Problems being caused by Brexit deal lie with what has been left out

The problems and delays are arising not because of the arrangements in the Trade and Co-operation Agreement, but rather what the agreement does not cover, writes Brian Keegan
Problems being caused by Brexit deal lie with what has been left out

Supermarkets could see empty shelves in coming weeks, according to The Irish Freight Transport Association, which has written to the Taoiseach warning of huge disruption in the supply chain due to Brexit. Picture: Sam Boal / RollingNews.ie

When anything is better than nothing, almost anything can be welcomed.

Few of us expected that the Trade and Co-operation Agreement, signed between the UK and the EU which took effect from January 1, would be a panacea for all of the trading ills between the UK and the EU.

Many, it seems though, are surprised at the bottlenecks, disruption, and delays that are already emerging.

The disruption is a genuine cause for worry because trading volumes cross-border in goods are generally lower in the early weeks of the New Year. 

Some industry sources are signalling that volumes are even lower than usual because of the extensive stockpiling and goods warehousing which took place in the run-up to the end of the Brexit transition period on December 31.

The problems and delays are arising not because of the arrangements in the Trade and Co-operation Agreement, but rather what the agreement does not cover.

As far as consumers are concerned, the agreement does not deal with value-added tax on businesses that sell directly to cross-border consumers - as distinct from businesses selling to other businesses. 

Accounting for Vat on online purchases becomes tricky for those consumers purchasing from the UK, but also for businesses trying to sell in the UK. Where Vat is not paid properly, goods get delayed.

The agreement covers only goods originating in the EU or the UK. This is a very important and increasingly problematic distinction for cross-border traders.

Put very simply, there are no customs duties to be charged on goods which are produced or manufactured in the UK and sold into Europe and vice versa. However, when a UK business imports an item, and then sells it on to an EU customer as part of a wholesaling or distribution agreement, customs duty becomes payable because the product did not “originate” in the UK.

While there are exceptions to this so-called rule of origin, businesses are still getting their heads around the nuances. 

In the longer term, the absence of significant rules of origin relief will result in UK businesses being regarded as less and less suitable as distribution hubs for EU markets.

Nor has the agreement removed the need for customs documentation for goods irrespective of whether customs duty will apply or not. 

At the moment, both UK and Irish revenue authorities are taking a relatively light-touch approach to policing customs declarations, but this will not last.

All goods require customs declarations, but in addition, some products are subject to health checks.

These SPS controls, as they are known, apply mainly to agricultural products. Even when all the customs formalities are correct, checks still have to be carried out to ensure that the goods being shipped from Britain meet EU sanitary standards. Goods coming from Britain into the North are also checked because of the potential for onward transmission into Ireland and other regions of the EU. 

The volume of SPS goods requiring import controls at Irish ports has been relatively small.

These gaps in the Trade and Co-operation Agreement mean that the flow of trade between the UK and the EU will never be as seamless as it was up to the end of last month.

However, the problems are not insurmountable. 

As trade volumes return to the more usual levels, and as the tolerance of revenue authorities - on both sides - for customs failures diminishes, businesses are having to work harder to ensure that delays and hold-ups do not become a routine part of UK EU trade.

  • Dr Brian Keegan is director of public policy at Chartered Accountants Ireland

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