Brexit and the Hard Border

Returning an unanimous 11 - 0 verdict, the Supreme Court ruled that Suspending Parliament was unlawful and that Parliament must immediately reconvene to find a solution to Brexit. 

But what does that imply? 

The backstop in the withdrawal agreement has been rejected three times and would keep Northern Ireland in the single market and the whole of the UK in a shared customs territory. In the event of a no-deal Brexit, as of 31st October, the UK will no longer be part of the EU's customs union. The UK will become a 'third country' and by definition would need implement European custom and regulatory customs rules when trading with Europe. Duties would resort to World Trade Organization (WTO) rules.

Global Trade Growth

Globalization has driven trade growth 3.5 times since the 1980s to USD $16 Trillion. WTO tariffs are fixed by the Harmonized System (HS) classification. Trade agreements and customs unions implement special duties and quotas. These are usually governed and implemented by Certificate of Origen (CoO), by Certificate of Export (CoE), and Waivers and Exemptions (such as Apple with the current USA - China trade war). The role of customs is to ensure the correct collection of taxes and avoid the entry of black market, counterfeit or contraband goods. The role of regulatory authorities is to ensure products comply with health, safety and security standards.

A Hard Border

Normally countries carry out customs procedures and other checks at their borders to prevent smuggling. This involves customs posts and other infrastructure. Even Sweden and Norway, which are both in the EU's single market, have customs checks at major border crossings. However, the UK government has promised that it will not harden the Irish border in any circumstances.

What about products going from Northern Ireland to the Irish Republic and vice versa?

In lieu of the backstop, the UK has proposed a “no tariff, no checks”. It will not be matched by Ireland. As an EU member, Ireland will be obliged to impose tariffs on Northern Ireland goods crossing the border and carry out checks to protect the single market.

In effect, this means Northern Ireland goods, particularly in the agrifood sector, will face substantial new trade barriers but Irish goods flowing in the other direction will not.

Additionally, the US Congress quickly shot down any Brexit option that affects the Good Friday agreement and jeopardizes peace in Northern Ireland. 

A work around has been proposed based on pan Ireland food and agriculture using EU rules. Great for those with aspirations for a united Ireland. Not so good for the unionists who fear further integration. 

So what about a trade agreement instead of a customs union? Lessons from NAFTA.

Since NAFTA was signed into law in 1994, it has created a virtually tariff-free trade zone and trilateral commerce between USA, Mexico and Canada has nearly quadrupled to USD $1.3 trillion.  It was updated in 2018 and waiting to be ratified. Laredo is the USA’s busiest port and the worlds busiest land port of entry. In 2018, it handled 2.30 million trucks from Mexico to USA.  By contrast Europe’s largest port and #10 in the world, Rotterdam World Gateway, has roughly a similar capacity of 2.35 million TEU. Rotterdam’s capacity is also equal to all the UK ports combined.

Case Study: A tail of two Tomatoes. Guacamole vs. The Full English

The USA consumption of tomatoes is just over 10kg capita per year while the UK is 8.2kg per capita per year. Respective market imports are USD $2 billion vs. $0.55 billion.

Under a new deal signed in August 2019, roughly two thirds of all Mexican tomato exports would face inspection to ensure quality and no dumping that drags down USA market prices. Mexico's Caaarem with 875 Customs Agents and Caades, Sinaloa's agrifood producers state that there is a 5 day window of opportunity to get quality premium, organic or on-the-vine, Mexican tomatoes from Culiacán, Sinaloa, to USA consumers. If hypothetically shipped via Bentonville, Arkansas, that is a 25 hours and 1500km journey.

Conversely Best Fresh, based in NL, is a large family-owned enterprise that imports and exports food products to and from dozens of countries, including the UK. Trucks loaded with fresh produce can arrive as little as 15 minutes before one of several shipping lines such as Stena depart for the UK and on to Tesco's Head office arriving door to door within 6 hours and 334km.

So how can Mexico send more value, over far greater distances and still maintain Food Safety standards such as USDA FSIS?

Enter Smart, Safe, Secure Supply Chains!

• There are many trusted traders or Authorized Economic Operators (AEO) schemes under the WCO SAFE umbrella. Examples include Smart and Secure Trade Lanes Pilot (SSTL) for EU/China and ATT in Australia. C-TPAT, the USA version, not only focuses on the Shipper and Buyer but also the key service providers and assets.  Verifications of the driver using KYC, VIN Tractor/Trailer and ownership help facilitate trade and keep the border safe. Trade and Shipping documents are also added to the immutable blockchain.

How can we further automate customs release and inspections?  

• Starting with the Free and Secure Trade (FAST) program, the trusted shipper digitally tags (QR or RFiD), pairs and scans products and packaging adding them to a blockchain while IoT is used for tracking assets.  A geofence alert is used to advise customs that a truck shipment is in close proximity and start the release process with the digital interface with the USA CBP ACE platform. CBP agents can revise the digital trade passport which would include all the data on the trusted parties; Shipper, Carrier and Buyer, as well as the products shipped. 
• The process can be further improved using ML and AI rules for screening and for proposing spot inspections. FAST track lanes give trusted shippers with pre-clearance, the fastest border entry. Customs officers with RFiD scanners would compare the electronic packing list to scanned items in seconds and report any customs mismatches or compliance infringements under FSIS. Again each step of the shipment and compliance process is recorded on chain on a secure need to know basis.

What are the trade scenarios for Brexit?

Many people are still worried about the impact of a no-deal Brexit.  Not just the economic and social impact, but also the day to day traditions such as a grilled tomato in a full English Breakfast.

With yet another defeat for the government today, politicians on all side of the house have failed to find consensus on a new trade deal (soft Brexit) or leaving on World Trade Organization rules (hard Brexit).

Authorized Economic Operators (AEO) together with FAST entry and emerging technologies are proven to provide a global trade solution that meets quality, quantity and delivery SLAs for agrifood, while providing digital duty calculations for HM Customs and Excise.   

They could also provide food regulatory compliance while helping UK Border Force combat entry of black market, counterfeit or contraband goods as well as impeding diversion and grey markets development. With -37 days and counting, that is an another post in waiting.