Borderline Brexit

The frantic debate that has dominated and distracted UK Parliament concerning the Intra-Irish border has been reported on by the media with little in-depth analysis and remains a continuing theme of political division. The straightforward promise of no physical border between Northern Ireland and the Republic of Ireland is but primus inter pares of a multitude of valid reasons why no infrastructure is either necessary or even desirable. 

CONTEXT – IT’S ALREADY THE NORM 

In the modern, globalised context, borders need not be at a country’s geographic periphery and can even be outside a country. International gateways can equally be well inside national territory. Air travellers may have been over national territory for thousands of miles before reaching an airport and railway stations or ports on international waterways are treated as border stations to avoid some rather impossible construction tasks. 

Furthermore, dramatic increases in border traffic over the past 50 years—and, more recently, fears of terrorism— have forced governments to design new methods of border control and processing thus reducing congestion and waiting times. These new methods, initially adopted to facilitate trade gradually expanded as new security threats became a major issue. 

Such methods include: 

• Moving customs clearance away from the physical border and nearer to where the goods are stored or consumed (with an effective internal transit control scheme). 
• Establishing an inland safety net, allowing undetected border fraud and smuggling to be captured inside the country. 
• Developing international cooperation to reduce data discrepancy as much as possible. 
• Introducing accreditation and voluntary compliance schemes for both travellers and importers, with expedited formalities for those eligible. 
• Advanced Passenger Information and other digital techniques. 

All are enabled by innovations in post-release control; an environment that provides a reliable audit trail with enhanced auditing capacity; geographically delimited enforcement activities (through agreements); and inter-agency co-operation. 

We are all now familiar with the provision of API to airlines and we may belong to an approved traveller scheme. For businesses, a common practice is to clear goods on the premises of importers. They may be materially separated from the rest of the building by a physical fence or their status may just be maintained as an electronic record. 

Inland clearance facilities are areas where goods are kept before duties and taxes are paid, or before the goods are released for consumption on the domestic market. Similarly, economic zones exist where goods are deemed outside national territory and must pass customs controls before being handed over to locals. The point of exit from the zone and its perimeter is, in effect, a commerce border. Sounds complicated? 

CORPORATIONS DO MORE COMPREHENSIVE RISK MANAGEMENT THAN GOVERNMENT 

In reality, global businesses painstakingly identify risks and take great steps to manage them. In the area of international trade (borders) the risks they manage include the self-evident risks ( regulatory compliance breaches across valuation, tariff classification, country of origin declaration, product marking or duty payments) but the “SAS 78” risk framework that is most widely used is far broader in scope. 

Global risk management attention is also devoted to manage other not-so-obvious financial risks like overpayment of duties or time penalties imposed due to compliance errors. Finance Departments will be monitoring for inaccurate accrual or reserve fund provision for customs payments/exposures and legal fees. At group level, complex tax effects from Transfer Pricing Errors or other inconsistent customs declarations, valuation errors or adjustments that could unintentionally limit or threaten the corporate tax position are closely scrutinised. 

This risk management transcends corporate boundaries too and supply chain logisticians will be checking for failed corporate strategies like not recognizing the inverse relationship of initiatives or strategies to duty reduction e.g. low-cost sourcing initiatives or supply chain structural changes to jurisdictions inadvertently increasing duty liability or lost opportunities to leverage a Free Trade Agreement (FTA) or worse still an unintended corporate FTA disqualification due to uncoordinated sourcing changes. There will also be owners of the broader risks of supply chain disruption, security breaches, damage to corporate reputation, personal risks, imprisonment, damage to individual reputation etc. 

In fact, supply chain changes were cited at a recent conference as the most frequent type of business change impacting customs risk. Managing the consequence of origin changes was noted as particularly important. Change in location of manufacturing from one country to another, whether caused by changing suppliers, the supplier changing manufacturing locations, or internal manufacturing decisions, can have significant consequences. “Moves to China have impacted our ability to sell with TAA qualification” stated one participant, elaborating that Trade Agreement Act qualification impacts product eligibility for sales to the U.S. government, as well as sales to other governments. “Goods we were selling into Mexico now have a 30% to 35% duty because they are of Chinese origin,” explained another participant. Changes in sourcing can also affect eligibility of resulting products for free trade agreements. For example, changes to China sourcing for component parts destined for manufacturing in Mexico can impact the qualification of the finished Mexican product under the North American Free Trade Agreement (NAFTA). 

Even changes in supply chain partners, such as carriers, brokers, and third-party logistic providers present challenges for risk management. These changes can affect obligations under the Customs Trade Partnership Against Terrorism (CTPAT). 

