Friday, 22 January 2021

Brexit: towards a new normal

Not because of Brexit, but because of decisions taken by the Conservative government, Britain is going to lose a substantial chunk of its trade. This will be single market based trade we've evolved since the mid-nineties. Trade that didn't really exist before and now we've lost those contracts will probably lose out to EU based competitors permanently. We're no longer part of those value chains. The red tape and the third country controls will see to that. 

It is going to hurt more than it ever needed to because of a number of faulty assumptions during trade negotiations and because our preparations were wholly inadequate. Much of the system relies on software that simply isn't designed to cope with the number of declarations and submissions. We could have bought ourselves more time by extending the transition - which would also have led to a more comprehensive deal but Boris Johnson in infinite wisdom decided that wasn't necessary.

Worse still, the the EU has a fully developed system for handling third country interactions, the UK does not. We do not as yet hold the institutional expertise, nor have we established a routine. We are inexperienced in these matters. There isn't the capability to sort out the problems. Business is unprepared, government hasn't a clue, the infrastructure isn't ready and there are not enough trained or experienced people on the job. It's all building up to a perfect storm.

Sooner or later warehouse stockpiles will need replenishment, informal grace periods will expire, and the French will get up to speed with implementing third country controls. This will get messy. I do not think that we have seen the worst of it. Any Brexiteer who thought we got away with it is kidding themselves. 

I do, though, think we should be able to sort it out. It is going to take a number of years. It's going to take a year at least to fully comprehend the causes of the bottlenecks and then a further two years of refinement followed by a process of installing a more permanent system. 

The new system will be heavily influenced by the EU's Union Customs Code. The TCA compels both parties to harmonise their data requirements for import, export and other customs procedures by implementing common standards and data elements in accordance with the Customs Data Model of the WCO. From this we will see a proto-Single Window emerge, which was always the direction of travel, largely eliminating paper declarations and more can be done in terms of customs cooperation and trade facilitation to get the routine running smoothly. 

It will likely never run quite as smoothly as it did before but we will arrive at something within tolerance. By this time, if I've understood the TCA, we will have Authorised Economic Operator systems in place so that regular exporters will have a much easier time of it and we will see improvements to the TCA in the fullness of time. 

From this we arrive at a very different way of doing this where much of the activity moves from behind the border to the ports, and in many ways it will spur some much needed modernisation. The good news is that we are already seeing tech-startups utilising the respective data standards to help navigate complex procedures such as Rules of Origin. Ironically the UK could become a global leader in customs and trade facilitation technology and setting the standards worldwide through international organisations.

In this it is even conceivable that the end point could see a return of relatively "frictionless" trade. Frictionless trade is as much about routine and predictability. When we have the systems in place and trust is established, though the same third country controls will still exist we'll be a lot better at managing the impact. In this we should note that trade has it has existed is not frictionless as such. There is still a great deal of "red tape" only it is conducted elsewhere. Some sectors such as food and chemicals will continue to face obstacles, but anyone who wants to stay in business will adapt. The question is whether they can continue to compete.

Though the present mess is still a disaster for current exporters, especially those who have failed to prepare, it is conceivable that when we arrive at a new regime (likely five years from now, give or take a software procurement scandal) things will being to look normal to the casual observer. Being that businesses will continue to use ISO and UNECE standards, their main area of concern will be product authorisations and testing. Any future government will likely press the EU for mutual recognition of conformity assessment and seek equivalence agreements based on retained regulation. The EU is likely to play hardball but I wouldn't rule it out if it's in the EU's material interests. Both parties will have Covid recovery imperatives.

What we can say is that it's going to get substantially worse before it gets better and it's going to create serious problems for Ireland. Already Irish supply chains are breaking down but this does not register with the media to the same extent as the Dover-Calais route. The former is seen as more local news whereas Dover is the international gateway. That is also where the government will focus its main attentions, and being that UK-Ireland relations are not in good health, the Tories will likely treat Ireland with a degree of contempt. Every time the EU makes life difficult for the UK the UK will seek to pass on those difficulties.

This is motivated largely by a sense of Tory victimhood. On Brexiter Street, Ireland is seen to have cosied up to Brussels with a view to weaponing the Irish border leading to the unhappy NI protocol now in force. The Tories also believe they can bounce Ireland out of the EU by making life difficult for them. I don't think it's likely to succeed, but the difficulties Ireland faces could be interpreted as the EU failing to live up to its promise of solidarity. I do not think the politics are clear cut. 

Though Ireland has made alternative arrangements to transfer freight from mainland Europe, the length of the voyage creates its own problems - particularly for Ireland's race horse sector. With an overall retraction of commerce from the British Isles, Brexit could end up hurting Ireland almost as much as the UK. Depending on what the UK does in the distant future, Ireland may be forced to rethink its relationships. In those stakes I don't see UK-Irish relations improving until Boris Johnson is gone.

In any case we've bought ourselves a decade of diplomatic and bureaucratic stress not entirely dissimilar to the process of joining the single market. Only this time the media will report it because it's politically useful to do so. We shall see no abatement of Brexit bickering but ultimately we just have to get on with it until we find our new normal. 

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