Business, borders and Brexit

The most important issue facing the transport industry during 2018 will be how it will be affected by the Government’s negotiations over the decision to leave the European Union. Unfortunately, exactly the same could be said at the beginning of last year and, despite dozens of meetings and the publication of several thousand words of supposed clarification, the industry is little closer to an understanding of how it will be expected to operate in a post-Brexit world. In this article, Paul Clarke examines the scant progress that has been made towards an agreement, reviews the often contradictory positions of those involved in the discussions and assesses the suggestions put forward by various industry bodies and trade groups which are growing increasingly anxious as the deadline approaches.

As numerous commentators have made clear, it is just not possible to know how the Brexit negotiations will be concluded. What we can try to do is to make sense of the jargon surrounding the talks and answer some of the questions. How exactly would “alignment” with the single market work; how long will the transitional period last; and will it be possible to avoid a hard border in Northern Ireland?

Are we nearly there yet?

The UK’s referendum on membership of the EU was held on 23 June 2016 and the letter from Prime Minister Theresa May confirming that her Government wished to invoke Article 50 of the Lisbon Treaty formally launched the Brexit process on 30 March 2017. Since then the UK negotiating team, led by Secretary of State for Exiting the European Union, David Davis, has been in numerous sessions facing the EU’s Chief Negotiator, Michel Barnier. All this culminated, in December 2017, with Mrs May paying an abortive visit to Brussels, when the Northern Ireland political group supporting her minority Government, the Democratic Unionist Party (DUP), refused at the last minute to back the agreement she was hoping to announce.

Within days, Mrs May was back in Brussels after producing a form of wording that satisfied the DUP’s insistence that Northern Ireland must not be treated differently from any other part of the UK when it came to future arrangements with the EU. She was applauded by her fellow Prime Ministers as she then attended the December meeting of the EU Council so surely that must have marked significant progress after nearly nine months of talks? The unfortunate answer, for those transport operators desperate to find out how and when trading arrangements with the EU will change, is no.

What had been an issue in all the meetings between Mr Davis and Mr Barnier was not how future trading arrangements will work but whether the UK could satisfy the EU that it had made “sufficient progress” with regard to the three issues which the Union insisted from the start would take precedence over any discussion of a future relationship. These are the following.

  1. The payment that the UK would have to make to meet commitments which the European Commission believed it had already entered into (the so-called Divorce Bill).

  2. Protection for the rights of citizens from other Member States, presently living and working in the UK (and vice versa with regard to UK citizens) including oversight by a judicial body — the Court of Justice of the European Union (CJEU), the Commission insisted (going against one of Mrs May’s “red lines”).

  3. Ensuring that there is no need for a “hard border” between Northern Ireland and the Irish Republic.

After first insisting that talks on a future trading relationship should be held in parallel with those on the EU’s three key points (and losing that argument), the UK Government then said it was opposed to the EU stance across the board.

When Mrs May made her dawn trip to Brussels in December 2017, she had already agreed to a “divorce bill” in the region of €40 billion, was about to give way on the future role of the CJEU and only rescued the Government’s position on the third point (the Irish border) by way of an ambiguous form of wording that was beginning to look an unlikely solution even as the other 27 Member States leaders applauded her determination. What soon became clear, to adapt a quotation by Winston Churchill, was that we are nowhere near the end of the talks, we are not even near the beginning of the end but we are perhaps, 18 months after the referendum, at the end of the beginning.

What was decided in December 2017

David Davis almost spoiled the Prime Minister’s party when he told the BBC’s Andrew Marr that the agreement reached by Mrs May was “much more a statement of intent than it was a legally enforceable thing”. The European Commission responded by publishing the details of the agreement reached (at and Annex) and pointing out in that document that: “The European Council also made clear that negotiations in the second phase could only progress as long as all commitments undertaken during the first phase were respected in full and translated faithfully in legal terms as quickly as possible.”

The Commission documents set out how discussions should proceed on the next phase of what it calls the “orderly withdrawal” of the UK from the EU. Assuming that there is to be a transitional period (to avoid the “cliff-edge” departure of the UK on 31 March 2019), the Commission insists that:

  • there should be no “cherry picking”: as the UK will continue to participate in the customs union and the single market, during the transition period, EU laws will continue to apply in full to and in the UK as if it were a Member State. Any new legislation adopted will automatically apply

  • all existing Union regulatory, budgetary, judiciary and enforcement instruments and structures will apply, including the competence of the CJEU

  • the UK will be what the Commission calls a third country as of 30 March 2019 (that is, not an EU Member State). As a result, it will no longer be represented in Union institutions, agencies, bodies and offices nor will it have any say in the design of legislative proposals

  • the transition period must be clearly defined and precisely limited in time.

