Thursday, 10 August 2017

Trouble at ports ?

An enduring scare story regarding Brexit concerns exports of manufactured and industrial goods to the EU becoming subject to inspections at ports - resulting in massive delays, tailbacks and claims that literally all trade will stop (Anna Soubry during the Referendum campaign).

Validity of conformity Assessment Certificates

This story seems to originate with an argument regarding how the USA manages to export to the EU without a Free Trade Agreement (FTA). Those proposing the WTO-rules option claim that exports simply have to meet EU regulations.  The counter claim was that products must be shown to meet the regulations via a process of "conformity assessment" - and that actually the USA has a Mutual Recognition Agreement (MRA) which means its certificates of conformity are recognised as valid. Without an MRA, conformity certificates would not be recognised, British exports would face an insurmountable barrier and trade will come to a grinding halt.

This seemed a compelling argument to me at the time. The EU has indeed concluded MRA's with many trading partners that it does not have an FTA with - and FTA's typically include a section on mutual recognition of conformity assessment. But over time, as I investigated and learnt more, I've come to realise this argument is false.

For a start, it is worth recognising that the EU-USA MRA is very limited, covering just 2 sectors. Essentially, it lists certified assessment bodies (CAB's) in the USA recognised as producing valid certificates for EU regulations (and vice versa). In fact, the MRA has rather fallen in to disuse and is not being regularly updated. Yet, the EU and USA still successfully trade manufactured and industrial goods. How can this be ?

Many Certified Assessment Bodies operate internationally and have subsidiary or sub-contract relationships in other territories. So an American-based CAB can assess conformity against EU regulations on behalf of an EU CAB with which it has a subsidiary or sub-contract relationship. The certificate of conformity is then deemed to be held by the CAB inside EU territory and so is recognised as valid, without the need for an MRA.

However, only a small number of sectors (those with high health and safety risks) require conformity assessment to be undertaken by a CAB. For most products "self-certification" by the manufacturer is sufficient under EU regulations. Manufacturers based outside the EU must lodge their certificates with an "importer" based inside EU territory. The importer could be a subsidiary, a shipping company, or an agent - the burden is not onerous and many EU-based operators are already established to offer this service to non-EU manufacturers.

Risk Assessment & Consignment Checking

Once the first scare over conformity assessment certificates had been mollified (notably by @andrewchapman50  on his "Door to Freedom" blog), the story shifted. Customs Authorities undertake risk assessment to target inspections on consignments most likely to fraudulent, criminal or non-compliant. Outside the Single Market, the new scare was that British exports would be seen as a new (and therefore risky) source of imports and would be subject to high rates of inspection.

In fact, even while we are in the EU, consignments are subject to checks based on risks of criminal or fraudulent activity. Imports from outside the Single Market are also assessed for risk of regulatory non-compliance. Currently as an EU member state, British customs authorities inspect just 4% of non-EU imports (mostly paperwork checks with less than 1% requiring physical checks), for imports from countries that are not in regulatory harmonisation and including high-risk sources in Africa & East Asia.

National Customs Authorities make their own decisions on risks & consignment checking. So we are asked to believe that on Brexit day-one, hard-pressed Customs Authorities will divert their limited time and resources to inspect imports that caused no concern just the day before ? This seems unlikely given: (i) British exports track record of compliance; (ii) Day one, Britain has 100% regulatory harmonisation (iii) continued co-operation between national authorities (notably Britain & France). In fact, this scare story has now been reduced to saying that if Britain diverges significantly from EU regulations in the future, we *may* then be subject to higher rates of inspection.

Britain as a third country

For most UK exporters of manufactured goods, the implication of Britain as a third country outside the Single Market, is simply the use of an EU-based "importer". For those sectors requiring third-party certification, CAB's are typically international with links inside the EU.

Some more highly regulated sectors require product registration via an EU-based representative rather than a straightforward "importer".  For example: Under REACH regulations, chemical products must be registered through an EU-based "Only Representative" ; Cosmetics products must be registered on the Cosmetic Product Notification Portal via an EU-based "responsible person";  Pharmaceuticals and medicines must be registered with the European Medicines Agency (EMA) via an EU-based "qualified person". But as with the role of "importer", non-EU companies can use a subsidiary or sub-contract relationship with an EU-based operator and many EU-based operators are already geared to provide such services to non-EU manufacturers.

In certain sectors, the EU require that a third country regime of testing and inspection is "equivalent" to the EU's. For example: an equivalence agreement on Sanitary & Phyto-Sanitary measures would allow continued agricultural trade without border inspections (see my previous post); third country legislation and controls for Active Pharmaceutical Ingredient's (API's) must be approved as "equivalent" to the EU regime (Commission Implementing Decision 2013/51/EU).

So some preparation prior to Brexit is required by exporters (in both Britain and the EU). In certain sectors, Britain will need EU agreement - to carry-over existing product registrations or recognise regulatory equivalence.  Given the impact on trade in both directions, Britain's existing regulatory equivalence and the EU's commitments to removing trade barriers in various international treaties and it's own treaty, there is no good reason for the EU to refuse - even if the Article 50 talks founder on matters such as the "Brexit Bill" or citizen's rights. Unless as I've said before, you believe the EU to be self-harming, mad and bad.

Beware the catastrophists

So if you come across someone banging on about conformity assessment and EU regulations complaining "Eee lad, there'll be trouble at ports", don't worry too much. It's probably just a grumpy Yorkshireman looking for an audience.

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