Leaving the EU: Customs Arrangements

Debate between Stephen Hammond and Antoinette Sandbach

Tuesday 10th July 2018 Westminster Hall

[Stephen Hammond]

The hon. Gentleman is completely right and he guesses my next point. I was about to say that rules of origin should not be underestimated or lightly dismissed with the usual line that these issues were not a problem before we joined the EU, or by the extraordinary assertion—heard last week—that manufacturers would somehow be able to get cheaper components from somewhere else in the world. To return to my fabled car, in the 1970s, before we joined the European Union—or the European Economic Community, as it was then—a car made in the west midlands had its supply chain solely from that area. Now, as the hon. Gentleman is rightly pointing out about aircraft wings—it is true for cars, too—that supply chain has sources all over Europe and will usually see multiple cross-border movements before it is completed.

The suggestion that cheaper components could be sourced from anywhere else in the world betrays a fundamental lack of knowledge of the integrated nature of manufacturing in the 21st-century world. The response to someone making those assertions can only be, “Get real!” Moreover, the significance of this burden is shown by the previous Government’s balance of competence review into the EU, which highlighted that the costs associated with rules of origin ranged from 4% to 15% of the value of trade. That is why the chief executive of the Chemical Industries Association told the House of Lords Committee that rules of origin add a “substantial level of bureaucracy” as

“the cost of providing the technical proof that a chemical or any other manufactured product originates from the EU or the UK, bearing in mind that”—

particularly for chemicals—

“there could be several stages of synthesis involved”,

would

“clearly outweigh the benefit of duty-free”

or tariff-free sales.

Currently, exporters need to fill out one form, at most, for VAT purposes. If we do not come to a satisfactory arrangement, exporters would need to fill out more paperwork. Furthermore, the UK could use access to the EU databases and the e-customs systems, which make this processing even easier.

[Antoinette Sandbach (Eddisbury) (Con)]

It is clear from the motor manufacturers’ association that Honda, for example, has 3.5 million parts per day coming in for its just-in-time manufacturing. One of the complications of these highly integrated supply chains is that we cannot roll over our existing free trade agreements, precisely because of the limits on rules of origin and the ways that those would apply. We cannot manufacture a car now to have the amount of British components that would allow us to roll those free trade agreements over.

[Stephen Hammond]

My hon. Friend is absolutely right about the example that she gives—the car industry. Her Majesty’s Revenue and Customs has given us clear evidence on this, as well, in terms of the extra bureaucracy. It estimates that 180,000 exporters will now need to make a customs declaration for the first time, having not needed to do so previously. That is in addition to the 141,000 exporters that currently make a declaration for trade outside the EU. That extra bureaucracy is roughly in the small amount of £4 billion a year. Anyone who thinks that is a price worth paying, with the cost being put on industry, should think again.

Some have said that this is a price worth paying to pursue free trade agreements with new markets—markets that will bring us huge new rewards—but the supply chains that will be impacted by these new barriers cannot simply be removed from the EU market and integrated into a new market. They have taken decades to build up and are facilitated by free trade in the EU. By most conventional expectations, it would take further decades for EU exporters to embed themselves in new markets and new supply chains.

The extra requirements would also require physical infrastructure at borders to deal with customs processes. Currently, few checks are required on EU goods at ports, so ports have customs infrastructure in place to deal with non-EU imports only. Given that less than 1% of the lorries arriving through the port of Dover or the channel tunnel require customs checks, there is very little infrastructure, and there is no reason for there to be more.

That is also true on the other side. When representatives from the port of Calais came to speak to the Treasury Committee, they made the point that they have so far made no investment in infrastructure. Whether they will be able to deal with the new customs arrangements by the end of the implementation period without more infrastructure being put in place, or indeed without substantial delays at the port, is not only open to question, but evidence to the Select Committee proved it to be so.

The port of Dover estimates that even a two-minute delay in customs processing would lead to a 17-mile queue from Dover. Even short delays would have an impact on the just-in-time production lines that my hon. Friend the Member for Eddisbury (Antoinette Sandbach) mentioned, with costs compounding each time a component crosses from the EU to the UK or vice versa. As I said earlier, in the car process, that usually happens between three and four times.