The Irish border after Brexit will be real but can be simplified

Michael Lux and Eric Pickett report on the measures that can be taken to ensure controls at the border with Northern Ireland are as efficient and smooth as possible...

BRITISH prime minister Theresa May declared in her white paper on the United Kingdom’s exit from and new partnership with the European Union the following: “When the UK leaves the EU we aim to have as seamless and frictionless a border as possible between Northern Ireland and Ireland, so that we can continue to see the trade and everyday movements we have seen up to now.”

So what will that mean in practice?

When the UK exits the customs union of the EU, the border between Ireland and Northern Ireland will become an external customs border. Private persons carrying goods bought on the other side of the border and commercial traffic which had passed the border freely under the rules of the single market will then have to comply with the customs procedures applicable in Ireland or the UK.

In Ireland, the customs legislation of the EU will apply to movements of goods between Northern Ireland and Ireland. The EU rules on VAT and excise duties (eg, on alcohol and tobacco) on importation will also apply when goods are brought from Northern Ireland to Ireland.

This means that it will not be possible “to see the trade and everyday movements we have seen up to now”. Travellers can import goods from Northern Ireland duty and tax free only up to a certain amount (€300, with limitations for alcohol and tobacco) and will have to declare goods with a value above the threshold when entering Ireland.

Irish traders will have to declare to customs goods to be exported to, or to be imported from, Northern Ireland. In order to ensure that the customs, VAT and excise rules are complied with, Irish Customs will perform risk-based and random checks of private persons and lorries crossing the border from the North.

This may lead to queues and delays. It can be expected that the UK will have comparable rules, as it will also want to protect its financial interests.

These border formalities will increase the costs for traders because they will either have to recruit a customs specialist or use a service provider, such as a logistics company specialised in customs formalities or a customs agent.

Manufacturers will have to reconsider whether it is still economically feasible to move goods for processing several times over the border (eg, using milk from Northern Ireland in order to produce yoghurt in Ireland and re-exporting the yoghurt).

Current trade flows will therefore change. Private persons will also adjust their shopping habits and will consider on the one hand whether they want to be subjected to occasional customs controls (risking to be fined if they have exceeded the duty-free threshold), and, on the other hand, whether buying goods in Northern Ireland will be more favourable, due to different prices and duties, as well as currency fluctuations. People in Northern Ireland will make the same considerations when reflecting on whether to shop in Ireland.

The white paper announces that the UK is aiming at concluding a “new comprehensive, bold and ambitious free trade agreement” with the EU.

This could be misunderstood in the sense that trade between Ireland and Northern Ireland would be “free”. Unfortunately, this is not true. A free trade agreement only means that goods made entirely or substantially in the partner country are free from import duty.

Import Vat and excise duty are still due and will be collected in the context of an importation. Furthermore, goods made outside Northern Ireland (eg, a mobile phone made in China and bought in Northern Ireland) and goods manufactured with a large proportion of foreign components (eg, a Caterpillar made in Northern Ireland with a substantial part of Chinese components) will not be duty-free when imported into Ireland.

Controlling whether the conditions for duty-free treatment are fulfilled will be the task of the customs authorities in both countries. Complying with these rules will create an additional administrative burden for traders.

Furthermore, the importer risks that non-compliance is only detected during a customs audit and that the normal customs duties are then recovered; as the goods have normally already been sold to the customers, the importer has to bear the unexpected financial burden.

While a “special deal” just between Northern Ireland and Ireland isn’t legally possible and special EU customs rules for the border between Ireland and Northern Ireland are unlikely, the main goal now is to ensure that the customs procedures and formalities will be as seamless and frictionless as possible for private persons and businesses.

The customs legislation of the union foresees a number of simplifications, such as oral customs declarations or even declarations made by passing the border, as well as declarations made by entry in the records which can be used if the conditions are met.

Furthermore, Ireland and the UK could agree that there is only one border stop so that an export from Ireland is treated at the same time as an import into the UK, and vice versa.

This can be achieved either through a joint border office in which officials from both countries are working, or by empowering, eg, the customs officials of Ireland to act also on behalf of the UK.

Much can be done in preparation for the new situation irrespective of the final relationship between the UK and the EU. For example, investments in constructing a sufficient number of customs offices, installing scanners so that lorries do not need to be unloaded on most cases, red and green lanes for vehicles, creating and maintaining a compatible IT infrastructure, can help to significantly reduce queues, delays and red tape.

If the UK joins the common transit convention, goods could be moved from the point of departure to the point of destination (eg, from Dublin to Belfast) under duty suspension without a need for controls at the border.

Ireland should already consider recruiting and training additional customs officials because the new customs offices at the border with Northern Ireland will need a sufficient number of well-trained staff, The workload will increase for Irish customs in other customs offices, too, due to the fact that trade with the UK will become subject to customs formalities, and irrespective of the kind of preferential agreement that might be concluded between the EU and the UK, if any.

The main benefit of the Brexit for Ireland will be that it provides new work opportunities for customs specialists, accountants, IT experts, and infrastructure builders. Irish travellers will have to comply with the customs and the related Vat and excise rules when they buy goods in Northern Ireland.

Michael Lux and Eric Pickett are customs and trade lawyers


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