Customs White Paper Responses

3rdNovember 2017

HM Treasury

1 Horse Guards Road

SW1A 2HQ

Response to Customs Bill on legislating for the UK’s future Customs, VAT and Excise regimes

Introduction

ACITA (Automated Customs and International Trade Association) is the voice of International Trade in the UK, providing a focus and forum for all industry sectors involved in trading across borders. The association acts on behalf of trade as a critical partner for the UK and European authorities, and provides information and advice to its members, both on-line and through regular regional and national meetings.

Since its formation in the early 1980’s ACITA has continued to promote the use of increasingly sophisticated computerised systems to support international trade with particular focus on Customs activities for both importers and exporters.

Our extensive and diverse membership includes importers and exporters from most industry sectors, including large multi-national organisations, small and medium sized enterprises (SME’s), sole traders, specialist consultants, Customs Brokers, professional service providers, freight forwarders, software houses and other service providers.

As the most influential specialist Customs Trade Association in the UK we believe Brexit will have a significant impact, bringing both challenges and opportunities. The Global Logistics sector is already undergoing profound change. Brexit adds an additional layer of complexity and uncertainty to this for our membership.

Ensuring the continued growth of the UK economy and as smooth a transition as possible for Brexit are the key priorities.

While reducing duty tariffs wherever possible is important to us, non-tariff barriers should also be considered in the new UK trade landscape. This would prevent incurring significant costs and delays to global supply chains.

The diversity of our membership means that ACITA’s responses to the questions posed in the White Paper are not always aligned but do reflect the concerns of different industry sectors.

Not all members have participated and the below responses to the questions included in the White Paper are the consolidated views from a cross section of our membership:

Operational Impacts:

Question 6.8: - If your business is part of an EU supply chain, including on the island of Ireland, how will the preparations for a new standalone customs regime affect your operations?

Many members are part of or participate in Pan-European Supply Chains and expect a significant cost and administrative impact.

The following specific concerns have been raised:

The possibility of ‘double duty’ for members that import into the UK and then distribute to Ireland and continental Europe (and vice versa). Even if processes are implemented to facilitate the placing of goods into a bonded facility or the refund process is streamlined to ease the reclaiming of duty paid at the time of importation; the additional administrative and record keeping burden is expected to be more costly than the additional Customs Duty in many instances.
There is the fear of to many unknowns – will rules of origin be aligned – will there be mutual recognition for AEO’s – will full declarations be required – will we have sufficient time to prepare once the conditions of the UK’s exit from the EU are known?
There will also the potential of VAT becoming an unclaimable expense or creating a significant reclaim burden for those companies not registered for VAT.
For WIP (work in progress) in which part of the manufacturing operation is completed in the UK and then forwarded to the EU for completion (and vice versa), there will be a whole new set of Customs compliance rules which need to be completed which makes the process more complex.
The cost of Customs declarations and potential delays at borders will add signification costs to the operation
Additional trained staff will be required to manage the process

It is suggested that continued benefit of reportingIntrastat and VAT for EU movements - as it is done today.
Many companies operate on JIT basis, so any restriction in movement of goods will require a complete rethink of supply chain strategy. Delays will render short half-life radioactive materials unusable for some members.
There may also be non-customs issues in regards of product registration requirements.
Companies importing for process, from the EU, will have to apply for IPR to allow for duty and VAT avoidance. This will increase complexity for both industry and HMRC. There are concerns that HMRC are not sufficiently resourced to cope.

Impact will be felt at both ends of the supply chain, so companies need to be engaging with customs authorities in the EU 27 as well as the UK.
Many companies trade both north and south of the Northern Ireland land border, using transport and staff freely. For example a distribution hub will serve both North and South without any requirement for different paperwork or physical treatment. Post Brexit additional distribution hubs may have to be considered along with changes to workforce, documentary and customs reporting requirements.

E commerce businesses trade back and forth across the EU with customers ordering and returning goods without incurring any duties. Impact to business and customers in cost and convenience will affect sales.
Non-tariff barriers are a major concern for exports. For example, the paperwork to import into other EU member states such as Germany are far in excess of what is required into the UK as the UK does not apply such a stringent import regime as other member states do, despite applying the same rules.
If the UK negotiates a free trade agreement, goods will in all likelihood have to meet rules of origin. UK business does not have sufficient experience with dealing with these requirements, and a massive education campaign will be needed to ensure that business understands the burden being placed on it.

