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Courtesy of the Times.
Theresa May’s plan for a bespoke customs deal with the European Union is based on flawed analysis described by trade experts last night as “fanciful”.Scrutiny of the proposal on behalf of The Times cast doubt over the central pledge that the vast majority of businesses would pay the right or no tariff at the border. Business experts also questioned another key part of the plan: that businesses would be able reliably to track goods to their final destination. This issue is critical to the EU, which fears the scheme could become a backdoor smuggling route into the continent.
Alan Winters, professor of economics and director of the UK Trade Policy Observatory at Sussex University, who examined the government’s assumptions, said: “The whole thing when you analyse it is pretty fanciful.”If the proposal, unveiled at Chequers last month, collapses it would increase the chance that Mrs May would have to choose between remaining inside a customs union that would limit free-trade deals or pulling out altogether. The prime minister was forced into drawing up her new plan — which includes the so-called facilitated customs arrangement (FCA) — after her proposal for a customs partnership with the EU was vetoed by Brexiteer ministers and Brussels.
Downing Street claimed that the Chequers proposal fixed flaws in the original idea, which was criticised for being costly for business to implement and undermining the rationale for free-trade deals. However, problems with the new plan uncovered by The Times include:
• The central claim that about 96 per cent of products would be able to pay the correct tariff “up front” was calculated as a proportion of the UK’s total goods trade rather than imports only. When exports are stripped out, the percentage of goods requiring additional checks and monitoring would be about four times the estimate.
• The analysis assumes that importers would be able to prove the final destination of every “finished” product arriving in the UK. Business leaders said this was fantasy and that the majority of companies would find it impossible to track the destination of goods coming into the country from outside the EU.The experts said the government’s assumptions appear to have been exaggerated and they cast serious doubt over whether they could work in practice, even if the deal were to be agreed with the EU. Professor Winters said: “It is weird that they are using the whole of trade for the basis of their calculation when it is clear that it is only imports that will be affected and it has nothing at all to do with exports. “The idea that you would know where all finished goods being imported were headed also doesn’t make sense. This is clearly reasonable for some goods like meat that are heavily regulated, but we cannot see it applying automatically to all goods.”
Anna Jerzewska, an expert in trade agreements who has advised large companies such as GSK, said the government’s assumptions appeared to have been “exaggerated at best”. “I don’t know any business that is routinely able to determine where all the goods they import end up and in which market. You simply don’t have that visibility,” she said. For example at present the EU imposes tariff levels of between 10 and 13 per cent on imported clothing and footwear. If the UK signed a free-trade agreement that reduced those tariffs for the UK market an importer could declare that the product was destined for the UK then export it on to the EU. Under the FCA there would be no further customs checks between Britain and Europe.