By Oliver Mangan
The British prime minister is finding it very difficult to come up with a plan for future customs arrangements that satisfies everyone in her government as well as the EU.
The UK is looking for an arrangement that will largely maintain free trade with the EU, avoid a hard border on the island of Ireland and yet allow it to negotiate independent trade deals with third countries.
There is very strong resistance in parts of the UK government to the Theresa May’s preferred option of a customs partnership with the EU.
This arrangement would see the UK collecting tariffs on behalf of the EU for any goods coming into the UK that are subsequently destined for an EU member state.
Goods could then continue to flow freely from the UK to the EU and across the Irish border without further tariffs or rules of origin checks.
However, this will require the development of technology that would be able to track goods from the point of entry in to the UK to the end consumer.
The EU has its doubts about whether such a system would work, especially for intermediate goods that form part of complex supply chains.
These goods could cross borders several times. It will also likely require the UK to maintain broad regulatory alignment with the EU.
Not surprisingly, Brexiteers in the UK see such a customs partnership as hindering Britain’s ability to negotiate trade deals with other countries.
They believe this is not consistent with an independent trade policy or regaining control over regulations, and thus are strongly opposed to it.
Their preferred option is called maximum facilitation or ‘max-fac’, which seeks to minimise customs procedures.
This approach aims to make the border as invisible and frictionless as possible through the use of technology.
This would include electronic customs registration, high-tech screening techniques and possibly blockchain technology.
However, it still means that there will be some form of customs border which would require some checks and controls.
It would require full compliance by all traders to work and likely adherence to designated border crossing points.
The technology required will also take years to develop, while the UK’s Revenue and Customs service said that it will be very costly to administer as well.
Indeed, there seems to be a growing realisation in the UK that it will be unable to finalise a bespoke trade deal with the EU by the end of a proposed transition period that is to last until the end of 2020.
Neither will the technology be developed by that time to support any of the proposed new customs arrangements.
Thus, there is now speculation that the UK may look for a transition period that could last until 2024, during which time it will continue to adhere to EU rules and regulations.
However, this may prove unacceptable to many in the Conservative Party.
Furthermore, the EU may view it as a means of the UK maintaining the benefits of EU membership long after it has left, and thus find it unacceptable.
The UK is finding out that leaving the EU is no easy process if you want to maintain access to its markets.
With key EU summits on Brexit fast approaching at the end of June and in October, the time for obfuscation is nearing an end.
The EU has called on the UK to stop playing ‘hide and seek’ on Brexit.
The UK government is going to have to make some hard choices on Brexit and soon.
Oliver Mangan is chief economist at AIB