Are you considering any changes to your current way of doing business including sourcing and trade activities? In your response please provide some detail on the time-sensitivity of your supply chain.

Members have indicated that Pan-European businesses will be forced to change their sourcing activities:

Origin activity will need to consider 2 sets of regulations for existing 3rd country goods (duties, licensing, permits, quotas, etc.) as regulations are expected to be different in the UK and the EU.
Goods imported from or exported to the remaining EU 27 member states will need to be treated as 3rd country goods adding a level of complexity for which no process or infrastructure currently exists.
The idea of a new Customs Union Agreement with the EU (similar to the current EU / Turkey agreement) will require declarations, significantly increasing administration (proving origin and the subsequent mandatory retention of original documentation)
Lead times and transportation costs are expected to be impacted as international Carriers change their schedules and factor-in waiting times and administration costs post Brexit.
Main concerns, many SME’s / Micro business may stop trading with EU or could wind down or could go bust.

Companies are considering changes to Customs Authorisations i.e. IP and Warehousing the EU trade.
Companies are considering moving distribution centres to the EU. Companies with highly time sensitive products are assessing ( based on scenario, of need to submit entries for imports and exports at both ends of the supply chain) where the optimal point is for manufacturing and distribution. Many of these companies are using Dover/Channel Tunnel for distribution and lack of clarity regarding future process is causing concern
E commerce relies on rapid delivery times usually next day which will be impacted by new customs declaration requirements.
Some companies are considering setting up EU based businesses and distribution hubs at considerable cost.
Companies are considering dual (EU and Non-EU) supply chains and import routings to continue to utilise existing EU preferential trade duty rates.
Rather than being the “hub” at the centre of a distribution supply-chain, UK businesses may lose access to the benefits of being within a customs union and single market of 500million people, and will have to be a “spoke”, and therefore only be the recipient of distribution. Many businesses will remodel supply-chains to reflect this reality.

How long will your business need to prepare for the two broad approaches to a future customs relationship, as set out in this paper and the Future Partnership Paper and the contingency scenario? Please provide some detail on the changes you expect to make. These options are set out on pages 16-18.

Both the proposed versions appear to require a level of expertise not readily available and are dependent on agreement by the EU 27.

The paper says that the Government will look to reduce the time and costs of complying with Customs administrative requirements through self-assessment; speeding up authorisation processes and simplified procedures – this is seen as extremely positive, but until further details areavailable the extent of the changes required cannot be established.
Members are currently making contingency plans but are being impeded by the slow processing of applications and limited support from HMRC.
We can and should start preparing for what we can influence without input from the EU at this stage (e.g. self-assessment; trusted trader accreditations; etc.).
The time frame required to implement technology based solutions is dependent on the extent of the requirement and the sooner this information is available the sooner we can estimate the extent of the preparation required.

Now that HMT and HMRC are working in partnership (12 months too late but better late than never), they need to react quickly to rollout with definitive policy decisions and be more transparent with businesses. Companies are likely to apply for AEO but there are significant delays in the authorisation process
The application process needs to be reviewed and more trained officers available to process the applications
Truly the $64000.00 question with so many variables to be considered such as business that have no experience of customs requirements for the EU and at the other end those that have systems for customs reporting. A minimum of two years once details of the changes which are required are available would seem a good starting point.
Assuming that current legislation is taken into UK law, in theory, the change would require a change to the data feeds into duty management systems to remove the split for EU/Non-EU countries. So data currently passed to Intrastat, would be passed to full customs declaration. This of course will vastly increase the flow of data into CHIEF/CDS. However, for companies that only trade with the EU, this will require a whole new set of processes, that they are not equipped to cope with.
An FTA with the EU is required as soon as possible, and cumulation would need to be a key part of that agreement.

AEO mutual recognition based on AEOC is a key requirement, but this must be linked to simplifications in both UK and EU based on self-assessment and removal of requirement to submit entries at point of import/export.
Major IT infrastructure changes have to be scheduled into project timelines many years in advance. Such projects cannot be scoped nor planned for when the nature and extent of changes are not yet known.
There are major concerns about the preparedness of UK Government at all levels. At cabinet level, not enough information is being released to give business any confidence in the process or those conducting the process; at policy level, there is an understanding of the issue but there does not appear to be any clear direction as this is prevented from higher levels of Government, and the operational level is starved of resources, leading to significant delays to even basic enquiries.
The papers are too broad-brush to be any assistance to business planning for Brexit. As such, business is being forced to plan for a so-called “WTO” model.

