Post-Brexit customs: Max fac and the customs partnership explained

This week the Cabinet has reportedly been debating two options for a possible customs relationship with the rest of the EU after Brexit. We’ve taken a look at what those are, how they compare to the situation at the moment, and the implications for the Irish border.

The situation at the moment

Countries in the European Union are in a customs union, the EU also has a partial customs union with other countries, including Turkey.  This means that no taxes are paid when goods move between countries in the customs union. They also all charge the same customs duties on goods coming into the union from the rest of the world, known as a common external tariff.

Countries in the customs union also can’t negotiate their own trade deals on goods with other countries.  

We’ve written more about how the customs union works here.

The UK government has repeatedly stated that the UK will leave the customs union following Brexit, allowing Britain to strike its own trade deals with the rest of the world.

The Irish border

Some have argued that the decision on future customs arrangements will have an impact on things such as jobs and trade.

One point which has been much discussed during the process of negotiating the UK’s withdrawal from the EU is what will happen on the Irish border, the UK’s only land border with the rest of the EU.

Some have suggested that this could become a “hard” border with passport controls and customs checks, but the government has committed to avoiding this. We’ve written more about this here.

Possible alternatives to the customs union

As a possible solution, the EU proposed it be in a “common regulatory area” with Northern Ireland and that the “territory of Northern Ireland” (excluding territorial waters) be considered to be inside the customs union. This would mean that Northern Ireland would still effectively be inside the customs union, even if the rest of the UK was out. This would mean there would be no need for checks at the Irish border, but there could be checks between Northern Ireland and the rest of the UK.

The government and the EU were apparently close to a deal on the issue in December 2017. We don’t know exactly what the draft proposals were.

However, upon seeing a draft of the agreement, the Democratic Unionist Party (DUP), the largest party in Northern Ireland, said it felt that the agreement “was not going to be acceptable” for them as the terms were “making a red line down the Irish Sea”, referring to possible border controls between Northern Ireland and the rest of Great Britain. The DUP thinks such controls would occur because of the proposal’s intention for Northern Ireland to have some “regulatory alignment” with the rest of Ireland in order to keep the Irish land border free of controls.

In March Theresa May said: “Just as it would be unacceptable to go back to a hard border between Northern Ireland and Ireland [after Brexit], it would also be unacceptable to break up the United Kingdom’s own common market by creating a customs and regulatory border down the Irish Sea.”

The Government outlined two potential options in a policy paper last year. The Cabinet has reportedly been debating these options this week.

Option 1: A new customs partnership

A customs partnership essentially involves the UK collecting tariffs on the EU’s behalf for goods intended for countries in the EU customs union.

The UK would also apply its own tariffs for goods intended for the UK market.

The details of the option are yet to be confirmed, but the government has said this would require “a robust enforcement mechanism”, for example some kind of “tracking” to check whether goods end up within the customs union or stay within the UK, or a system where the highest tariff was paid (either the EU’s or the UK’s) and then when the goods reached their destination the trader would get a refund if necessary.

This approach intends for there to be no need for customs processes between the UK and the EU, so that goods moving between the two would be treated as they are currently, for customs purposes. This would mean there would be no customs border between Northern Ireland and Ireland.  

Option 2: A highly streamlined customs arrangement (maximum facilitation)

A streamlined customs arrangement, or “max fac”, involves a customs border being created between the UK and the EU, but aims to create a border that is as frictionless as possible.

The Government paper has outlined some examples of how this option might work, including:

• Negotiating a waiver with the EU so that entry and exit declarations don’t have to be submitted for goods being moved between the UK and the EU.
• Allowing goods moving between the UK and the rest of the world to travel through the EU without paying EU duties (and vice versa).
• Negotiating the recognition of “trusted traders” (Authorised Economic Operators) by the UK and EU so that they can move across borders more quickly
• Technology-based solutions for to achieve smoother border crossing (for example an IT system linking customs declarations and vehicle registration numbers)

Mrs May said in March that in the case of the Irish border, smaller traders would be allowed to operate as they do currently with no new restrictions.

The paper says that the EU would have to make similar arrangements to make the proposal work.