over the terms of the UK’s withdrawal has all but sidelined it. Since the proposal, the political declaration setting out the framework for the future relationship between the EU and the UK has been published, even though it has not yet been agreed. The section on customs calls for “ambitious customs arrangements” and is worded in a way that could be used to support a wide variety of negotiation outcomes. Can my noble friend say whether the facilitated customs arrangement is still the Government’s preferred option? What further thinking, if any, has taken place?

Other members of the committee will raise a number of further questions, so I will leave it at that. However, many of the witnesses who gave evidence to us were very concerned that this uncertainty was having a large impact, not just on businesses but on supply chains.

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[Baroness Verma]

My Lords, I am extremely grateful to the Minister for his—as usual—very polite and considered response. The debate has been excellent, highlighting once again the complexities facing us as a nation. As the Minister said, it is time for us to reflect in a much more considered manner on how we approach this debate.

I will quickly give my own thoughts. Colleagues on the committee—the noble Lord, Lord Triesman, the noble Baroness, Lady Suttie, and my noble friend Lord Horam—all said that it is essential that we look at customs and trade. They are essential to our economy, and it is critical that they are properly protected, especially our small and medium-sized businesses and the supply chains. As my noble friend Lord Horam said, inward investment is the jewel in the crown of the UK, which is why it is so critical that every Member today spoke of the importance of that. We do not have the technology today, and we are marching faster and faster towards leaving Europe without all the processes in place, and none of the protections that small and medium-sized businesses are asking for.

I urge the Minister to take back to his department and to his colleagues across government that, if this debate is to bring people together, because we are an incredibly divided nation, they have to look at what committees’ reports are saying. They are considered, they take time, evidence is given and, as the Minister said, the evidence sessions he saw, along with the recommendations he has witnessed, mean that we ask government to look long and hard and then respond in a timely manner. I know that the Minister will have read our report page by page and word for word, and I hope that he will recommend it to his colleagues across government, because it will be helpful to them. On that note, I beg to move.

Motion agreed.