Beyond belief or beyond reason?

These are strange times. There are things going on that beggar belief and defy reason. Since leaving the single market, the UK has been developing an administrative structure to manage the country’s imported goods, the Border Target Operating Model (BTOM). There is no way that BTOM can be described as Brussels red tape. It has been drafted and implemented by the British government. So why is the British government taxing food imports of plant and animal products? Last week, the story was that importers would be charged for the running costs of Border Control Posts. This would be no more than GBP145 per lorry, we were told.

It appears that we were told wrong

When a haulier buys a ticket from Calais to Dover, the price now covers the journey as far as the outboard end of the loading ramp at Dover. From the dock to the UK road network, the price is dependent on what the lorries are carrying and how the paperwork is organised. For a single consignment load of any thing other than plant or animal products that qualify for SPS (Sanitary or PhytoSanitary Checks), the road is clear. For those carrying goods that do qualify for SPS tests, they will be charged Common User Charge (CUC), regardless of whether or not they are held for inspection. This is billed separately at GBP10 or GBP29, per consignment line, up to a maximum of five lines per Community Health Export Declaration (CHED). Inspections have always been charged separately and in addition to any other costs.

About two thirds of freight shipments coming into Britain share trailer space between a number of companies, who effectively go Dutch to spread the shipping costs of small and often varied consignments. Known as groupage, it used to be an economical way of managing transport costs. However, It would appear that there is no upper limit for the Common User Charge. Trade bodies are warning that shipments could generate CUC bills of up to GBP2000 for a single trip. This is a completely new randomised body blow for the logistics industry,.

After three years’ of false starts for carrying out routine safety checks on food imports, 2024 has seen two of the three phases of BTOM rolled out. The BBC spoke to wholesale florist John Davidson, who has seen around GBP 200,000 added to the annual cost of running his business, literally overnight. Talking of overnight, there is talk of closing government-run BCPs at 7.30 in the evening: for anyone in logistics, this is unthinkable. Anyone who has ever driven on the country’s long distance network will be aware that delivery vehicles are at their busiest in the small hours of the morning, as are the wholesale markets.

The measures announced last Tuesday (April 30) will send countless SMEs to the wall, whether or not they import food, just because the economy is being ripped apart. Not slowly, but in a confrontational manner. Passive aggressive is not a contradiction in terms, but a symptom of deep-seated anger.

The elephant in the room

A wall of silence still surrounds  the computer system at the heart of the BTOM, called the Single Trade Window (STW). This will be the one and only way of getting data into the system. The final version*⁠1 of the BTOM guide, published on February 11 states: “ …the Single Trade Window could be fully operational in 2027.” 

There are a number of reasons why this could be awkward, but one will do. The STW calculates the aggregate cost of wear and tear caused by lorry traffic to roadways at ports. This operational detail is  used to set a levy called the Common User Charge (CUC). This is payable when a lorry leaves a port: the CUC is added to a rolling monthly invoice. While the STW sets a figure for Government operated ports, private operators were invited to fix their own charges, as they would do for anything else.  Dover and Portsmouth,  the two busiest ports in the UK, both happen to be owned and operated privately.

Sorry, but this is not a clickable link yet. 1 Feb-11-24-Final_Border_Target_Operating_Model.pdf para 350 page 88

245% duty shock for UK cheese

British cheese exports to Canada will face duty of 245% next year, once the third country duty-free quota is exhausted. Some 95% of this quota is already taken by products arriving from Norway and Switzerland, leaving very little for shipments to any other third country.

This slap in the face for British cheesemakers comes as Canadian negotiators came amid talks on the implementation of the much-vaunted bilateral trade deal. Refusing to roll over previous extensions to zero percent duty available under former EU terms, the so-called cheese letters, the decision vapourises pre-Brexit claims of extensive growth in UK food exports. These will in fact be treated like any other third country products, in the absence from specific terms agreed during the framework negotiations. Last year, the UK exported cheese worth nearly GBP 19 million to Canada.

