‘One country, two systems’: customs and the Northern Ireland Protocol

In this post, Alfred Artley of Monckton Chambers examines the customs provisions in the Northern Ireland Protocol and the UK Government’s proposals for implementing them.

The Cabinet Office has recently published a new command paper (CP226) setting out how the Government intends to implement the Northern Ireland Protocol once the post-Brexit transition period comes to an end. In contrast to ministers’ previous rhetoric, the paper does now acknowledge that there will customs checks on the Great Britain/Northern Ireland border for the first time. But will the minimalist approach now proposed be sufficient to fulfil the UK’s obligations under the Protocol? This blog explains the legal force of the customs provisions of the Protocol and considers how realistic the government’s latest proposals are in this context.

Which goods will face tariffs?

The first paragraph of Article 4 of the Protocol confidently proclaims that “Northern Ireland is part of the customs territory of the United Kingdom”. However, once one disentangles the somewhat obfuscatory drafting of the other customs provisions, it soon becomes clear that in substance Northern Ireland will effectively remain with the EU’s customs area.

At first it might appear that tariffs would be the exception rather than the rule, as “no customs duties shall be payable for a good brought into Northern Ireland from another part of the United Kingdom by direct transport, notwithstanding paragraph 3, unless that good is at risk of subsequently being moved into the Union, whether by itself or forming part of another good following processing” (Article 5(1)).

However, it then turns out that “at risk” is in fact the default position for all goods, unless the trader can satisfy a number of conditions which in practice may be very hard to do.

• Firstly, they must establish that the goods will not be subject to “commercial processing” (Article 5(2)(a)). Yet the definition of this is so broad, covering any alteration of transformation of goods other than preservation or labelling, that few products other than finished consumer goods will count.
• Secondly, goods will have to meet further conditions to be agreed by a Joint Committee of EU and UK representatives (Article 5(2)(b)). What these conditions will be remains to be worked out, but if the parties fail to reach agreement, then this second condition will of course be incapable of fulfilment and all goods entering Northern Ireland will be automatically deemed at risk.

Interestingly, the command paper appears to put a gloss on this legal text: “Tariffs should only be charged if goods are destined for Ireland or the EU Single Market more broadly, or if there is a genuine and substantial risk of them ending up there” (paragraph 25). It acknowledges that this principle will need to be formalised with the EU via the Joint Committee, but given the broad definition of commercial processing already written into the agreement, it is not clear how much flexibility the Joint Committee would have to consent to this kind of watering down, even were the EU side minded to agree.

Unsurprisingly, the Protocol does not go into the same level of detail as regards goods moving from West to East: its purpose is to preserve the integrity of the EU single market while avoiding a hard border on the island of Ireland, not to protect the UK’s internal market. Yet if all checks on goods arriving from Northern Ireland were eschewed, then for any good where the UK duty is set at a higher level than the EU equivalent, there would appear to be a strong incentive to smuggle these in via the Northern Irish route in order to avoid paying the UK tariff.

The command paper fails to offer a satisfactory solution here. On the one hand, it remains committed to ‘unfettered access’ for Northern Irish businesses to the rest of the UK, with no import customs declarations or customs checks; yet paragraph 23 indicates that the government still intends to subject goods arriving from the EU via the Northern Irish route to the full UK customs and regulatory regime. As to how goods of Northern Irish origin will be distinguished from those of EU origin in the absence of any checks, however, the position remains unclear.

Tariffs and duties

In terms of what duties will apply, again this is not immediately clear from the face of the text. Article 5(3) helpfully provides that “Legislation as defined in point (2) of Article 5 of Regulation (EU) No 952/2013 shall apply to and in the United Kingdom in respect of Northern Ireland (not including the territorial waters of the United Kingdom)”.

In plain language, what this actually means is that EU customs law will apply in its entirety: the Uniform Customs Code and all other EU customs legislation (as interpreted by the CJEU), with all tariffs and classifications set by the EU level. The charges levied will not need to be paid to the EU, however, but will be retained by the UK. As well as any regular tariffs, the UK will also be obliged to levy any EU trade remedies (anti-dumping duties and countervailing measures). This requirement would appear to have the bizarre effect that – if the UK and EU became embroiled in a trade dispute and the EU imposed such measures against the UK in retaliation – the UK authorities would then become obliged to levy these against itself at the Northern Irish border.

Exemptions

Article 5(6) of the Protocol gives the UK government the power to waive or reimburse the duties levied, including where it is demonstrated that the goods have not entered the single market. Unsurprisingly, the Command Paper indicates that the UK government intends to take full advantage of this provision in order to mitigate the effects on Northern Irish business (paragraph 27). However, it should be noted that the UK’s powers in this respect remain subject to EU state aid rules as preserved in Article 10 of the Protocol – so that to the extent that any waiver or similar was liable to give Northern Irish businesses a competitive advantage over their counterparts south of the border, Commission approval could in principle be required.

Enforcement

One area which the Command Paper does highlight is the individual right of challenge on the basis of any diminution of rights, safeguards or equality of opportunity under the Good Friday Agreement, resulting from the UK’s withdrawal from the EU (paragraph 43). However, individual rights under the Protocol in fact go rather further. Indeed, by virtue of section 7(A)(1) of the European Union (Withdrawal) Act 2018, all rights and obligations arising under the Protocol are made directly effective in UK law; hence, just as it has hitherto been possible to challenge a public body for failures to comply with EU law
in the domestic courts (notably by way of judicial review), any governmental breaches of the Protocol would appear to be actionable in the same way.

This individual right of challenge may well prove important going forward. For example , if an Irish producer found itself undercut by a Northern Ireland competitor who had benefited from having its purchases from the UK being classified as not “at risk” but was still managing to sell its goods into the EU market, the Irish company might then challenge the UK’s neglect of its obligations under the Protocol in the Northern Ireland courts. Indeed, individuals and businesses who fear or suffer loss as a result of any perceived failure to abide by the Protocol may have more appetite to challenge this domestically than the Commission will to take enforcement action at the supranational level (as permitted by Article 12(4)), given the political implications of doing so.

Where now?

The approach set out in the new Command Paper represents a step forward of sorts, and at least shows the Government is now engaging seriously with the question of how it will implement the Protocol in practical terms. However, even the document itself acknowledges that there is still a good deal of detail to work out, much of it subject to agreement with the EU via the Joint Committee, and it is not clear that the ‘light touch’ regime proposed, with no new physical infrastructure and heavy reliance on electronic checks, will be sufficient. As such, it is not surprising that the plans have received a cautious reception from the Irish government; but it may not be until after the transition period ends and the Protocol begins to bite in practical terms that the real cracks will emerge.