Brussels: The European Commission will be piling Pelion on Ossa if it decides to slap a €2 billion bill on the UK for negligent customs management while already putting together a case for a Brexit charge of up to €60 billion. But it will not be easy for the Commission to ignore the recommendation from Olaf, its anti-fraud unit, following an investigation which concluded that British customs were effectively turning a blind eye to Chinese footwear and textiles flooding into the EU at a tiny fraction of their production cost.

Even though not complicit, Olaf’s allegation implies that the customs authorities were serving the purpose of an organised crime network to minimise customs duties (reportedly, the calculated loss to the EU is €2bn) and maximise evasion of VAT worth up to €3.2bn. In considering the Olaf report, will the imminence of the Article 50 process weigh on the Commission’s judgement or will it try to deal with the issue entirely on its own merits?

Any attempt to levy a stinging fine will be grist to the mill of the pro-Brexit British press. While constantly lamenting the incidence of fraud in the EU, they will not see the irony of the UK becoming a target of the EU’s fraudbusters. Rather, it will be presented as the EU’s determination to make Britain pay for the Brexit betrayal and still more reason for shaking off the shackles of membership on any terms as quickly as possible. Like it or not, doing right by Olaf will guarantee a sour launch to the Article 50 talks.

That is not the only negative aspect for both parties. Understandably, the British enter the talks seeking to have the softest possible customs procedures applied to bilateral trade after Brexit. Any indication that Her Majesty’s Revenue and Customs sometimes falls down on the job will not be good for the Union’s confidence that UK procedures are up to the mark.

The Brussels authorities may also think a strict approach is necessary “pour decourager les autres”. It is now commonplace that the Commission and EU member states will not do a deal on Brexit that may incite others to step out of the Union. Similarly, the Commission will want to demonstrate to the 27 that a casual approach to applying external tariffs will not go unpunished.

Olaf appears to have had several meetings with HMRC about the Chinese textiles and footwear problem between 2014 and 2016. Customs clearance remained as it was and, according to Olaf, “the fraud hub in the UK has continued to grow”. HMRC apparently does not recognise the numbers Olaf is circulating but does not deny it may have a case to answer.

It might be thought that an early settlement of this row would be in the interests of both sides to prevent it becoming caught up in the numerically much larger confrontation over how much the UK should pay up on its exit from the Union. But the British may want to deny any liability and defend the integrity of their customs operations through to a bitter end. After all, resisting the EU is what comes naturally.

by John Wyles | 09.03.2017

Edited by Hugo Dixon

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