First published as a UKTPO blog available here.
While the world battles the Covid-19 pandemic, the UK Government’s decision not to request an extension to the transition period means that the UK and the EU have only eight months until 31st December 2020 to complete the talks on the future trading relationship. If a trade deal is not agreed by 1 January 2021 the Northern Ireland Protocol will take effect. The Protocol, which forms part of the Withdrawal Agreement, determines how the Irish border will work in the absence of agreement at the end of the transition period. A Joint Committee, a body established within the Withdrawal Agreement, is charged with, amongst other things, deciding how the Protocol will be implemented. The deadline for making these decisions is therefore fast approaching.
As a reminder, the purpose of the Northern Ireland Protocol is to avoid a hard border on the island of Ireland between the Northern Ireland and the Republic of Ireland because of the political and historical sensitivities. Instead, the customs and regulatory border has been placed in the Irish Sea. Under this unprecedented scenario, Northern Ireland will de facto be a member of two separate customs territories at the same time. While it remains an integral part of the UK’s customs territory according to the text of the Protocol, it will also continue applying EU’s customs legislation, tariffs, quotas and, partially, EU Single Market rules. This makes the new Irish Sea border completely unique. While the main principles and formalities governing the border (import and exports, customs declarations) will remain the same, this will not be ‘border as usual’. New elements, new processes and potentially new paperwork will be required
The controversy concerning the proposed EU office in Belfast is a good reminder of the unprecedented nature of this border: while it goes through the UK’s territory, it is also the EU’s external border. How much oversight will the EU have over the border procedures? This and many other customs related issues are left unanswered in the text of the Protocol.
Establishing where the procedures and potential checks will take place – the Irish Sea – is not sufficient. While we know where and roughly what type of customs procedures will apply, the how remains unclear. And that is the part that will make the difference for companies trading across this new border.
It is worth remembering that the Protocol was drafted under time pressure and as a result, a number of elements were left to be decided at a later stage. Some of these decisions were left to the Joint Committee, some simply require clarification. That is not to say that the text is open to interpretation or renegotiation – simply that to implement it certain details need to be clarified. Some of these topics have been subject to comments and interpretation by politicians, officials and commentators, but without official confirmation from both sides, companies will lack the detail they need to properly prepare.
Areas for the UK and the EU to clarify jointly
According to Article 4, the Protocol should not prevent Northern Ireland participating in trade deals signed by the UK. However, the text does not clarify whether the same would be the case for EU deals. If Northern Ireland could not benefit from the EU’s current trade deals, how would that be enforced? With no border controls between the EU and Northern Ireland and unfettered access from Northern Ireland to Great Britain (“GB”), how could transhipments be prevented? And what about quotas? It’s not been officially confirmed whether Northern Ireland would have access to some EU quotas.
Was the assumption that these points will be further clarified by the Joint Committee? Or that the economic impact would be so negligible to the point that these questions are just left unanswered?
Decisions that need to be made by the Joint Committee
Many if not all technical aspects of border management were left to be determined by the Joint Committee, including which GB goods can enter Northern Ireland tariff-free. As a result of the dual status, any good(s) shipped from GB to Northern Ireland will be subject to EU tariffs if they are “at risk of subsequently being moved into the Union, whether by itself or forming part of another good following processing”. Part of the Joint Committee’s work is to establish criteria based on which goods could be considered NOT at risk of subsequently being moved into the Union. This obviously is of great importance for the private sector for two reasons:
- The tariff burden will be something that companies would want to understand in advance, as customs duty is a cost to the bottom line.
- The procedure to determine which goods are at risk is likely to involve additional steps and paperwork. It might end up being an additional burden and administrative cost for companies. Therefore, a clarification on what this process will look like in practice is of paramount interest for companies involved in GB- Northern Ireland trade.
Decisions that need to be made by the UK Government
Article 5, Paragraph 6 of the Protocol states that the customs duties levied by the UK on goods moving from GB to Northern Ireland will not be remitted to the Union. It further clarifies that the UK Government will be able to reimburse duties levied in respect of goods brought into Northern Ireland, waive or reimburse customs debt as well as “compensate undertakings to offset the impact” (in accordance with the EU’s state aid rules). However, the Protocol does not go into detail on what that means in practical terms. It is important to note that these arrangements do not currently apply when goods are imported into or exported out of the UK nor was it something that was part of the no-deal planning. In fact, it is not part of standard border procedures anywhere in the world. Duties can be reimbursed only under certain specific conditions and in a very limited number of cases. Since this is not an existing procedure, the UK Government needs to outline the conditions and scope of these reimbursements as well as set out the associated procedures. How will such waivers or reimbursements work? Given that cash flow is a key issue for many smaller companies, these details will be important.
The above points are areas that the Protocol failed to clarify, either because a deliberate decision was taken to delegate that work to the Joint Committee or because this level of detail had not been considered. The implementation of the new border in the Irish Sea will also require dealing with a range of other challenges. Among them, just like on other UK borders, will be questions around port capacity, the need for additional infrastructure and staff and the availability of logistics services providers.