Date: 18 January 2021
Author: Blair Horan
Living with Brexit:The Road Ahead is a new series of blogs by the IIEA’s UK Group and additional contributors which will examine the outcome of the deal and its implications for Ireland – including for trade, business, agriculture, fisheries, transport, and the Northern Ireland Protocol. It will also examine the political implications of the deal, for the future of Anglo-Irish relations and the future of the UK after Brexit.
This second blog in the series, by Blair Horan, member of the IIEA UK Group and member of the European Social Fund Committee, examines the implementation of the Protocol on Ireland/Northern Ireland, highlighting the points agreed in December 2020 and the interplay between the protocol and the EU-UK Trade and Cooperation Agreement.
On 8 December 2020 the EU and UK announced that an agreement had been reached on all issues in relation to the Ireland/Northern Ireland Protocol. A number of the items agreed were on matters reserved for Joint Committee (JC) decision, and the rest were Unilateral Declarations by both the EU and UK on issues which were not a matter for decision under the Protocol. Such Declarations are a feature of EU decision making from time to time, and can have legal standing in respect of the interpretation of Treaties.
This agreement on the application of the Protocol was designed to apply irrespective of whether there is an agreement on trade, though as noted in the previous blog in this series an EU-UK Trade and Cooperation agreement was reached on 24 December, providing for tariff free trade on all goods meeting rules of origin requirements. It also provides for extensive level playing field commitments in a number of areas such as state aid, and social and environmental standards, along with structures that allows for trade preferences to be withdrawn should either party fail to adhere to commitments.
The Protocol agreed by the Johnson Government in October 2019 differed significantly from the Backstop Protocol of November 2018. The Backstop provided for a regulatory border down the Irish Sea, requiring checks on goods, in particular, animal and agri-food produce moving from GB to NI. The UK would be in a shared customs territory with the EU, so no customs processes UK-EU, or GB-NI would be required. The Union Customs Code (UCC) would apply in NI, so all goods there would be in free circulation, but it would not apply to GB, with regulatory checks and trade friction GB-EU as a result. If the UK wished to pursue an independent trade policy, it could do so only in respect of GB, with the application of the NI specific Backstop originally proposed by the Commission. This envisaged NI remaining in the EU Customs Union, with both a regulatory and customs border down the Irish Sea.
The Johnson Government sought changes to the Protocol so that the UK could agree a free trade relationship with the EU. The revised Protocol became a permanent arrangement, and involved both a customs and regulatory border down the Irish Sea. It also provided that NI would remain in the UK Customs Union, and introduced a consent mechanism allowing the NI Assembly, at defined intervals, to continue to give or withdraw consent to the Protocol. Even though the UCC would still apply to NI, the consequences of NI remaining in the UK Customs Union would be that not all goods in NI would be in free circulation. The structure of the Protocol with its provisions for ‘goods at risk’, arose because the UK and EU tariff schedules and trade arrangements would diverge post Brexit. In that respect it had similarities to the dual tariff structure of the Chequers Plan, though the value of goods involved was much less at £10.5B GB-NI compared to £170B UK-EU.
The two key issues in respect of goods for the Joint Committee (JC) to decide was what constituted non-commercial processing and to define goods at risk of Union entry without paying the Union tariff. However, in a Command paper of 20 May and evidence given by Ministers to Parliament, it became clear that the UK Government was seeking substantial additional flexibilities. The UK insisted that Exit Declarations NI-GB, and Import Declarations GB-NI, would not be required, despite accepting that they would in October 2019. Goods at risk were redefined by the UK Government as a genuine and substantial risk, with the frequency and level of agri-food checks and controls also to be discussed in the Joint Committee, and avoided as far as possible. In evidence to Parliament, Ministers promised that matters would ‘be as close to business as usual now for GB to NI as we are confirming for NI to GB’, and with statements by Boris Johnson on numerous occasions that there would be no border down the Irish Sea. The justification set out for this approach was that NI remained in the UK Customs Union, and that the Belfast/Good Friday Agreement required that a similar approach be taken to a sea border to that already agreed for the land border.
The key areas of agreement that have been reached in respect of the Protocol are laid out below.
