Thursday, 11 February 2021

Brexit: customs in the digital domain

The media likes to talk about "customs paperwork" as though it were an insurmountable nightmare. It used to be but it's far simpler now than it ever has been. There are dozens of free-to-use online portals to create the necessary documentation.

The forms themselves are designed to a UN standard - United Nations/Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT), approved and published by UNECE.

Every form, be it a certificate of origin (eCert) or SPS certificate, has its own XML schema which are now universal. There's about forty different types but for most exporters only three or four are required - depending on what you're exporting.

Electronic customs data exchange is nothing particularly new, but UN/EDIFACT comprise a set of internationally agreed standards, directo­ries, and guidelines for the electronic interchange of structured data, between independent computerized information systems. The data standards allowed developers to build form standards into their own software while more causal exporters can use third party online portals.

This has been moving toward a single window system for some time where exporters log on to a portal to fill in and submit documents, and request the necessary electronic approvals from regulatory authorities. Your applications then get an electronic rubber stamp. Single windows mean standardised information will only need to be submitted once - and your transactions pre-authorised by a chamber of commerce.

The electronic from standards and exchange protocols have been around for a long time, and in 2018, the EU built mandatory e-declarations into the Union Customs Code. The next step is to build in smart contracts to automate stakeholder compliance tasks. The aim is to eliminate all paper from the process, while creating a secure portal that contracting parties, regulatory and customs authorities can see, based on Blockchain. Data is then immutable thus eliminating the possibility of fraud and port corruption. Fans of The Wire will recall why this might be useful in container ports.

As it stands the system is not all that onerous, particularly if you have a dedicated shipping manager responsible for customs formalities. Standard data exchange formats mean that business mainframes can automatically populate the certificates and central data repositories can do all the rules of origin maths from a data bank of trade preferences.

The technology is already there, as is the methodology - and once a consignments loaded on to a truck and dispatched, if the system knows the registration of the lorry, the ANPR cameras as as good a means as any to notify ports and border authorities that goods have crossed a border. Though ANPR is probably antiquated now.

Authorities can flag registration plates if they have any cause for concern and intercept. As per the TCA and UCC, Customs controls, other than random checks, "shall" primarily be based on risk analysis using electronic data-processing techniques.

There is presently no real reason, short of a failure to invest, that Norwegian truckers passing into Sweden should have to queue in a portacabin to get their certificates stamped. That this was ever held up as an example of trade friction EEA members experienced was ridiculous.

Similarly, there was never any reason to outright dismiss technological solutions as part of the solution for Northern Ireland. As we noted at the time, though, the regulatory checks were the larger problem and as yet there isn't a computer system that can stick a thermometer up a chicken's bum.

As the Commission reminded us frequently during Article 50 talks, a customs union alone would have accomplished very little and the the only value as such would be to reduce exposure to tariffs demanded by rules of origin - which would likely be of considerably smaller concern had we joined the PEM convention.

The only problem with this is that single window as a concept is not fully mature - but had it been ready ten years earlier - or we'd have delayed leaving the customs union a while, we'd have eliminated a lot of tiresome arguments. Put simply, customs "paperwork" is going the way of the dinosaur, rendering customs unions all but obsolete in terms of "frictionless trade".

What is surprising though, is how the trade fraternity have made absolutely no mention of this, or that the TCA explicitly says "Each Party shall endeavour to establish a single window that enables traders to submit documentation or data required for importation, exportation, or transit of goods through a single entry point to the participating authorities or agencies". It's happening.

I'm unsure as to the extent of current HMRC software developments, and I highly doubt this much has been understood by MPs, so whatever replaces the current customs system maybe short-lived as single window renders it obsolete. The advantage to much of it being based on open standards is that a lot of it can happen in the private sector with government opting in as an when it is ready.

As is gradually dawning on business just lately, the real headache is the third country controls and the loss of the right of establishment that goes with single market membership. More could have been done to reduce certification problems by investing in the technology but the regulatory barriers were always going to cause problems. Still, though, an incurious media continues to bleat about "customs red tape".

One way or another single window will become the universal way of doing things. Based on global standards and adopted by the World Customs Organisation, and being central to new plurilateral WTO eCommerce agreements, we can expect to see rapid proliferation. It has become a central pillar of trade facilitation and new experimental value chains in Uganda are already using it. The first world is actually behind the curve.

Though we have ended frictionless trade as we know it presently, there is actually no reason why ports can't establish efficient routines. Much of the chaos we have seen comes from a lack of familiarity with third country processes, a failure to prepare and widespread confusion as to what the TCA was going to contain. The lasting hit to business will be the inherent loss of single market particpation rights which will affect non-goods trade even harder.

As regards trade in goods, as single window matures and regulatory processes are built into software protocols and automatically updated, linking in with things like RASFF (Rapid Alert System for Food and Feed) and authorisation systems, in a decade or so, much of this won't even register as a concern. Trade in goods has become an unfortunate distraction from more lucrative markets and the new frontier in trade is in the digital domain.

Throughout Brexit, trade in goods has dominated because it's much more relatable than digital trade issues, Lorries on ferries is a tangible manifestation of trade whereas digital rights, privacy, data protection, intellectual property are not readily accessible. They are perhaps more important though. With homeworking taking off and businesses no longer limited to the locality for finding the best talent, digital rules will be key to creating and protecting jobs.

These are the new global arguments ahead of us. We have recently seen the potential for harm of unchecked monopoly power among tech giants. We can't afford to be distracted by interminable rows about fish. Trade in goods may be getting simpler, but everything else is becoming a whole lot more complicated.