So big business is doing this compliance risk management well and in fact, the U.S. Bureau of Customs and Border Protection (CBP) applies the SAS 78 framework during customs audits to evaluate internal controls and requires members of its Importer Self-Assessment Program (ISA) to base internal controls on SAS 78. CBP, of course, is focused on the “compliance” objective of SAS 78, anticipating that companies with strong internal controls and oversight will achieve the highest level of compliance. 

So this all echoes the cries we have heard from big business – they will absorb the changes into their systems and life goes on – it’s the increased risk of not knowing the future that is their focus. But it’s not all about big business and it’s not all about customs. 

GOVERNMENT STILL HAS VITAL PROCESSES TO DELIVER 

Borders are not holistic. Different processes can take place at different places. For example, a truck’s driver may be cleared by immigration whilst on a ferry, but the goods transported in the truck may be cleared at an inland location. Borders then essentially become institution-based and are no longer geographic. 

“Land border station infrastructure improvement— whatever its architectural or engineering merit—rarely contributes to better border management outcomes” 

World Bank – Border Management Modernisation 

The term “customs” is often used as shorthand for all border management functions and agencies. In many countries customs is still the only administration with a permanent presence but we must remember up to 40 agencies can be involved including amongst others: 

• Transport. Transport ministry officials are in charge of weighing trucks, collecting road taxes, and enforcing transport permit and licensing requirements. 
• Quarantine. This includes preventing infectious diseases, disinfecting vehicles, monitoring health regulations, checking health carnets, and the like. 
• Sanitary and phytosanitary. Their purpose is to ensure that consumers in a country are supplied with food that is safe to eat. Control is based on documentary evidence (certificates) and occasional sampling and testing. 
• Radiology. Detectors at border stations prevent the entry or exit of radioactive material. Atomic energy control bodies intervene when a suspicious consignment is detected, and cooperation with them for risk management is encouraged. 
• Ecological. In some countries an environmental officer is on duty at the border. 
• Standards and consumer protection. Industrial products are subject to verification of their conformity with international, regional, and national standards. 
• Immigration 
• Customs 
• Security 

In all of these dimensions the Republic of Ireland (and thus the EU) and the United Kingdom have a mutual interest and cooperation is highly developed and integrated. Some aspects of the last three in particular will need additional protocols to be developed for post-Brexit but it is entirely practical to address these jointly and with shared responsibility and this is best facilitated by a shared border control mindset and possibly an operations centre. 

This is a very unusual situation but historically the establishment of a border station was a political decision based on a range of considerations. First, it is a pledge made as part of a diplomatic arrangement. One of the first moves made by adjacent states to establish normal relations is to open a symbolic border crossing. Economic usefulness aside, such a station is a political gesture—how traffic is handled is irrelevant, the crossing usually being a showcase for both countries. 

But, just as now, a symbolic station can also have wider consequences. When the Bosnian war ended the Dayton agreements provided that practically every blocked, obstructed, or destroyed road leading from the new state of Bosnia and Herzegovina into the neighbouring new state of Croatia should be reopened as a functioning border crossing point. The newly established Croatian customs agency, with hundreds of border stations that it could not staff permanently, handed the stations over to an inexperienced border police force. For a long time this hindered the evolution of Croatia’s customs into a modern border agency compatible with European Union practices. 

The obvious solution would have been a hierarchy for border facilities: some would be open to local residents, some unguarded—with traffic subject to occasional mobile, inland, and targeted compliance checks— and a few operated as full border stations. But that did not happen, as customs was allowed by law to operate only at approved crossings, with no mobile or inland capability. Changing the law was very difficult, largely because of strong objections from the interior ministry and its border police force. In Ireland this paradigm is already in place. 

CHECKPOINTS ARE UNDESIRABLE IN THEIR OWN RIGHT 

There is no practical reason why people should be kept waiting at a border station except in the rare cases of fraud or irregularity. Ideally nobody should be kept waiting. Furthermore, these days, building a physical checkpoint usually involves a commercial dimension and such commercial activity at border stations can motivate its management to encourage government officials to delay traffic as much as possible, promoting patronage of local facilities. Moreover, commercial activity can cause other problems including: 

• ? Uncontrolled movement across the borderline by people offering and facilitating services. 
• ? Difficulties in controlling people working at the station who use, and sometimes abuse, the commercial facilities. 
• ? Leakages in duty free shops. 
• ? Fiscal difficulties with value added tax (VAT) collection and refunds. 
• ? Criminal gang activity. 
• ? Prostitution. 
• ? Corruption. 

Finally, when there are too many catering facilities border officials tend to use them rather than do their work— and the size of the border station can also become unmanageable. 

“Although the open border cannot be introduced at once at every border and in every country, it ideally exemplifies modern border management.” 