What the EU offers

Before moving on to look at what might be available in the years ahead, it would probably be useful to set out what the UK’s current membership of the EU provides. From a transport point of view, there are probably three main benefits: membership of the single market; being in the customs union; and the application of legislation across all the 28 Member States. Taking these in turn:

Single market

For transport operators, the most important aspect of the single market, and probably of EU membership as a whole, is that it turns an area with a population of more than 500 million people into one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. There are more than 20 million small and medium-sized firms in the EU’s 28 Member States and they have the possibility of selling (and sending) their goods anywhere within the Union. Because of legislative alignment, see below, those goods should be as easily accepted in Munich or Madrid as they are in Manchester.

Customs union

Within the customs union, the EU Member States do not impose tariffs (taxes on imports) on each other’s goods and they agree to impose common external tariffs on goods from third countries. This second point is important because it prevents the countries competing with each other for trade by ensuring that a Japanese car imported into Germany, for example, faces the same tariffs as one imported into Spain. Supporters of Brexit see this as a significant problem as it stops the UK striking its own trade deals with non-EU countries. Those taking the opposite view insist that, on balance, the UK gains from the customs union because of the freedom from customs checks and charges. In addition, the UK benefits from the more than 50 trade deals which the EU has struck with third countries across the world from Canada to South Korea and from Mexico to South Africa.

The more hopeful Brexiteers have expressed the belief that the UK could manage both: remain in the customs union but still negotiate its own trade deals with third countries. However, the European Commission and numerous Member State leaders have always made it clear that this is not an option, not least because it would open the way to other EU members asking for similar special treatment — and that would destroy the customs union. While it has stressed that it has no wish to punish the UK, the Commission has repeatedly said, it must be clear that no country leaving the Union can be seen to have reached a better deal than was available by remaining in the club.

Harmonised legislation

Within the EU, the same rules apply to everyone. These include not only those applicable to trade but to the training and licensing of drivers and their working conditions with regard to matters such as driving time and rest periods. With regard to selling goods, initiatives such as the CE mark indicate that a product meets high safety, health and environmental protection requirements and can be sold throughout the EU. The use of European Standards, although voluntary, means that those companies which choose to use them can be assured that the products, materials, services and processes to which the standards apply will be accepted in all 28 Member States without further testing or licensing.

Significantly, given the ideas being put forward about a future UK-EU relationship being modelled after that used by Norway, Switzerland or Canada, the UK presently enjoys a benefit denied to those countries. As a full member of the EU, its ministers are present at (and can therefore influence) all discussions on future EU legislation or strategy. As mentioned above, the Commission has already stressed that it will lose this privilege (and membership of important agencies such as the European Food Safety Authority and the European Committee for Standardisation) as soon as it leaves the Union.

Next moves

The first item on the agenda when talks restart in January 2018 will be to decide on a transition period during which, according to the Commission statement mentioned above, the UK will remain within both the single market and the customs union. This is required to allow not only businesses but crucially government bodies such as HM Revenue & Customs (HMRC) to adjust to the new requirements. In July 2017, the National Audit Office (NAO) warned that the new computerised system for handling customs checks set to be introduced by the UK may be delayed beyond the Brexit deadline. And that, it said, could mean a temporary return to a paper-based system and long delays for lorry drivers at the nation’s borders. Responding with alarm, the Freight Transport Association (FTA) expressed grave doubts that the new system will be able to cope with the anticipated 255 million additional customs declarations to be made at British ports each year after Brexit.

The Prime Minister has said that the transition period should last no longer than two years although Chancellor Philip Hammond has argued for longer and many trade experts (and the Irish Government) have argued for period of up to five years to allow for the complexity of the detailed trade negotiations ahead. It has typically taken the EU seven or eight years to conclude the sort of free trade agreement which the Prime Minister has indicated would be the UK’s goal. And that period, it must be remembered, has not yet started and is unlikely to do so this year as the negotiators will still be discussing the broad shape of a future trading arrangement, not the details of which tariffs apply to which of thousands of different products.

However long would ideally be needed, the Commission seems to have ended the argument before it has begun. It has pointed out that the EU’s latest seven-year funding period ends on 31 December 2020 which would seem to make that the logical cut-off date — in other words a maximum of 21 months after the March 2019 Brexit date.

