13 January 2021

Brexit Britain must seize the chance to revamp its customs and border model

By Lars Karlsson

While many people now are concentrating on how the new UK customs borders will impact trade and travelling in the short term, there is another question that needs to be highlighted now, what will UK do with its new-found freedom in relation to trade and customs?  

Customs and border formalities have been at the epicentre of the entire Brexit journey. Much of the last four years has been taken up by debates about the consequences of leaving a customs union and territory, and questions like, ‘should UK be in or outside the customs union?’ ‘will there be a tariffs and customs duties or a Free Trade Agreement and no tariffs?’, ‘will there be customs formalities on the island of Ireland?’ and ‘will there be new inspections’ ? We know the answers to those questions now.  

Why has this specific area of customs been so difficult?

There are three main factors here. Firstly, we are more dependent on international trade than ever before. Secondly, international supply chains and global value chains are more integrated than ever before. Thirdly, every recovery plan after the pandemic will include an important element of trade development, since this is how we increase growth and prosperity in the age of globalisation.

At the end of last year, trade expert Shanker Singham wrote an important article in The Daily Telegraph entitled ‘The success of the deal will depend on how the UK uses its newfound freedom’. Although his piece was primarily focused on the importance of pro-competitive regulation, there is also a more general question that must be addressed. As Singham wrote, Britain must use its post-Brexit position “to create wealth, not destroy it. The battle is far from over. But the great prize of freedom has been won. It is now up to each and everyone of us to use it”.

Nowhere are these words more relevant than in the area of customs and border processing. So what should UK do with its sovereignty in this field? The answer is, a lot.

There has in recent times been a paradigm shift in the way we look at borders. In the future, the border will not be defined as a national traditional borderline. Already today, the border starts when a person is booking a flight or when somebody is buying a product online. What we need to do is to monitor and manage the entire journey of people and goods. 

To make movements of people and goods safe and secure, government needs to know what is approaching as early as possible. There are four flows to follow, namely; people, information (data), fiscal transactions and goods. Every movement follows this pattern. 

This approach makes it possible to risk-evaluate who and what is arriving and leaving before it happens, meaning traditional border processing can be kept to a minimum and aimed at identifying and verifying what is already known using modern technology and techniques. This is what we in the industry call a Smart Border. Is it a fantasy for the future? No, it already exists in varying degrees in various places around the world.

Indeed, the British government has already acknowledged this shift in its recently published 2025 Border Strategy, and offered a way for the UK to become a leader in implementing a modern approach to this new paradigm. This is essential since modern border processing fosters and support exports and imports in general, but especially for SMEs. The 2025 Border Strategy presents a vision for what this new trade and border environment could look like, including smart borders, a national trade window, a new multi-tiered trusted trader programme with considerable benefits open for all traders (especially SMEs) and Safe Zone certified free ports used as engines for trusted trade lanes and international trade networks.

The 2025 Border Strategy is a welcome step towards this goal, but it needs to be completely implemented as soon as possible.  

For its part, the EU is still a long way from implementing this approach, although the legislation already exists to make it possible and it will happen at some point in the future.

The UK, as an independent country with a Global Britain vision for international trade, now has the opportunity to develop and implement the best customs and border procedures in the world, taking the global best practice to a new level for all trade (including EU flows).  

Can this be done by 2025? Yes, it can. In fact, this can be achieved in a shorter time than that. An international example is Brazil, a country that has recently gone through a modernisation process like the one described above. For Brazil it was done in four years, from a position less favourable than the UK’s. An independent study from Brazil’s National Confederation of Industries, together with academics, has shown that after just two years the new model has already saved Brazilian traders $1.5bn, which will grow to $17bn by 2030.

There’s no escaping that Brexit has been a cumbersome process for UK. There’s a real risk that after such a challenge people are suffering from Brexit fatigue and would rather move on to other areas that have been lower down the pecking order until now. 

However, it is important to remember that leaving the EU was only the start if UK really wants to become a leading autonomous trading nation. The challenge now is for the Government to use its new position to do things in the right way. That means it’s essential to keep our eyes on the prize. The good news is that history shows that Customs and Border modernisation can deliver a rapid return on investment.

The UK now has a platform to build the best customs and border model in the world and the decision to do so lays with UK Government, with nobody else. The 2025 Border Strategy is a good place to start.

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Lars Karlsson is managing director of KGH Global Consulting.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.