Fiscal Border process:

Question 6.9:

If your business already trades outside the EU, what examples of best practice should the UK consider when designing its own border processes to achieve trade that is as frictionless as possible?

Members believe that there is an absence of manpower and expertise both within HMG and industry; and this absence of expertise is a significant component of the challenges we face.

Regulatory provisions call for practical standards of competence and specific qualifications, but none of the training provided in the UK is recognised or acknowledged by HMRC. Proper training needs to be promoted and possibly subsidised by HMG.
Trusted Trader accreditations are a realistic option (with mutual recognition) – Industry must be given the option to take on additional responsibility and receive additional benefits in exchange for increased levels of compliance.
The Dutch Customs/Revenue Authority authorise fiscal representatives who are mandated to “perform” significant initial “checks” – this process allows for subsequent audit based controls by the Customs Authority.
This issue also needs to be addressed within HMRC too. Expertise lost through retirement or well versed officers leaving HMRC to join private industry.

The UK/EU FTA needs to be in place and easy to understand and implement
The UK/EU preferential origin must be able to be used as cumulation in third country preferential origin rules
Postponed VAT accounting for VAT must be introduced as this will be a significant cost especially to business who currently only trade with the EU
Education and training for HMG and traders is a must
Increase use of self-assessment and audit for traders with a track record of regulatory compliance.
Export drawback provisions which allow recovery of are available in a number of countries such as the US and Australia. This would enable smaller companies and companies without Customs warehouse facilities to avoid double duty costs.
Merge UK Border Force and HMRC. The UK is in a unique position in splitting its fiscal and border protection arms. There was some merit to this when an EU member state as the majority of incoming goods were not subject to customs control, but now most incoming goods will be subject to customs controls, it makes a great deal of sense to cross-train customs and border protection personnel.

How can the government employ technology to best effect to ensure traffic and trade flows smoothly?

To minimise disruption existing processes need to be adapted and working processes elsewhere need to be replicated. By way of example:

Convert CFSP to Self-Assessment against strict trusted trader criteria.
Replicate the fiscal representation process employed in Holland
NOTE: CFSP C&E 48 validation and completeness checks. When HMRC receive the C&E48 it would have been validated by the authorisation team using a standard checklist template. There will also have been a basic completeness check to ensure that all the necessary information has been provided. The template would be forwarded to visiting officer electronically, highlighting any areas of concern such as the traders’ compliance, financial standing etc, or where HMRC records conflict with the information provided by the applicant. Further checks would be required to clarify any anomalies prior to the pre-authorisation visit.This should meet Self-Assessment strict trusted trader criteria
Make web based Customs declarations easy for a trader to process
It is not always about technology but also about having good knowledgeable Customs officers available to answer importer / export queries where the answers are not easy to find on line
Pre and Post shipment activity to and from the EU include and expand the scope of VAT and Intrastat reporting.
Make CFSP the norm, allow for EIDR as a standard way of working. Use Periodic reporting as much as possible, Extend use of S IVA or implement VAT postponed accounting. Implement web based tools for reporting.
Bottom line is to reduce the number of entries required at the point of import and export and to increase local clearance.
Allow other options to be available for trade, such as the use of ports where significant customs infrastructure already exists. This may take the form of UK Government buying shipping containers for the UK/EU shipping routes.

What can ferry operators, ports, train operators and terminals do to help traffic flow smoothly?

Standardise Inventory systems and process
Use approved trusted traders and operators

Move from facilitation for the sake of facilitation – to facilitation as a benefit for increased levels of compliance.
The above operators will only be able to be Brexit ready when they know the full scope of what is required for Brexit
It is essential that HMG release definitive information as soon as possible so that they can set up systems to manage the import / export process after Brexit
The big issue will be - where will these operators get skilled staff?
Provide separate collection delivery points for authorised traders (AEO) goods
These organisations will be key in allowing for smooth movement of goods. But they can only implement what comes from Government. We need to avoid entries at the port by use of local clearance and periodic reporting
Increase off dock customs controlled areas to speed away traffic from the immediate port area. More inland clearance facilities will be needed.

Employing Intermediaries:

Question 6.10:

When and why would you consider using a freight forwarder or other intermediary to facilitate the trade of your business? Does this decision differ for non-EU and EU trade? Please provide further details on your engagement with intermediaries.

Members would consider using an intermediary depending on the type of intermediary and whether the intermediary was recognised and acknowledged by the regulatory authority. Clarifying the role of the intermediary is essential.