Squaring the circle

When Mrs May returned to Brussels in December, she had a new text which had been cleared by both Remainers and Leavers in her Cabinet and by the DUP. This repeated that all sides want to avoid a hard border between the Republic of Ireland and Northern Ireland. However, it again failed to make clear how this is to be achieved. What it did say was that it is the UK’s intention to achieve this aim through the (yet to be decided) overall EU-UK relationship. Should this not be possible, the UK will propose specific solutions to address the unique circumstances of the island of Ireland.

“In the absence of agreed solutions, the UK will maintain full alignment with those rules of the internal market and the customs union which, now or in the future, support North-South co-operation, the all-island economy and the protection of the 1998 (Good Friday) Agreement.” This phrase was described in The Times as an “exquisite fudge” given that it appears to mean different things to everyone involved. Unfortunately, a number of those things are totally at odds with each other. Westminster believes that the statement only commits the UK to alignment with the EU in those sectors necessary to underpin the Good Friday Agreement; Dublin insists it means full alignment across the UK. In other words, and bearing in mind that Ireland can veto any deal with which it is not in agreement, the UK cannot diverge from EU rules unless and until new arrangements are found to avoid a hard border.

Resolving the problem of the border has increasingly been referred to as “attempting to square the circle” for the simple reason that the ancient Greeks found that particular task (to find a square with the same area as a circle using a straight edge and compass) impossible. Once the UK leaves the Union then its only land connection with an EU country will be the 310 miles long border between Northern Ireland and the Republic. In normal terms that would become a full international border with customs checks for people and products passing between the two sides. However, it is generally accepted that the peace brought about by the 1998 Good Friday Agreement would be put at risk if armed guards and border checks reappeared between the two countries. There are also likely to be severe economic consequences as years of free trade, with at least 30,000 people crossing the border every day for work, would be interrupted.

None of this would be necessary if both sides of the border maintain the same rules and regulations (full alignment) but then the DUP is insisting that Northern Ireland cannot be treated differently to the rest of the UK, so that alignment would have to be maintained on both sides of the Irish Sea. In other words, the UK would effectively have to stay in the single market and customs union, which the Prime Minister has committed to leave. The UK Government has spoken in general terms about technical solutions such as pre-screening of goods and trusted trader schemes but the EU has said that it cannot see how this can avoid all checks if the border is not to be bedevilled by smuggling and even human trafficking. The circle is still a very long way from being squared.

Patience wearing thin

In a New Year message calling for clarity on Brexit, the Director General of the British Chambers of Commerce (BCC), Adam Marshall, described 2017 as a year in which business had been dismayed by division and disorganisation across Westminster. “Businesses want answers, they want clarity and they want results,” he said and he is not alone in demanding firm plans from the Government so that companies can plan for the year ahead. Soon after the referendum, business groups and trade bodies began spelling out what they saw as the essentials if the UK was to make a success of Brexit. As the months have passed, the FTA and the Road Haulage Association (RHA) have led the way for the haulage industry setting out detailed plans for the future.

As soon as the Government triggered Article 50, RHA Chief Executive Richard Burnett warned that it must achieve a Brexit outcome that guaranteed frictionless movements through ports and across borders, a level playing field for UK truckers to compete with those based on the continent, and a continuing ability to recruit foreign drivers. Rejecting the Prime Minister’s assertion that “no deal is better than a bad deal”, he highlighted a warning from Michel Barnier that “no deal” would mean queues of lorries at Dover as customs controls were imposed on trade from day one of the UK’s withdrawal. Referring to Northern Ireland, he said that the UK’s ferry ports, and the border in Ireland, must have arrangements that allow trucks to move freely away from border areas. “We risk the chaos of Operation Stack becoming the norm and being replicated on the approach to every ferry port in Britain,” Mr Burnett concluded.

Meanwhile the FTA’s Head of European Policy, Pauline Bastidon, has highlighted calculations released by the Port of Dover which show that doubling the current time taken to process customs paperwork for one lorry leaving the UK, from two minutes to four, would delay the system so much that queues of more than 17 miles of traffic would build up across the motorway networks in the UK and France within a matter of hours. The FTA has called for customs systems that can cope with 255 million extra declarations each year and for learning support for the 185,000 businesses that currently trade only with the EU.

10 steps to Brexit heaven?