Global factors keep pushing up UK food prices

Over the past two years, climate change and rising energy costs have been the two biggest sources of food price rises. Analysis by The Energy and Climate Intelligence Unit (ECIU) suggests that even if energy costs ease, climate change will carry on pushing up food prices in years to come. With hundreds of acres of UK farmland covered with floodwater as I write, the water levels will lead to lost crops, forcing farmers to write off produce that would otherwise have counted towards the UK’s economic activity. Replacements will be required for the lost stock, which may need to be imported,

Climate change cost UK consumers an extra GBP 171 in 2022, rising to GBP 192 this year. While the ECIU expects energy price rise to ease in years to come, the think tank still reckons that households have had to find just over GBP 600 for environment-related price drivers in 2022 and 2023. Dr Tim Lloyd, at Bournemouth University, argues that energy pricing is behind 59% of all UK food price rises. All over the world, drought and heatwaves are affecting basic commodities such as olive oil, canned tomatoes, sugar and rice. Food prices are rising everywhere: this is inevitable, given the way food is traded.

Fast forward to 2024 and UK voters go to the polls. Next year, six years later than promised, the UK government is promising to phase in the plant and animal checks that were a part of the EU border control infrastructure. This inspection activity does not come cheap and will be added on to the cost of importing food. Just when consumers thought things were settling down, they can look forward to an unexpected surge in the cost of imported food.

Late, random and arbitrary

One of the most frequent arguments trotted out for Brexit was that it was time to take back control of international borders. The ‘take back control’ mantra was somehow an irrefutable justification when all else fails. It remains more of a fig leaf than a reasoned argument.

Having regained third country status to make this dream come true, the UK has obtusely dragged its feet over implementing the veterinary aspects of border control. The simple truth is that the commitments which come with international borders were not in fact a top priority for British politicians. There has been little political appetite to ensure full compliance with post-Brexit structures from day one, possibly because the necessary skill sets are in short supply.

The declaration of a 10km Temporary Control Area for blue tongue around a dairy farm in Kent came as a wake-up call the UK government. It was as if Westminster was caught out taking a calculated risk that there might not be any significant animal health issues. There may not be a serious risk of the notifiable disease spreading, the real problem is the political fallout from gaps in the UK’s veterinary provision under international animal health treaties.

This autumn has seen the implem entation of the first phase of the UK government’s Target Operating Model (TOM), marking greater reliance on digitised documentation and a move away from visual inspections. If all goes according to plan, the next twelve months will see the implementation of sanitary inspections by customs staff. The laboratory and testing fees will be charged to the owners of the goods concerned,. The additional costs will be significant but randomised. The testing will have an inflationary effect, but this will neither be directly attruibutable nor constant. It will b e impossible to predict reliably, but will generate resentment.

Customs checks to cost importers 330m gbp

After putting off the implementation of full customs checks five times for imported goods arriving in the UK, Westminster will start enforcing its post-Brexit customs regime for all imported goods in 2024. Cabinet Office minister of state, Lucy Neville-Rolfe, told MPs that the fully operational customs system would cost UK businesses an additional GBP330 million a year. About half this increase will be absorbed by veterinary paperwork, which was not demanded on day one of Brexit. The full cost of becoming a third country has effectively been concealed from the British public for five years and was only revealed on the eve of the Conservative party conference with a full and controversial agenda. https://www.theguardian.com/business/2023/oct/01/uk-admits-extra-330m-a-year-charges-post-brexit-food-imports

Is digital documentation secure?

There is something to be said in defence of human-readable documentation. It’s not perfect, but you don’t need to open the file on a machine to get sight of it.

This summer, the European Union published its plans for an integrated digitised customs system to cover the entire single market. A single EU Data Hub will be phased in around 2028, providing a single unified portal for third country exporters to document shipments to the EU. Compliance, repeat orders, along with such customs documentation as will be retained by the new system, will all be locked up in this portal. The official line is that customs compliance will be enforced uniformly and centrally, giving customs officers “…a 360-degree overview of individual supply chains…” and freeing up resources to ensure that a centralised European Union customs agency will run like clockwork.

There are plans to abolish the 150-dollar duty-free allowance, a routinely exploited weak point in e-commerce. Consumers will no longer face unexpected charges on e-commerce transactions. This happy state of affairs will come about thanks to e-commerce platforms taking on the administration of tax and customs procedures. Sounds too good to be true.

Milestone or millstone?

This week the UK delivered the world’s first fully digitally documented consignment of goods. Burnley engineering firm Fort Vale became the first UK exporter to put electronic documentation on an equal footing with paper forms. This was made possible by the Electronic Trade Documents Act (ETDA), which came into force on Wednesday. To be sure, the goods involved were not food products, but Urban Food Chains wanted to mark the occasion anyway. Here’s a link to the gov.uk statement.

