Tuesday 26 September 2017

Hard Brexit will drag us down and bring price hikes, travel chaos and smuggling

An Anti-Brexit billboard commissioned by the ‘stopthesilence’ campaign hangs on a street corner in London, England. Photo: Getty Images
An Anti-Brexit billboard commissioned by the ‘stopthesilence’ campaign hangs on a street corner in London, England. Photo: Getty Images
Richard Curran

Richard Curran

The sheer complexity of implementing the UK's decision to leave the EU was grasped on this side of the Irish Sea within days of last summer's referendum. In Ireland, most people could see right away what a hard Brexit might mean for Irish business, the economy and of course the issue of the Border.

As Theresa May's UK government prepares to trigger Article 50 and begin the exit negotiations, it seems highly unlikely that talks deciding the nature of the UK's new relationship with the EU will begin any time soon. The divorce talks come first and then the basis of the new relationship comes later.

The Europeans are in no hurry. In the UK, most of the business community know what they are facing. Some of the public do too. But there are large swathes of the Tory Party and the British media which remain utterly naive about what is going to happen.

In fact, the challenges facing the British economy from a hard Brexit, in which it leaves the EU single market and the customs union, are so enormous it is hard to believe that such an outcome will actually emerge when all of the talking is over.

Here is some perspective. During the week the chief executive of Dublin Port told RTÉ Radio that around 80pc of the freight arriving in Ireland lands at the port. Every day between 5.30am and 7.30am some 230 trucks roll off ships and head straight out to the Irish motorways as no customs levies apply or have to be checked.

Put together, the head of Dublin Port said, these trucks would stretch to 9km, so you can imagine the size of the customs holding area that would be required to make them wait for customs clearance.

One possible solution is to stagger their arrival more, build a very large holding area, hire dozens more customs officials and live with the delays. Some of their cargo is fresh food, which is plugged into a whole UK/Ireland retail distribution chain. That might all have to change. If customs have to be applied on goods arriving in the EU (Dublin) from the UK, the same would be true in the other direction. Let's look at the port of Dover in England.

In 2015 some 2.6 million trucks arrived at Dover Port. Add on the other 1.6 million using the Channel Tunnel and you get 16,000 trucks per day, based on a five day week, passing through these two locations.

The scale of cargo arriving in UK ports from the EU is astonishing. Whatever about bulk containers that would be left in port for a while anyway, the roll-on roll-off lorry freight would present an enormous new logistical nightmare.

In 2015, roll-on roll-off freight arriving from France to the UK reached 18.1 million tonnes. It was 12.6 million from the Netherlands, 8.2 million from Belgium and 5.8 million from Ireland. The total roll-on roll-off traffic into UK ports from the EU per year is around 50 million tonnes.

The standard delays could run into days at these ports even if the UK hires thousands of customs officers. There will be 300 million new customs declarations to be processed per year at UK ports with a hard Brexit. Supply chains would have to be completely re-organised and supply arrangements that currently exist might have to be replaced using more domestic suppliers.

Perhaps the British government will tough it out on all of that chaos by arguing that it will provide an incentive for British industry to plug these gaps and make more stuff at home. It would be very tough medicine for British business and consumers to take.

The same product lines would simply not be available and the price of everything would go up.

Listening to a British radio station the other day I heard an advertisement that is not unusual to hear in Ireland, but is very rare in the UK.

The ad was part of campaign to encourage British food companies to export. Ironically, it talked about the benefits of Britain's "wonderful" food industry and how companies should consider selling abroad. The ad was encouraging food companies to avail of information and expert help from state agencies.

This is deeply ironic given that UK has had a single EU market in which to sell its food produce for decades, but chooses the eve of turning its back on that market to encourage smaller British food companies to start exporting.

Perhaps the UK's hard Brexit stance is a clever negotiating tactic. Perhaps they are serious about it and will go through with it. Or perhaps, they are serious about it right now, but when confronted with the reality they will blink and opt for something more akin to "Brexit lite".

The answer won't become clear for some time. No wonder UK Treasury secretary Philip Hammond is setting aside a £27bn Brexit contingency fund. That may be just the beginning.

Here in Ireland, businesses and the Government have to plan for the worst and hope for something better. Aside from the disruption to business supply chains, your average Joe is also likely to be affected by a hard Brexit in a number of different ways.

The boom in online shopping may be somewhat curtailed when customs charges are added to the price of goods purchased in the UK. Irish customs officials at Dublin Airport sometimes do question shoppers arriving back from Christmas trips to New York, to establish what tariffs may be due on their purchases.

This has all to do with personal travel allowances. At the moment you can only bring in goods worth €430 into Ireland from outside the EU without incurring customs duty and Vat. The goods must be for personal use or gifts and any item above that price triggers Vat and duty at the full value of the item.

Here is an example from the Revenue Commissioners. If you buy a cotton dress for €800 the customs duty would be 12pc or €96. The Vat payable would be €206.08, bringing total duties and Vat to €302.08. Your €800 dress will end up costing €1,102.08.

So imagine the chaos at the Border with the North if customs officials are not only checking commercial trucks and vans, but also randomly spot-checking cars to see if people are exceeding personal travel allowances.

Border smuggling will definitely be back.

What are the options here? In order to facilitate the thousands of people travelling to work on either side of the Border every day, the customs could turn a blind eye to private vehicles unless they had reason to suspect there were criminal levels of smuggling going on.

You can't enshrine "turning a blind eye" into legislation. It simply doesn't work.

Alternatively, no personal allowance limits would apply on the island of Ireland between the Republic and the North, but would apply at external ports and airports. However, that would create a need for customs checks between Britain and Northern Ireland to combat the North being used as a channel for massive scale smuggling.

I don't see the DUP in Northern Ireland signing up to that one. Besides, the DUP does not even appear to support the idea of making Northern Ireland an exceptional case on anything. If they do, they haven't said it.

Of course, there is a counter argument about online shopping. If the cost of online shopping in the UK rockets, then people will do less of it and they may return to traditional bricks and mortar retail outlets in Ireland. That might be good for Irish retailers. However, the customs and tariffs regime will apply on the price of the UK-sourced goods in those shops anyway. Prices will simply go up if the British follow through on a hard Brexit.

This month might be historic as the beginning of a very long and difficult journey for the UK that will drag Ireland down with it. Equally, it may be the beginning of a journey into realism about the true impact of a hard Brexit.

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