World Bank – Border Management Modernisation 

IT’S THE ECONOMY, STUPID 

Looking at this another way, when a checkpoint is established on a border, it is usually due to an acute asymmetric threat and then the ensuing focus on terrorism tends to override other facets of security and often leads to an institution by institution approach—which is not the best approach to the risks involved. When security is associated with violence there is a tendency to put the police or security services in charge of protecting against this threat and other security and border services such as trade facilitation then risk becoming unaffordable luxuries. 

But here the primary mission is not preventing the risk of physical attacks on people or property, it includes revenue collection, consumer protection, and preventing the violation of UK or EU policies through illicit cross border movement. Compliance is thus the major part of the agenda as already addressed by various national, regional, and international supply chain security efforts that can continue with minor amendment. 

GEOGRAPHY IS IMPORTANT 

Another aim of border security is to prevent human and animal health risks. Generally this is to prevent epidemics that can spread rapidly with modern transport. The effort to prevent their infiltration at borders includes disinfection and, more recently, scanning travellers on arrival for high temperature and other symptoms of infectious disease. This is an issue that is most effectively addressed as an Island-wide issue and hence is best left to sea and air routes and this is echoed in the food chain where Ireland is already treated as single entity for sanitary and phytosanitary purposes. 

What is emerging from this is an overriding sense that simplistic checkpoint based “security” is not only undesirable but positively to be avoided. The operation is complex and the effectiveness of properly managed intelligence is a critical success factor. Collaboration and sharing between agencies is also a crucial factor and is a force multiplier for all parties. Wherever we look across the globe, security services may monitor or attempt to disrupt illicit movement by terrorists and their weapons but do not have resources dedicated to other border irregularities in say trade activities.

However, inconsistent trade patterns - which can be detected through customs document control - may conceal terrorist activities, that could otherwise be overlooked by police. In fact, recent experience suggests that trade facilitation does not increase the risk of terrorism. On the contrary, it is designed to identify low risk individuals and businesses. Interagency cooperation, with intelligence sharing, joint task forces, and a team approach to security, is thus essential to modern border management. 

COST vs. BENEFIT 

Unfortunately, the European Union’s external borders are often now much like closed borders creating new difficulties for people who used to cross over with few or no formalities. Romania’s accession to the Schengen space means that Moldovan nationals who used to visit or study in the Romanian province of Moldova now need visas and meet with extensive checks. 

But are these checks effective? The United States Government Accountability Office audited security procedures at 19 United States airports by conducting covert tests at security check- points. In all cases they passed through undetected with the materials for making improvised explosive and incendiary devices (while bottled shampoo, which they carried as a decoy, was confiscated). Such results support the contention that search methods based on 100 percent inspection are generally ineffective in eliminating risk, though they may create a deterrent. Blanket screening of all subjects is ineffective, and results can be better with risk based targeting through effective intelligence. 

TACKLING ABUSE 

There are many ways in which authorities can tackle abuse and prevent and deter non-compliance and this is illustrated by the SCHENGEN PATROLS that operate already within the EUs own borders. Here, police and customs co-operation centres bring together officials from two adjacent countries who have access to their agencies’ databases and intelligence networks. Each official is free to share or not share sensitive or confidential data. Centres collect and exchange intelligence, deal with asylum seekers, establish cross border cooperation against illegal immigration (notably through the management of denial of admission procedures and expulsions of illegal aliens), and coordinate the fight against smuggling (drugs in particular). 

The centres also coordinate joint surveillance in the border area. Joint patrols consist of officials of both countries whose area of operation is limited to a certain distance from both sides of the border. Law enforcement officials of each country may conduct surveillance and hot pursuit in the opposite country, and may in some cases request a suspect’s arrest by its national authorities. Required to operate in uniform, the officials are allowed to carry weapons in the opposite country but to use them only for self-defence. 

JOINT IMMIGRATION & CUSTOMS PROCESS 

Technically, nothing prevents immigration authorities in one country from sharing data with colleagues on the other side. If data capture is independent from national systems then data can be captured just once, followed by separate processing in national immigration databases. In addition to Advance Passenger Information, wholly automatic non-specific nationality (e.g. UK/EU/US) self-service passport booths are already being provided at most International entry points to the UK. 

This technology is capable of using sophisticated iris and fingerprint scans and can even be programmed to send separate messages to the two countries’ systems and release a passenger only after receiving a positive response. Computer systems can also ensure that a transit operation has been initiated and properly discharged and that documentary requirements are met. 

Administrative processing points are thus covered, but information on what happens to people and goods between those points (other than the time consumed by transit) needs attention too. Real time monitoring (or at least a record of all transport incidents) can help identify fraud risks such as partial unloading or load substitution. 

