Things that will never happen on the Brexit border
In a Radio Ulster look-back interview this morning former First Minister Peter Robinson admitted that on the basis of the economic case, he would have favoured the UK remaining in the EU. However, ‘we are where we are’ and he reckoned far too much fuss was being made about the potential difficulties on the border. Specifically, he thought that the main difficulties would be faced by big trading companies with the technology, resources and ‘trusted trader’ credentials to deal with them, while SMEs which account for a large proportion of cross-border trade would be largely exempted.
His argument touched upon a number of interlocking fallacies which need to be separated out and dealt with individually if we are to have a hope of making progress.
FALLACY #1: YER MAN IN THE VAN WILL BE GRAND
It has indeed been proposed by the British side that companies under a certain turnover threshold should be exempt from border/import controls, but so far there have been no takers for this imaginative proposal. For a start, there is no such import regime in the world at present, for a very good reason. It is a basic principle of the World Trade Organisation that all importers should be treated equally, whether they are carrying goods by plane, ship, truck, van or in the boot of their car. It would lead to utter distortion of trade if a side of beef on a ship faced tariffs of 60% or more while another one in a van was zero-rated. It won’t happen.
FALLACY #2: IT’LL ALL BE DONE WITH THE FLICK OF A SWITCH
This fallacy arises because some people who clearly have little knowledge or experience of borders think that the main problem with them lies in the big building on the motorway where the trucks form a queue. Border delays are indeed both a nuisance and a business cost and form part of the non-tariff barriers to trade (NTBs) which are the second component of border problems. But the first one is and remains the imposition of tariffs on the movement of goods which can immediately render trade unprofitable. Tariffs range from zero to 100%; more than half of our cross-border trade is in food where tariffs are typically 35%-65%. There is no technology on earth which can make a kilogram of cheddar cheese profitable when you have paid a tariff of at least 40% on top of your production costs. A billion litres of Northern Ireland milk go south for processing every year but that will stop instantly if tariffs are introduced. Technology may mitigate border disruption but it cannot limit the economic disruption of a hard border. Whole business models will disintegrate immediately.
FALLACY #3: TRUSTED TRADER ARRANGEMENTS WILL TAKE CARE OF IT
The trusted trader, or Authorised Economic Operator (AEO) is an excellent idea, so good that the EU thought of it first and is developing it fast. However, as with technological fixes, the trusted traders can only ease border disruption: they cannot possibly have any impact on tariff-related economic disruption. Besides, there are not enough AEOs to go around. The Revenue Commissioners tell us there are around 140 in the Republic and half of those are in-house company representatives who are not available for hire. In all of the UK there are about 500-600 and half of those are probably in-house as well. The UK has around 75,000 truckers carrying goods to and from the EU27; the work output of AEOs would need to rise ten-fold. Our best information is that it takes at least three years and a lot of money to create a new AEO and the process takes in every aspect of the business, rather like acquiring an ISO.
FALLACY #4: LOTS OF GOODS ARE LOW TO ZERO-RATED FOR TARIFFS
This is quite true, but tariffs are not the only issue. The UK has signalled its intention to leave the customs union, so this means that VAT will have to be paid on imported goods at the point of entry. Supposing you are based in Dundalk and selling bags made from recycled paper – zero-rated- to clothing stores in Northern Ireland; you have to pay 20% of the value of each load into a customs account before the lorry leaves your yard. The stores will reimburse you, of course, but that will typically take 10-15 weeks and meantime you have a cash flow burden.
When the UK leaves the single market there will have to be other, non-customs controls on the border. The Department of Agriculture will be there, along with food safety agencies, to enforce what are known as phyto-sanitary regulations. If the UK were to do a trade deal with the US, the Trump administration has made it clear that the price would involve an immediate breach with not only the detail, but with the very fundamentals of the European food safety model.