Without a comprehensive free trade agreement with the EU, and a new customs agreement, UK businesses face a very difficult trading environment post-Brexit, the FTA has argued. It has accordingly set out 10 steps for reducing delays at UK-EU borders after Brexit. Top of the list — and described by the Association as an essential condition — is the need to ensure that all customs and security documentation is paperless. In practice, it argues, that means not only ensuring that the new HMRC Customs Declaration Service can process the estimated 250 million additional declarations required, but also that traders are able to access and use it from day one.

The Association also wants to see an approved exporter system developed, which would be recognised by the EU and which would enable authorised companies to avoid producing documents for each consignment. Given the need for any trader doing business outside the EU to have an Economic Operators Registration and Identification (EORI) number, UK businesses must be provided with them ahead of Brexit. Pointing out that it currently takes between one and three days for HMRC to process EORI applications, the FTA is calling for the authorisation process to be speeded up. The FTA’s paper Keep Britain Trading: 10 Ways to Make Customs Borders Work After Brexit can be found at

Can the Government deliver?

It has been obvious from the start of the Brexit negotiations that the Government will never come up with a solution that will satisfy all the various parties: it is too difficult a task. The demands of Leavers and Remainers within the Cabinet, let alone across the country, are hard to reconcile even before taking account of the EU’s insistence that the UK cannot be seen to end up with a better deal than it had as a full EU member. Talk of negotiating a Norway-style deal founders on the fact that Norway has no say in the drafting of the single market legislation to which it must adhere. Similarly, those pressing the idea of an arrangement similar to that now enjoyed by Canada tend to ignore the fact that the EU-Canada deal does not cover services — a massive part of the UK economy. The idea put forward by David Davis of “Canada plus plus” (that is, including services) cannot work because it would leave the EU having to give similar privileges to other third countries with which it has trade agreements.

By this time next year, an astonishingly tight time frame in terms of international negotiations, some of these contradictory positions will have to be reconciled. A deal to stay in the customs union and single market would solve the problem of the Northern Ireland border but it is hard to see how a Cabinet including Liam Fox, Boris Johnson and Michael Gove could accept this outcome. Similarly, the European Commission knows that allowing the UK to retain these benefits, and to be free to strike its own trade deals with other countries (the “cake and eat it” option) would in all probability be the beginning of the break-up of the Union. Poland, for example, has already expressed interest in following the UK through the exit door — if that sort of deal is on offer.

Concluding points

How this will all work out — how the circle will be squared — remains a mystery largely because it depends on a degree of compromise that neither side has yet been prepared to show. Few sectors will have as much to lose as transport if it all goes wrong, however, so we can be certain that the industry will continue to make its views heard.

Just to add to the complications, the FTA has highlighted that the Government cannot afford to ignore the more than 310,000 workers from the EU currently employed in UK logistics, 12.3% of the sector’s total workforce. If they become disillusioned with lack of progress and vote with their feet, the industry’s problems will become critical even before the final Brexit date.

Meanwhile — over to Dover

While all the attention has been on Northern Ireland, a visit to the UK by the French President brought a reminder that there are already problems with another border that predate any arguments about Brexit. Refugees have been arriving near Calais and then attempting to reach the UK for several years. This has often put hauliers at risk as people have attempted to stop their trucks so that they can stowaway for the journey across the Channel. The UK has previously donated several million pounds to help the French authorities to increase security in the vicinity of the port and last year French police ordered those living in the camp known as the Jungle to disperse. However, as UK-bound drivers are well aware, the problems have not been solved and there are still several hundred refugees in the Calais area with many still trying to board vehicles.

Emmanuel Macron visited Prime Minister Theresa May in January 2018 seeking more support to help safeguard the border and returned with promises of an extra £44.5 million, much to the irritation of the RHA. Chief Executive Richard Burnett stressed that the Government should be pressing the French authorities to ensure that the security equipment already in place is being used properly before the British taxpayer is asked to pay more. “Despite the millions being invested, the lives of the thousands of HGV drivers that travel through Calais every day on outward and inward journeys are still being put at risk and their protection is our prime concern,” he said.

During last year’s French election campaign, Mr Macron had said that he wanted to renegotiate or scrap the 2003 Le Touquet agreement, which established French border controls in Britain and UK controls in Calais. However, the Sandhurst Treaty, which he signed during his visit and which is the first joint treaty on the Calais border in 15 years, would, he said, “enable us to improve the relationship and the management of the joint border” and reduce the time taken to process migrants. Mrs May said it was in Britain’s national interest, as well as France’s, to commit more resources to Calais security. Both sides pointed out that attempts to enter the UK fell from 80,000 in 2015 to just over 30,000 last year.