Brexit: Out-but-in customs plan has hallmarks of hastily agreed deal

A major change from the original Northern Ireland backstop to avoid a hard border will require a huge leap into the unknown. It is the area of customs.

In practical terms, this is the most complex part of the proposed Brexit plan to manage, with much of the small print yet to be written.

By dropping the idea of a EU-UK customs territory in the original plan, London and Brussels have agreed to allow Northern Ireland to leave the EU customs union while still applying the bloc's customs rules there.

In an effort to maintain an open Irish Border, the EU is outsourcing checks on goods coming on to the island – and possibly into the EU market – to the UK authorities, with EU officials entitled to be present for checks at ports in the North, Scotland and England.

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Beyond a broad line of how it would work, there is little detail on how it will be managed. It is not clear what exactly would happen to a truckload of widgets travelling from Scotland to Northern Ireland through Belfast Port on to Dublin and then further into the EU market. A similar customs proposal from the UK was dismissed last year by Brussels as unworkable.

Five paragraphs

Only three pages in the 64-page "protocol" are devoted to this unprecedented out-but-in customs plan and there are just five paragraphs on how the EU's value-added tax rules would apply for goods in Northern Ireland. The issue is "totally fudged" in the deal, according to VAT expert Jeremy Cape.

The plan is described by the European Commission as a “fully legally operative solution,” yet the day-to-day operation of the proposals is being deferred to a proposed “joint committee” of EU and UK officials to work out the precise details in the standstill transition period that, as of now, would run until the end of next year. It has all the hallmarks of a deal cobbled together at the last minute.

In broad terms, it would work as follows: no customs duties would be paid on goods going into Northern Ireland from another part of the UK “unless that good is at risk of subsequently being moved” into the EU.

Tricky

This is where matters become tricky: how to manage products coming into Northern Ireland that end up being used to manufacture other products which could find their way into the EU market.

The deal proposes managing this by charging the EU customs tariff on the goods and allowing Northern Irish businesses to claim back a rebate from the beneficial difference in tariffs to benefit from future UK trade deals where it agrees lower tariffs with third countries.

As for much of the detail here, the protocol document kicks lot of cans on the operational minutiae down the road to the all-powerful joint committee.

All this creates a substantial new border between Britain and Northern Ireland and a heavy administrative burden for Northern Irish businesses.

"It won't be a huge problem for a large company. It could be a lot more difficult for a small company," said Carol Lynch, trade expert at consultants BDO.

Other problems

Avoiding a hard Irish land border and pushing checks back to Scottish and English ports potentially creates other problems on the island of Ireland.

Edgar Morgenroth, professor of economics at Dublin City University, said that goods from another country transiting from Dublin Port to Britain via Northern Ireland might not be checked until they reach Scotland.

“The potential for really significant smuggling into the EU is the bit I worry about,” he said. “If that is what would happen, then somebody would have to stop it and then the problem is an Irish problem.”