North American customs model is surprising choice for EU-UK trade post-Brexit

20 March 2017 1:23pm

6 March 2017. Matthew Holehouse.

Customs arrangements between Mexico, the US and Canada could serve as a model for Britain's future relationship with the EU, UK ministers have said.

In a letter to UK lawmakers, the government pointed to the North America Free Trade Agreement, or Nafta, as proof that "frictionless" border arrangements are possible outside the EU.

"There are a multitude of arrangements and procedures, supplemented by new technology, which can help facilitate the movement of goods across borders," George Bridges, a minister at the Brexit department, and Mark Price, a trade minister, told members of Parliament's upper chamber in a letter.

"Take Nafta for instance. The US, Canada and Mexico manage to operate complex and integrated automotive supply chains across their borders without the need for a formal customs union," the ministers told the House of Lords EU External Affairs and Internal Market committees.

This position could come as a surprise to the automotive industry, which is well-versed in the difficulties manufacturers face daily at the border between the US and Mexico.

Cross-border traffic in auto parts requires extensive paperwork, and efforts by the US and Mexico to overhaul their information technology systems have been fraught with problems.

The UK's plan to exit the EU's customs union — that allows goods to travel to and from the continent without checks — has alarmed car and aircraft manufacturers. Many UK-based plants rely on complex cross-border supply chains and speedy delivery of components. Manufactures are therefore concerned about the prospect of severe disruption if new customs procedures are put in place.

Delays to the production line of more than six minutes per day are seen as "a disaster," Colin Lawther, a Nissan executive, told UK lawmakers last week.

Officials at the UK's tax authority, HMRC, say they are confident the system that swiftly processes customs declarations online for trade outside the EU can be replicated to cater for EU trade. They are working toward having the system ready, if the UK crashes out of the EU without a transitional agreement in 2019.

Surprising example

The North American automotive industry is to an extent as reliant on long supply chains as EU manufacturers. Many major suppliers, such as Goodyear and Bosch, manufacture parts in Mexico, and components often cross the border several times before a car is finished.

But those customs procedures are a far cry from the EU's open borders.

A report prepared for the US Department of Commerce in 2015 said that cross-border exports in the free trade area are characterized by "delays and inefficiencies," with companies tied up in an "expensive and slow" process of form-filling.

Exporters to the US must submit extensive paperwork, including a freight manifest and a 43-point form declaring the imports. They must also submit forms declaring auto parts' compliance with safety and environmental standards. Shippers should also file a record of the transaction to the US Census Bureau.

The US government has taken steps to streamline the process. A new computer system, known as ACE, will allow importers to submit paperwork to 48 different government agencies regulating trade through a single website. But the program — first proposed in the 1980s — is over-budget and its full rollout has been repeatedly delayed. Last year, computer errors left trucks waiting at the border without clearance to cross.

Mexico started its own "single window" customs declarations system, known as VUCE, in 2012. It, too, has suffered from teething problems. "The huge amount of information that is involved with moving autos and auto parts across the border is contributing to frequent crashes due to an overloaded system," the report for the US Department of Commerce said.

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