General negotiations

On 22 September 2017, UK Prime Minister Theresa May delivered her Florence speech in which she stated that the UK is looking for a bespoke new partnership agreement with the EU, while leaving the customs union and the Single Market, and accepted an "implementation period" or transitional period of around two years during which a status quo would be observed and EU rules would continue to apply in the UK.

On 20 October 2017, the European Council considered that the Brexit negotiations with the UK on an orderly withdrawal from the EU had not progressed sufficiently to move to the next phase of the negotiations, i.e. to start negotiating the future EU-UK relationship. The situation will be reassessed in December. Meanwhile, the EU has internally started to prepare for the second phase of the negotiations and for the possibility of a transitional period following Brexit. If the 14-15 December 2017 European Council gives the green light to move to phase two, actual negotiations may not start until a few months later, but the negotiations on the future agreement and a transitional arrangement could run in parallel.

Meanwhile, the EU's Chief Negotiator for Brexit, Michel Barnier, has indicated that the only realistic model for the future EU-UK trade agreement is an FTA modelled on the EU-Canada FTA (CETA) given that the UK has stated that it does not want to remain in the EU Customs Union and does not want to accept the jurisdiction of the European Court.

Customs-specific developments

In the last few months, concerns specifically with respect to customs-related Brexit issues have become very outspoken:

On 7 September 2017, the European Commission published a position paper on "customs related matters needed for an orderly withdrawal of the UK from the Union". The paper discusses the status and treatment of goods loaded before Brexit and arriving in the EU/UK after Brexit, or in temporary storage or under a special customs procedure at the time of Brexit. It also covers administrative cooperation on customs procedures completed before Brexit.

On 9 October 2017, the UK government published a White Paper entitled "Legislating for the UK's future customs, VAT and excise regimes" in which it re-affirms its three strategic objectives post-Brexit in the customs and trade area: (a) continuing frictionless trade with the EU, (b) avoiding a hard border between Ireland and Northern Ireland, and (c) setting its own trade policy. In order to achieve these three objectives, the Paper proposes two alternatives. The first alternative is a "highly streamlined customs arrangement", with maximum facilitation of customs formalities including waivers to file entry and exit summary declarations, the UK remaining a member of the Common Transit Convention, Authorised Economic Operators (AEOs) getting faster clearance, and more use of technology at roll-on, roll-off ports to avoid congestion. The second option is a "new customs partnership" under which the UK at its external border would apply EU external tariffs and EU origin rules to ensure goods can flow to the EU having paid the correct EU duties, while for goods staying in the UK, companies would be able to seek refunds if the UK's own import tariffs were lower. The White Paper notes that "in order to avoid any cliff-edge as the UK moves from the current relationship to the future partnership, people and businesses in both the UK and the EU would benefit from a time-limited interim implementation period that allows for a smooth and orderly transition."

On 21 November 2017, the Taxation (Cross-border Trade) Bill to establish the UK's post-Brexit customs, VAT and excise duty regime was published. It is largely based on the EU UCC and repeats that "it is the government's intention that the UK's Customs regime will continue to operate in much the same way as it does today", while allowing for "divergence from EU law where the government feels it is necessary to do so, or where it believes that there is a clear benefit to business to diverge from it".

On 14 November 2017, the UK Parliament's Public Accounts Committee published a report calling for a contingency plan for a hard Brexit (no deal) scenario to be put in place well before January 2019 should the UK's new customs system (Customs Declaration Service or CDS) to replace the current Customs Handling of Import and Export Freight System (CHIEF) not be ready in time. Preparations for the introduction of CDS were started well before the Brexit referendum, and it is still intended to be operational from early 2019. However, as Brexit will lead to a five-fold increase in customs declarations, the capacity of CDS will have to be increased before March 2019 and this is causing concern, even though the Chief Executive of HMRC informed this Committee in October 2017 that CHIEF will be upgraded to handle more declarations as of August 2018 and will co-exist with CDS if the new system is not ready in time or does not perform as expected. UK car manufacturers have expressed their concerns, focussing on the cost of delays at the border in their just-in-time business model. The UK transport sector has phrased concerns over the readiness of customs authorities of the EU27 (and in particular France, Belgium, the Netherlands, Spain and Ireland) to deal with their additional workload after Brexit.

On 16 November 2017, the Home Affairs Select Committee of the UK Parliament published a report calling for greater certainty for businesses and a transitional period and discussing the consequences of a "no deal" outcome. It expresses serious concerns about the lack of contingency planning by the UK government for post-Brexit customs operations, which the Committee fears may cause major disruptions at the border.

The Director-General of HM Revenue and Customs stated at the UK Parliament's Public Accounts Committee on 20 November 2017 that, while all freight coming into the UK post-Brexit will require a customs declaration, it is not expected that the UK will be carrying out more physical checks than it does currently.

In November 2017, the EP published a report commissioned by its Citizen's Rights and Constitutional Affairs Committee, entitled "Smart Border 2.0 Avoiding a hard border on the island of Ireland for Customs control and the free movement of persons". As far as trade in goods is concerned, the report describes how a possible solution could be found to avoiding a hard border through an advanced customs cooperation agreement between the UK and the EU allowing inspections to be carried out by UK and Irish customs on behalf of each other, mutual recognition of AEOs, pre-registration of operators, and identification systems at the border (e.g. number plate recognition) allowing swift border crossings.

Trade policy developments

On the trade policy front, the following important developments have occurred in recent months in the UK:

On 9 October 2017, the House of Commons Library published a Briefing Paper "Brexit: trade aspects" in which it examines the effect of Brexit on UK trade with both the EU and the rest of the world, and describes possible future partnerships with the EU, including the UK Government's preferred option of a new bespoke economic partnership (leaving the EU customs union and the Single Market), as well as membership of the European Economic Area ("the Norway model") and trading solely based on WTO rules.

On 9 October 2017, the UK government also published a White Paper on "Preparing for our future UK trade policy", seeking comments on the transparency of the UK's future trade policy, its trade defence regime, and the future autonomous preference scheme. The White Paper was followed on 7 November 2017 by the publication of the Trade Bill which is to create the powers enabling the UK to transition current EU trade agreements with third countries to UK agreements with those countries under a fast-track procedure, to implement the WTO Agreement on Government Procurement, to establish a Trade Remedies Authority, and to allow HMRC to share trade data with other UK agencies and WTO bodies.

On 28 November 2017, the UK's Department of International Trade published a call for evidence to identify UK interest in existing EU trade remedy measures. It is asking businesses to let it know by 30 March 2018 by means of an "application to maintain measures" which of the over 100 existing EU trade defence measures are important to UK industry, so that as much information as possible can be gathered already now to ensure that future UK measures meet WTO requirements in this area. UK producers or users that wish to see an end to certain measures can also respond within the same deadline.

On 11 October 2017, the EU and the UK sent a joint letter to all WTO countries in which they announced that their intention is to split existing tariff rate quotas (TRQs) as a technical rectification on the basis of historical trade flows under each of these TRQs and statistics on where in the EU the products imported under these quotas were consumed during the last three years. Various WTO countries, including the US, Canada, Argentina, Brazil, New Zealand, Australia, Thailand and Uruguay have rejected the technical rectification approach, which does not require negotiations with each WTO country.