Exit and Export Declarations
In a Unilateral Declaration the UK has agreed to provide the equivalent information to that contained in Exit and/or Export Declarations to Union representatives prior to the goods leaving NI, and has also confirmed that the standard export procedures will be complied with for a range of goods, such as endangered species. The Commission has emphasised that the information provided must be equivalent to that required by the UCC. It is not clear what the UK or NI traders will achieve through this arrangement. The UK Government has also indicated that having listened to the concerns expressed in NI, about the need to confine unfettered access to NI traders, that a new system will be developed to allow qualifying traders to check in at ports and airports. A benefit of this will be that HMRC can monitor trade deflection in respect of goods ineligible for preferential tariffs. There is also a commitment to develop clearer qualification requirements for the NI agri-food sector. The UK has also stated that unfettered access will also apply to NI traders routing through Ireland.
Commercial processing and Goods at Risk
The Joint Committee (JC) was tasked with making a decision on the definition of non-commercial processing, and on goods at risk of Union entry. The JC agreed that a good would not be considered to be subject to commercial processing, where the importer has a turnover less than £500,000, or it involves food sales to UK consumers, and also in respect of certain activities in construction, health or care services and not for profit activities.
Provided they are not subject to commercial processing, goods moving GB-NI will not be considered at risk where the Union tariff is zero, and this will also apply to goods from outside both the EU and UK, where the Union tariff is equal to or less than the UK tariff. In addition, a new UK Trader scheme has been agreed for authorised NI traders subject to strict qualifying criteria. This is similar to the Authorised Economic Operator (AEO), and called trusted trader schemes operated in EU Member States, which grant certain flexibilities to traders subject to customs audit. Under this scheme goods moving GB-NI, irrespective of origin, being imported by authorised traders, and which are not subject to commercial processing, and are for consumption in the UK will not be considered at risk goods. In the case of certain goods from outside both the EU and UK, again not subject to commercial processing, and for consumption in NI, these goods imported by authorised traders will not be considered at risk, where the EU and UK tariff differential is less than 3%.
The UK has committed to devoting sufficient resources to monitor the scheme to prevent abuse, and detailed reports on goods movements and tariffs will also be supplied monthly to EU representatives. The UK Trader scheme can also be used to move goods through Ireland under customs transit procedures. Goods subject to Union tariffs will remain eligible for reimbursement, where they have been shown to have been consumed in NI. The structure of the UK Trader scheme is designed to verify through audit that the goods involved have been consumed in NI, or in some cases GB. Any goods covered by EU trade defence measures will attract Union tariffs, but the UK Government considers that a significant majority of internal UK trade will be covered by this agreement. If either party considers that there is significant diversion of trade, fraud or illegal activities, they must notify the other party by August 2023, and if the matter is not resolved the scheme will cease in August 2024, and the JC will agree an alternative to be implemented in August 2024. Due to UK tariffs being lower than those of the EU there is a potential incentive to ship to the EU through the UK, so verification that the scheme operates as intended will be crucial.
The EU-UK FTA agreed on 24 December will reduce the quantity of goods considered at risk as the EU tariff will be zero for those goods meeting rules of origin requirements. The EU would only agree bilateral cumulation for rules of origin which excludes both EU and UK FTA partners. A grace period of one year has been agreed under the EU-UK FTA where documentation certifying origin will not be required. Under the UK Trader scheme authorised traders will not need to certify origin as the goods are only intended for NI or GB consumption. Because NI remains in the UK Customs Union the rules of origin requirements for NI and EU consumption will be different. However, the strict level playing field conditions in the agreement could lead to an increase in the goods considered at risk, if a UK breach of commitments led to the EU reimposing some tariffs.
Human and Veterinary Medicines
In a Unilateral Declaration the EU agreed to a one-year deferral before EU requirements in respect of medicines needs to be implemented. The issue arises, in part, due to the EU Falsified Medicines Directive, which requires a unique identifier for each individual medicine pack to track from pharmacy to patient in order to prevent counterfeit products. The EU requires that this unique identifier is deactivated, when medicines are exported to third countries. Continued quality control testing in the UK will also be allowed for small markets dependent on the UK for supplies which covers, Ireland Cyprus and Malta. The grace period is intended to give time for new supply routes to be established.
Movement of Animal and Agri-food produce
Through Unilateral Declarations by both parties the EU and UK have agreed two separate grace periods of 3 months and 6 months respectively to cover agri-food produce and chilled meats such as sausages sold by supermarkets in NI.
