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RSM's Sarah Halstead and Brad Ashton consider the customs implications following the UK government's Statement of Intent, and warn a hard Brexit may be on the cards.

Launched in a statement to Parliament by Michael Gove last Thursday, the unilateral Statement of Intent from the UK Government, outlines the trade deal it hopes to agree with the EU in forthcoming negotiations (the EU having set out its negotiating position a few days earlier). The document includes important information which will affect the customs position of goods moving between the UK and EU and vice versa.

• The Government is aiming for a ‘zero tariffs, zero quotas’ free trade agreement along the lines of the Comprehensive Economic and Trade Agreement (CETA) agreed by the EU with Canada. Accordingly, it wants no tariffs, fees, charges and quantitative restrictions on trade in manufactured and agricultural goods between the UK and the EU.
• The Government also plans to negotiate ‘streamlined customs arrangements’ to support the efficiency of documentary clearance and minimise delays at the border, especially for goods arriving at ‘roll-on roll-off’ ports.
• In the course of doing this, the Government says it will not agree to any obligations for UK laws to be aligned with the EU's, or for the Court of Justice of the European Union to have any jurisdiction in the UK. It also maintains its insistence that it will not extend the transition period beyond 31 December 2020, hoping to have a broad outline of an agreement in place by a high-level meeting scheduled with the EU in June 2020, and for that agreement to be capable of being rapidly finalised by September.
• If that does not seem to be the case by the time of the June meeting, the Government says it will decide whether it should “move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion”.

The Government’s timescale is unrealistic to say the least – trade agreements of this depth normally take many years to create (for example, CETA has already taken the EU and Canada more than 8 years to implement and is still not yet fully in force). Also, the EU has already made it clear that there cannot be frictionless trade in areas where the EU and UK apply different standards. To reach an agreement to remove customs duties and simplify the customs clearance process to this extent, the EU is likely to insist on some regulatory alignment with EU rules, which the UK government already seems to have ruled out.

If no CETA-style deal emerges from negotiations, the  fallback position is for the UK’s trading relationship with the EU to look similar to that with Australia. However, it should be noted that the EU’s current trade agreement with Australia does not include any specific customs arrangements, so this is effectively a euphemism for ‘no deal’ as far as customs is concerned.

A public consultation on the economic implications of the future relationship will begin later this spring. However, as matters stand, it would appear unlikely that the UK and EU will be able to negotiate any significant easements on cross border trade by the end of the transition period on 31 December. Businesses should continue to prepare for the introduction of a hard customs border between the UK and the EU at the end of the year as this remains a high possibility.