Meursing numbers in practice

Highly processed foods are a technical challenge for customs valuations, requiring standardisation and accuracy. In the EU the task of establishing a core element in the customs valuation is carried out by using a set of laboratory protocols to establish the precise proportions of dairy fats, dairy proteins and sugars.

The purpose of Meursing numbers is to provide a reliable way of calculating the duty on ingredients in highly-processed foods. The protocols cover the required procedures for measuring four ingredients: milk fat; milk protein; sucrose and invert sugars. These values are then read off a Meursing table, which has 32 rows for the possible combinations of the milk components and 19 columns for the sugars. The three figure codes in the tables are transferred to the customs documentation, preceded by a 7, flagging it as a special additional code.

Most third country exporters of biscuits and bakery goods face a lengthy documentation process. The UK, however, has not been required to use Meursing codes since April 2021. Not that this has stopped folk from feeling hard done by.

A work in progress?

As the world’s most recent third country, UK food exports are at the receiving end of thorough checks on entry to the EU. All animal products are allocated risk levels and inspected accordingly; plant material undergo a parallel set of phytosanitary (plant health) checks. For UK exporters, the administrative overheads of complying with food safety standards were a known quantity long before the January 2021 transfer to third country status when UK shipments were routinely checked in Border Control Posts (BCPs).

The UK has yet to carry out its longstanding commitment to implement a mirror image system with the same inspection protocols for food shipments coming into the UK. Until that happens, Brexit is no more than a work in progress, not a done deal.

At the time of writing, the UK government is poised to kick border checks on into the long grass for the fifth time, delaying the full complement of checks until autumn 2024. This should come as no surprise, given the gaps in government resources.

Westminster is wrestling with a structural shortage of vets who are authorised to issue valid health declarations. This was a known issue in 2017 when a House of Lords select committee warned of a vet shortage, among other things, in its report Brexit: plant and animal biosecurity Over the past few years there have been a number infrastructure modifications at UK ports to house BCP facilities. The situation is complicated by the fact that around the UK not all ports are in public ownership and many have hybrid management frameworks. For some, the fabric of the port is its capital, meaning that a parliamentary bill may be required to underwrite loan capital for major infrastructure investments. This is only one factor among many that has cooled the government’s will and ability to act, however.

The UK food industry is caught up by its own reluctance to make the transition to full food safety checking at internal borders. This is not a public health issue so much as a tangle of red tape and knowledge gaps. At any given time of the day or night, there will be dozens of lorry movements up and down the country, heading for Northern Ireland. Leaving aside the unionist arguments against having a border check where none should be required, there is potentially a grittier problem to resolve.

There is a lack of old-fashioned stock control clerks with previous experience of customs documentation. The real problem is that the documentation travelling with a load is closer to a customs valuation than a handlist for whoever has to unpack the roll cage when it arrives instore. The stock in trade of an RDC (Regional Distribution Centre) is a loaded roll cage with dozens of SKUs, more or less stacked in the order they were picked. This is adequate for England and Wales, but is not a promising start for goods which may need to be inspected on a line by line basis in a customs shed.

The rules for calculating a customs valuation are clear and there are a number of ways in which a customs valuation may be arrived at, each with its own methodology. Think of the process as HMRC making a window into a retailer’s accounting system and then discovering anomalies with earlier figures. These could arise from the ways in which shelf money is managed or have an innocent explanation, but making a case to HMRC for a wide gap between a low customs valuation and a full retail price is not what people want to spend time on just now, if at all.

The additional cost of physical checks just adds to the awkwardness of the situation. The UK government is preparing to run documentation checks on inbound animal products for just over GBP 30, but is fighting shy of publishing a price list that would put physical checks into the six or seven hundred pound bracket. These inspection costs would feed directly into the import VAT calculations, pushing up the final figure.

The uncompromising attention to detail and the time these checks will add to operating costs — meaning that they should be blamed on a new incoming government in the wake of a general election. This morning’s BBC news carried an item to the effect that MPs standing down at the next election, or defeated at the ballot box should continue to be paid for four weeks instead of the current fortnight. Someone in Westminster is reading the writing on the wall.