The 3-month grace period will apply to approved supermarkets and their suppliers for packaged agri-food products for consumers in NI, and these cannot be sold to other operators in the food chain. Export Health Certificates (EHC) or Phytosanitary Certificates(PC) will not be required, but consignments will need to have a simplified official certificate stating the products meet EU legal requirements. The consignments are to be subject to a documentary check and a risk-based identity check, and monitored through a channelling procedure. The list of approved suppliers must be agreed with the EU before 31 December 2020, and cannot be extended afterwards. The UK has accepted that this arrangement is not renewable.
The 6-month grace period applies to chilled meats including sausages, because the EU does not allow the importation of such produce from third countries. These goods must be packed for consumers in NI supermarkets only, and labelled ‘may not be sold outside NI.’ These products must be accompanied by an EHC and must also use a channelling procedure from origin to supermarket destination. The EU view this grace period as an opportunity to allow time for supply chains to adjust, whereas the UK has signalled that it wishes to find a permanent solution. The UK view was that an EU-UK FTA could resolve these agri-food issues, but no new SPS measures have been agreed. One of the EU concerns appears to be that under WTO rules other third countries could claim a similar arrangement to the UK.
For the duration of the grace periods the UK will have to continue to meet EU SPS legislation for the products concerned. On expiry, normal EU third country SPS controls will apply. In the Impact Assessment to the Withdrawal Agreement Bill October 2019, the UK set out the table for the level of physical checks which apply to third countries with 50% for poultry, milk and egg products and 20% for other fresh meat and fish. In November 2019 a new Regulation (EU) 2019/2129 reduced the level of these checks to 30% and 15% respectively, but with some changes between the products in the respective categories.
Officials from the NI Department of Agriculture, Environment and Rural Affairs (DAERA) told the NI Affairs Committee on 9th November that following discussions with Commission officials, it was agreed that physical checks can be reduced based on a risk assessment, and that having carried out an assessment on supermarket goods that physical checks would be close to zero. In respect of import controls on agri-food products, documentary checks would be carried out remotely in Larne, with identity checks carried out in GB as lorries waited to board the ferry. The UK indicated in a December 2020 Command paper on the Protocol that the grace period would also be used to streamline the logistics operation for supermarkets. Normally, each separate agri-food consignment and each destination requires a separate EHC. The UK has established a Movement Assistance Scheme (MAS) along the lines of the Trader Support Service (TSS) to assist agri-food movements and have also committed to cover reasonable costs for EHCs. This would assist small NI traders such as Cheesemongers who had stated that the costs of EHCs would make it unviable to import their normal regular small quantities of English cheeses.
In the case of VAT, evidence to the NI Committee last November made clear that flexibilities within VAT rules would mean that in practice there would be no significant impact, and in the case of State aid there is now an agreement that any reach back effect would only arise if there is a genuine and direct link with NI trade, and established that it would affect NI-EU trade.
Overall, the UK has made progress on the goods at risk issue through the trusted trader scheme, perhaps more than the EU might have originally intended. However, in respect animal and agri-food produce the EU has remained cautious, and only granted the flexibilities normally available, though the reduced checks on supermarket goods is important. Flexibilities granted by the EU would likely change under a new risk assessment, if the UK allows non-EU compliant agri-food into GB through a UK-US FTA. Under the Protocol Union representatives can insist that certain control measures are carried out in individual cases, and have a right to be present during all control activities. A House of Commons Library Brief on the JC decisions states that a Union office in NI was not sanctioned by the UK, but office facilities will be made available.
It is important to note that the customs border GB-NI arises because the UK wishes to limit the EU-UK trade relationship to a free trade agreement. The regulatory border is also due to a UK choice to diverge on animal and food safety standards, unlike many other non-EU European countries, such as Norway and Switzerland, where no controls are required, due to agreements to align with the EU standards. The level of physical checks on animal products from New Zealand is also much reduced due to an equivalence agreement with the EU. The UK stated in the December Command paper that alignment would cease in April 2021, when the EU adopts new rules on animal health. The UK set out a very hard-line position on the Protocol last May, despite agreeing to it only months earlier. This was close to a promise of no sea border or at least an invisible border, and there is now a danger that the actual outcome agreed will disappoint sections of the unionist community.
Brexit made a border unavoidable, the only choice was where and how hard, and to please the hard-line Brexiteers, the Johnson Government opted to have both a customs and regulatory border down the Irish Sea.