Summary
The NAO report on UK border preparedness for a ‘no-deal’ Brexit makes disturbing reading, confirming many of the concerns raised earlier by private sector bodies and professional associations. For example, it is highly unlikely 11 of the 12 work streams required to ensure effective management of border operations will be in place on time, while recruitment programmes for veterinary staff required to continue to ensure the smooth trade in animal products have not yet got underway, despite their planned launch in April 2018. The prospect of serious failures in UK border control systems under a ‘no-deal’ scenario is seen as high while even a twenty one month transition period would leave the UK government facing serious challenges. ACP agro-food exporters, particularly those serving UK markets via EU27 member states, need to start examining how they can reduce their vulnerability to Brexit related failures in UK border control systems and what they can do to ‘Brexit proof’ their supply chains. They will also need to look at how contracts can be structured to share the burden of possible trade disruptions (leading to high levels of wastage of food products) and whether insurance cover can be secured against such risks.
A National Audit Office report published in mid-October 2018 has raised serious concerns about the ability of the UK government to effectively manage trade across its external borders in the event of a ‘no-deal’ Brexit. The report highlights how the way the UK manages its external borders ‘is currently heavily influenced by its membership of the EU, which allows free movement of goods, services, capital and people across member states’ (1).
It highlights how under a ‘no-deal’ scenario from day 1 the principle of non-discrimination would apply requiring the ‘consistent application of customs checks, tariffs and non-tariff barriers to trade’. This will require the application of current controls on external trade from beyond the EU’s border to be extended to imports from the EU27. This will require the application of ‘new customs controls, tariffs and non-tariff barriers…to around £423 billion of trade at the UK border’ (1). In terms of the import trade to place this in context, in 2017 the UK imported £259 billion in goods from the EU and €217 billion form the rest of the world.
This would require the UK government to set in place ‘new systems upgrade existing systems and make extensive other changes’ (1). This will need to consist of ‘a combination of physical and virtual controls, many of which are carried out away from the many physical border crossing points’. In previous reports the NAO had already highlighted how ‘government departments already face significant operational challenges at the border including expected increases in border crossings over time, the nature of security threats changing, funding constraints and a heavy reliance on old technology’ (1).
While institutional mechanisms have been put in place within the UK government to coordinate an effective response to the border challenges which will be face under a ‘no-deal’ Brexit scenario, the NAO’s assessment of these efforts does not make encouraging reading in terms of the progress of ‘operational planning and delivery of the changes to border operations which will be required’ in ‘20 high-impact border-related EU exit work streams’ (1).
Specifically the report highlights the following points:
- how the ‘effectiveness of departments’ border planning and delivery has been affected by ongoing uncertainty and delays in negotiations’;
- how the ‘Border Delivery Group (BDG) has improved government’s understanding of the changes that need to be put in place at the border but it has not been able to address all areas of its responsibilities’;
- how the ‘planning for border operations in the event of a ‘deal’ is less developed than that for ‘no deal’ because of the ongoing uncertainty regarding the nature of the future relationship between the UK and the EU’;
- the hard reality is that ‘businesses do not have enough time to make the changes that will be needed if the UK leaves the EU without a ‘deal’;
- how the ‘most complex issues relating to the border in the event of the UK leaving the EU without a ‘deal’ remain to be resolved’;
- how there is ‘a high delivery risk attached to government departments’ border programmes for ‘day one of no deal’ due to their scale, complexity and urgency; this risk is magnified by the degree of interdependence between the programmes, with particular difficulties faced in regard to:
- ensuring 11 of 12 work streams required to ensure effective management of border operations are successfully completed on time in a fully functioning manner, with these systems being ‘at risk of not being delivered on time and to acceptable quality’;
- the inability to construct essential physical infrastructure before March 2019;
- the inability to mobilise the necessary additional human resources for the conduct of border operation by March 2019;
These problem areas are exacerbated by their inter-connectedness, with shortcomings in one area compounding problems in other areas (1).
Against this background the UK government has accepted that in the event of a ‘no deal’ Brexit, border controls will be ‘less than optimal’, with a range of significant issues needing to be addressed if the period of sub-optimal application of border controls is not to be an extensive one (1).
It is recognised that ‘organised criminals and others are likely to be quick to exploit any perceived weaknesses or gaps in the enforcement regime’ and that this, when combined with the UK’s potential loss of access to EU security, law enforcement and criminal justice tools, could ‘create security weaknesses which the government would need to address urgently’ (1).
This being stated contingency planning to cope with a ‘no-deal’ Brexit is being intensified to deal with specific issues e.g. managing ‘queues of traffic in Kent…to enable the continued supplies of essential goods and medicines’ (1)
The NAO report concludes the challenges faced are substantial and of critical importance. Border controls under a ‘no-deal’ scenario ‘will be less than optimal’, with it taking ‘some time for a fully functioning border to be put in place’. In this context the NAO maintains ‘individuals and businesses will feel the impact of a sub-optimal border to varying degrees’.
However if a ‘withdrawal agreement’ is agreed the UK will have until December 2020 ‘to design and implement any new arrangements’. However the NAO points out that even in this context ‘the time available to meet these challenges is not long compared to many complex government programmes’ which will need to be successfully implemented.
The findings of the NAO report confirm concerns which have long been expressed by private sector bodies and professional associations both in regard UK exports and UK imports.