Various solutions for this problem exist, both after the fact and in real time and combining a variety of these into a hybrid risk score is our preferred approach. Technology in this space abounds: 

• Tachygraphs or other similar driving recorders have been a requirement for decades fitted to trucks and used by the road administration to check on driving and rest times. The recorders also provide customs with valuable information on where a truck has been: a flat line indicates long periods of driving at a sustained speed, broken lines denote driving in built up areas, and so forth. Records inconsistent with normal transit itineraries or driving patterns call for a detailed check. 
• The new generation of customs seals includes chips that keep a record of every manipulation or attempt to break them. True, it is said that no seal, however sophisticated, can resist an experienced smuggler for more than a few minutes. But so called smart seals—connected to transmitters that issue alerts when unauthorized manipulations take place—can validly guarantee that a consignment has not been tampered with. The security provided by such seals is as good as the authorities’ speed in responding to the alert. Some countries, such as Kazakhstan, have introduced automatic seal reading gantries at entry and exit points. Each entry reading is automatically sent by satellite link to the exit border station, and when the truck arrives there the seal is scanned again. If the tow records match the transit operation is discharged. 
• An approach that has also been around for some time focuses on cargo tracking. These systems monitor transit trucks fitted with transponders—or radio wave reflective devices—in real time. Available technologies use either satellite tracking or detection loops built into roads at strategic points and major junctions. Attempts have been made to use this system to control every single truck in transit inside a country—an approach known as active tracking, as every truck automatically sends messages at regular points along its route. These systems provide for a spectacular control centre in customs headquarters, showing the progress of thousands of trucks daily and are often the pride of senior customs managers. 

None of these technologies is claimed to be fool proof or zero cost to either the traveller or the authorities. Some require more staff to monitor each truck, transponders or smart seals can be costly, and fraud vulnerabilities are always discovered (transponders are known to have been neutralized with tinfoil or taken off trucks and reinstalled on decoy vehicles). However even where customs unions exist the systems that governments impose seldom work 100% effectively. 

NOTHING IS PERFECT AND THOSE WHO SAY DIFFERENT ARE MISTAKEN

The fact that customs laws are not truly harmonized was discussed at a recent forum of global business executives who recognized that different legal frameworks govern customs operations and that lack of harmonization creates risks requiring particular attention. Participants noted that customs laws are not harmonized globally, and frequently within many developing countries, are applied inconsistently within the country itself based on local interpretations. These interpretation differences, however, exist across borders even where rules are formally harmonized via the General Agreement on Tariff and Trade (GATT). 

In fact, for many companies, the illusion of complete harmonization can create a false sense of security, an assumption that an approach is correct because it has been accepted elsewhere. Thus, simply applying a GATT approach without application of local principles is insufficient to mitigate risks and this observation should question the entire basis of the EU customs union approach for the foreseeable term. 

ZERO DEFECT MENTALITY CREATES DEFECTIVE SYSTEMS 

Where assumption of systematic thoroughness becomes widespread then checking for variance diminishes and leads to the absence of Post-Entry Correction Mechanisms. At the forum described above many participants also emphasized the difficulty created by a lack of administrative post-entry correction or voluntary disclosure procedures in a significant number of countries. Executives commented: “There is no procedure to correct errors.” “Customs authorities consider an error an intentionally illegal act.” “The position forced in many countries is to make a mistake and wait.” and “Our business risk is increased by false assumptions that rules based on harmonized GATT codes, such as the Harmonized Tariff Schedule (HTS) and Valuation Code, are applied consistently worldwide.” 

IN CONCLUSION 

So, in conclusion, there is an administrative border already between UK and Ireland. There’s a VAT border, there’s an excise border, there’s a legal border, and it’s managed effectively by the Irish and British authorities together. 

A hard border would not improve security but weaken it as check points are demonstrably ineffective and introduce additional non-compliance both directly and indirectly through resource misdirection. 

The global best practice trend independent of Brexit is to move to intelligence-led open trade enabling facilities that are geo-non-specific. 

For large complex freight operations, industry is well placed and desirous of compliant operations and can support this with systems and data. 

At the more parochial level, collaborative, co-operative Anglo-Irish operations that make allowances for the local factors involved like the people who need to cross the border several times a day are effective now and should so continue and a pragmatic approach to adopt summarised records from existing accounting systems would eliminate any overhead. 

Some issues are best addressed for the geographical Island of Ireland or for the British and Irish Isles collectively irrespective of the EU and this approach already works in practice. 

The technology to support this modern paradigm of border management and the experience to blend appropriate techniques into a hybrid solution are both mature and stable. 

The UK Government uses elements of this technology already and the newer advances in areas such as AI are also being embedded into systems from leading vendors such as SAS. 

Finally, as far back as 2017, the EU was considering a Customs Management solution to support all Customs processing requirements. 

HMRC was aware of this and was also looking at replacement systems for customs processing 

HMRC and other government departments launched a future borders programme but after a successful proof of concept it seems to have gone quiet….