News that the EU has set up a unit to prepare for the possibility that no deal will be reached with the UK before the end of the Brexit negotiations has done nothing to lift the mood of pessimism as 2017 nears its end and there still seems to have been little progress on the key sticking points. The EU’s assertion that this unit is deliberately separate from Michel Barnier’s team so that he can focus on a positive result hardly helps: if Mr Barnier is the poster boy for positivity then the talks really are in trouble. Paul Clarke reports.

Business woes

Business leaders’ patience with the politicians leading the negotiations seems to be wearing thin as they try to impress on the Prime Minister and her team that they need information and certainty if they are to plan for growth. By March 2018, the Government has been warned, 60% of firms in the UK will have triggered their contingency plans if there are no transitional arrangements in place for when the UK leaves the European Union. The President of the CBI, Paul Drechsler, gave details of research into the impact of the Brexit negotiations to over 1000 business leaders at the CBI’s Annual Conference.

“At the moment,” he said, “I’m reminded of a prime-time soap opera, with a different episode each week. First Lancaster House, then Article 50, the European Council, two dinners with Juncker — and no doubt many exciting instalments to follow.” The first move must be towards transitional arrangements, Mr Drechsler urged, as, while this will not solve everything, three-quarters of the country’s largest firms say it would halt their preparations for no deal.

EU firms vote with their feet

Nearly two-thirds of EU businesses who work with UK suppliers expect to move some of their supply chain out of this country as a result of Brexit, according to a survey from the Chartered Institute of Procurement and Supply (CIPS). The increase, since May 2017, when just 44% of EU firms were expecting to move out of the UK, is probably caused by the apparent deadlock in the Brexit negotiations. The pessimistic view is shared in the UK where 50% of businesses told CIPS that they are becoming less confident that the two sides will secure a deal which continues to offer “free and frictionless trade”.

The survey of more than 1100 supply chain managers in the UK and Europe also revealed that 40% of UK businesses with EU suppliers have begun the search for domestic suppliers to replace their EU partners, up from 31% in May. CIPS Group CEO, Gerry Walsh, said: “The Brexit negotiating teams promise that progress will be made soon, but it is already too late for scores of businesses who look like they will be deserted by their European partners. British businesses simply cannot put their suppliers and customers on hold while the negotiators get their act together.”

Custom-made disaster?

A new report warns that failure to ensure the UK has a viable customs system up and running in time for Brexit could have a huge impact on the country’s reputation. To avoid that possibility, MPs on the Public Accounts Committee have made a number of recommendations, mostly aimed at HM Revenue and Customs (HMRC). In Brexit and the Future of Customs (available at publications.parliament.uk), they recommend that HMRC should ensure that traders are informed of the Customs Declaration Service (CDS) timeline and progress by January 2018.

HMRC should also promote the benefits of obtaining trusted trader status and aim to increase the number of registered traders given that those with AEO (Authorised Economic Operator) status are presently numbered in the hundreds in the UK but in the thousands in Germany. Brexit could see the number of customs declarations which HMRC must process each year hit 255 million and a failed customs system could therefore lead to huge disruption for businesses, the report notes. MPs cite the possibility of long queues at Dover and food being left to rot in trucks at the border as two examples of the impact. It is therefore critical, they say, that HMRC should ensure that both the CDS system and the Customs Handling of Import and Export Freight system (CHIEF) contingency option are capable of managing 255 million declarations.

Problems stack up

Adding to worries about possible queues at Channel ports after Brexit, the Government has revealed that it is to withdraw plans for a lorry park at Stanford West, Kent. The proposal faced a judicial review in December and the Government has realised that this will certainly be lost as it has failed to carry out a full environmental impact assessment of the plans, as required by law. The lorry park was meant to be an alternative to the use of Operation Stack — the system which queues hundreds of lorries on the M20 in the event of disruption at the Channel ports.

Given that a revised planning application for the lorry park is unlikely to be ready until 2019, Highways England is planning an interim solution which will see heavy goods vehicles (HGVs) parked in the centre of the motorway rather than on the coastbound carriageway, thus allowing non-port traffic to continue to travel in both directions, Transport Secretary Chris Grayling said. Operation Stack was deployed for over 30 days in 2015 so there is real concern in the road haulage industry as to what will happen if the normal problems which activate it (bad weather and strikes) are exacerbated by a poor Brexit deal leading to long delays at customs.

Government claims it will be ready

Two pieces of draft legislation seek to ensure that the UK is prepared for the post-Brexit future with regard to international trade and to customs procedures. The Trade Bill is intended to establish the powers required to ensure that the UK can implement more than 40 existing EU trade agreements. It seeks to enable the UK to become an independent member of the Agreement on Government Procurement (GPA) and thereby to make sure that UK companies have continued access to £1.3 trillion worth of government contracts and procurement opportunities in 47 countries. The Bill will also establish the Trade Remedies Authority — a new independent UK body which will be charged with defending British businesses against unfair trade practices. In addition, the Trade Bill will give the Government the appropriate powers it needs to gather and share trade data.

Meanwhile, the Customs Bill contains provisions aimed at allowing the Government to create a standalone customs regime for the UK and to amend the current VAT and excise regimes. If approved, the proposals will enable the customs duty on goods to be varied and will specify which duties are payable on which goods. It will also provide for preferential or additional duties to be set in certain circumstances (to support developing countries, for example). Overall, the Customs Bill is intended, the Department for International Trade concludes, “to maintain a functioning movement of goods from the day we leave the EU by continuing the VAT and excise regimes in line with the final deal reached in negotiations”.

Amsterdam and Paris gains are London’s loss

The first tangible sign of Brexit has arrived with the news that Amsterdam has been chosen by the other Member States to host the European Medicines Agency (EMA) which will now leave its home in London’s Canary Wharf. The UK is also losing its other EU agency, the European Banking Authority (EBA), which will relocate to Paris from London. The European Commission said: “The EMA and the EBA are two key regulatory agencies for the EU’s single market, and are essential for the authorisation of medicines and for bank regulation. They must continue to function smoothly and without disruption beyond March 2019.”

Money, money, money

The rights of EU citizens after Brexit and the question of how to deal with the border between EU member Ireland and non-EU Northern Ireland remain to be resolved but there is little doubt that the major stumbling block on the road to agreeing a trade deal is money. Specifically, how many billions the UK is prepared to pay as it leaves the EU: €20 billion, as the Prime Minister seems to have suggested; triple that as the EU side has hinted; nothing at all as some steadfast Brexiteers in the Conservative Party have insisted?

It is certain that Mr Barnier will not be recommending a move to trade talks when the heads of the Member States meet in December unless there is a clear promise from the UK to pay a substantial amount. The question remains whether Prime Minister Theresa May can make such an offer without fatally dividing her Cabinet and indeed her party. For many months, comments on the Brexit negotiations have tended to feature mention of a ticking clock as a reminder that time is limited to do a deal. The events of the last few weeks have been a reminder of another metaphor featuring something that always ticks: the unexploded bomb.

Last reviewed 4 December 2017