9 March 2017 Insight

Brexit sector focus: transport

How UK companies get goods to and from the Continent in the future will be a matter for the EU negotiations – and changes to border controls and customs could impact transport efficiency 

The UK’s exit from the EU will affect the transport sector, which facilitates trade for the UK’s manufacturers, retailers and farmers. The rules of the Single Market that allow frictionless movement of goods to and from the continent are likely to be replaced by the rules of a free trade agreement. But what are the biggest implications?

Border controls

One of the chief concerns is delays. At the moment, lorries, ferries and cargo ships travel across the EU with minimal or no inspection. Unless a solution can be agreed as part of a free trade agreement, when the UK moves outside the Single Market and Customs Union that will change.

“Border checks and customs checks could create queues and increase costs,” says Pauline Bastidon, head of European policy at the Freight Transport Association, whose members constitute half the UK lorry fleet, 90 per cent of rail transit, and 70 per cent of air and sea shipping. “We calculate delays cost £3.20 per truck per minute. Multiply that by whatever the delays are and you can see the picture.”

Dover is a likely flashpoint, as it lacks the infrastructure to cope with inspections. “Migration controls are currently all done on French territory,” explains Bastidon. “This is under a bilateral agreement, not an EU deal, called the Le Touquet agreement. One of the risks is that this is reopened. It might mean immigration checks take place in the UK, and the problem is that Dover has very limited space. This could have a huge impact in terms of the number of vehicles processed in any given time.”

Ireland deserves a special mention. Exports of goods and services to the Republic of Ireland account for 5.1 per cent of the UK’s total exports. A possible outcome is that every vehicle crossing the border will need inspecting. “Some of our members tell us they cross the border 4 or 5 times a day,” says Bastidon. “Also, Irish companies use the UK as a land bridge to get to the rest of Europe. Will that continue to be attractive after Brexit? Maybe it will be quicker to take the ferry to France or Belgium or wherever the goods need to go.”

Accelerated passage

There have been conversations about how the regulatory burdens on transport companies may be lightened after the UK leaves the EU. But on the whole red tape is likely to increase. Not least because changes to UK law may lead to companies crossing the EU border having multiple sets of requirements to deal with.

Two issues stand out. Rules of Origin is one. This is a term which covers the treatment of components from third-party nations, and is a system that determines where goods legally originate, so that the correct tariff can be applied by the importer. Rules of Origin would determine what products are sufficiently “British” to benefit from the tariff-free trade, to ensure that only goods that are either fully produced, or significantly modified in the UK are not subject to customs duties. Rules of Origin would require British manufacturers to list the geographical origin of each component or ingredient of their finished products, as well as require them to specify how any imported components were modified in the UK. As the UK signs more free-trade deals, the Rules of Origin become more complicated.

Another issue would be Mutual Recognition Agreements (MRAs), which will be important in the post-Brexit world. These are accords which accelerate the passage of goods through customs warehouses. An MRA guarantees minimum safety and production standards, so inspectors can wave goods through. The EU and China signed an MRA in 2014. It provides preferential treatment for trusted traders. The US, of course, has no free-trade agreement with the EU, but there are MRAs. For example, a 1998 pharmaceutical MRA gave mutual recognition of manufacturing inspections to facilitate trans-Atlantic trade.

Exporting companies may be able to remove some impediments by becoming an Authorised Economic Operator (AEO). The concept of AEOs is global, created by the World Customs Organization. Certified companies gain recognition from all participating nations and trading blocks, with the benefit of simplified customs procedures. The EU began awarding AEO status in 2008, and today there are more than 15,000 EU AEOs.

Transport companies will need to master these issues. Their clients may need help advising on Rules of Origin, MRAs and how to gain AEO status.

Companies trading outside the EU may already be up to speed, but may not have the capacity to expand what they do for the rest of the world trade to their EU operations. Others in the industry will need to catch up. And that’s on both sides of the Channel.

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