In terms of agro-food exports, particularly animal products, the current NAO report needs to be seen in the context of earlier warnings that ‘without a significant increase in the UK’s veterinary capacity, Defra will be unable to process the increased volume of export health certificates it expects if there is no deal’. It was held that in order to achieve the required capacity ‘Defra needed to provide the market with sufficient notice and certainty about the scale of the increased capacity required’. However by September 2018 initiative targeting recruitment of vets scheduled to begin in April 2018 had not yet got underway (3).
This area of delay is serious and carries very real commercial consequences for ‘if there are not enough vets, consignments of food could be delayed at the border or prevented from leaving the UK’. Even with an emergency recruitment campaign it was held the government would still fall far short of minimum requirements. To fill the gap in trained vets DEFRA is proposing to use ‘non-veterinarians to check records and processes that do not require veterinary judgment’ (3). However it is unclear whether this would be accepted by the EU authorities, since this may be in technical violation of EU regulations.
More broadly for UK agro-food exports the NAO had earlier identified how the UK would need to introduce the equivalent documentation ‘for each of 1,400 different versions of the current EU certificates and agree these with 154 different countries in order to continue to export to them’. The NAO takes the view this is an impossible task by 30th March 2019 (3).
While simply continuing with the use of EU documentation is something which is envisaged in the ‘Withdrawal Agreement’, with a transitional period in place this would be occurring in the context of no undue systemic pressures on UK border control infrastructure. However under a ‘no-deal’ scenario allowing the use of EU documentation in a context where enormous pressures were being placed on UK border control systems, with a realistic prospect of system failures allowing the continued use of EU certification would be a high risk choice for the EU, since it could undermine the integrity of the EU certification system. This needs to be seen in a context where the assured quality standards of EU agro-food products are one of their major selling points on international markets, compensating in large part for a lack of price competitiveness across a range of product areas.
The foregoing are just two aspects of the systemic pressures which will arise for UK agro-food exporters which could prove trade disruptive.
In terms of UK agro-food imports the Chartered Institute of Procurement and Supply (CIPS) has warned a no-deal Brexit ‘could trigger massive queues of trucks at British borders from a vast increase in paperwork and checks to clear customs’, with the resulting delays and commercial losses potentially threatening bankruptcy to 1 in 10 UK firms involved in the current trade (4).
While ‘a quarter of British businesses are planning to stockpile goods for fear of border delays and shortages of goods’ for fresh and chilled food products the scope for doing so is limited.
| Comment and Analysis ACP triangular supply chains are most vulnerable to port delays arising from the system overload of UK border controls which a ‘no-deal’ Brexit could give rise to. If by the end of 2018 no EU/UK Withdrawal Agreement has been concluded ACP exporters using the main channel ports for onward forwarding to UK markets (e.g. East African cut flower exporters serving the UK market via the Dutch flower auctions) will need to look to establishing new direct routes to the UK market (for possibilities in this regard see companion epamonitoring.net article ‘Hard Brexit Could Create Fruit and Vegetable Shortages in the UK’, 23 November 2017 and ‘Brexit and the Disruption of Triangular Supply Chains’, 8 March 2018).However technological and human resource constraints on the operation of UK border control systems could give rise to a generalised system overload. This in turn could give rise to failures in the integrity of control systems beyond the ‘pressure point’ of Channel ports. This could problems and delays at UK ports handling the UK’s direct international import trade from non-EU countries. Against this background ACP agro-food exporters will need to urgently take steps to assess the vulnerability of their current supply arrangements to Brexit related disruptions and wherever possible take steps to ‘Brexit-proof’ their supply chains (more details are available via GDC-Partners Brexit Subscription Service: contact details 2pg@telenet.be).For ACP agro-food exporters using triangular supply chains and even those exporting directly to the UK, under a scenario where over stretched UK border control systems begin to experience failures, this could see delays which results in a loss of commercial value and even the wastage of whole consignments. In this context a critical issue for ACP agro-food exporters will be: who carries the commercial risk arising from Brexit related trade disruptions? With this in mind ACP agro-food exporters will need to take on-board possible Brexit related trade disruption in the contracts they are currently negotiating and may even need to look at securing insurance cover for the possible wastage of whole consignments. While this may be possible for larger scale ACP exporters the bulk of small and medium sized ACP exporters, particularly in supply chains involving small holder producers are likely to have very limited possibilities for proactive initiatives in these areas. |
Sources:
(1) National Audit Office, ‘The UK border: preparedness for EU exit’, HC 1619 Session 2017–2019, 24 October 2018
https://www.nao.org.uk/wp-content/uploads/2018/10/The-UK-border-preparedness-for-EU-exit.pdf
(2) EC Market Access Data Base http://madb.europa.eu/madb/statistical_form.htm
(3) foodmanufacturer.co.uk, ‘Vet shortage causing border concerns’, 12 September 2018
https://www.foodmanufacture.co.uk/Article/2018/09/12/Vet-shortages-could-cause-border-delays
(4) Guardian, ‘Customs delays of 30 minutes will bankrupt one in 10 firms, say bosses’ 26 September 2018
https://www.theguardian.com/business/2018/sep/26/no-deal-brexit-minor-port-delays-30-minutes-bankrupt-1-in-10-uk-firms