The Northern Ireland Protocol: Between the Devil and the Deep Blue Sea (Part I)

This blog post, written by Brendan McGurk of Monckton Chambers, is the first in a two-part series examining issues in relation to the movement of goods into and out of Northern Ireland following the UK’s withdrawal from the EU. This first part explores the provisions of the Northern Ireland Protocol and the issues surrounding imports and exports between Northern Ireland and (i) Third Countries and (ii) the EU respectively.

The legal arrangements proposed from time to time in relation to the movement of goods into and out of Northern Ireland following the UK’s withdrawal from the EU have been driven by the same goal: to avoid a hard border between Ireland and Northern Ireland, where such a border would entail “any physical infrastructure or related checks and controls” (see the EU and UK Joint Report of 8 December 2017). That goal in turn reflects the obligation to protect the Belfast Agreement of 1998. The initial iteration of these arrangements involved the Northern Irish backstop (which was attached as a protocol to the November 2018 version of the Withdrawal Agreement), whereby the UK and the EU would remain part of a single customs territory until such time as a UK-EU agreement that avoided a hard border came into force. Having been rejected by Parliament on multiple occasions, the UK and EU negotiated the new Protocol on Ireland / Northern Ireland (“the NI Protocol”) which was published in October 2019.

 In that document, the single customs territory (and thus the backstop) was replaced by new Articles 4 and 5. However, and has been pointed out previously on this forum, there is an evident contradiction at the heart of the NI Protocol as a result of those two Articles. That contradiction is the central focus of the House of Lords EU Committee’s recent report of 1 June 2020 (“the Report”) which provides a detailed guide to the Northern Ireland Protocol. In that connection, the Report notes:

“Article 4 states that Northern Ireland is part of the customs territory of the UK, and is reinforced by Article 6, which states that nothing in the Protocol “shall prevent the United Kingdom from ensuring unfettered market access for goods moving from Northern Ireland to other parts of the United Kingdom’s internal market”. But these are off-set by Article 5, which applies the entirety of EU customs legislation, including the Union Customs Code, to Northern Ireland.”

The NI Protocol is (save for a small number of provisions that are in force already) set to apply as from the end of the transition period, i.e. 31 December 2020, unless a comprehensive UK-EU Trade Agreement can be reached before then (where the ideal for Northern Irish business would be a zero-tariff deal that replicates existing EU tariffs and regulatory requirements and which would obviate many of the issues that will otherwise arise under the NI Protocol in the absence of customs and regulatory alignment). The UK-EU Withdrawal Agreement of 2019 makes clear that if the transition period is not extended before 1 July 2020, it is not capable of being extended (as discussed here, although there may be a Treaty-basis for such an extension outside the fixed mechanisms in the Withdrawal Agreement, as discussed here). It has been reported that the Government is set to inform the EU that it is not going to seek an extension under the Withdrawal Agreement. The need for a comprehensive free trade deal to be reached is now pressing, absent which there may be a very serious cost to Northern Irish business given the uncertainty that has been baked into the NI Protocol as a result of pushing the border to the Irish Sea.

This two-part blog post examines the Report’s more detailed consideration of this compromise and what might be required to resolve those tensions if the NI Protocol takes effect on 1 January 2021.

Background

Article 4 of the Protocol provides that “Northern Ireland is part of the customs territory of the United Kingdom”. That means that Northern Ireland will be included within the territorial scope of any trade agreements the UK might enter into with third countries. In that event, Northern Irish goods will be treated as UK goods and be subject to any tariffs agreed as between the UK and third countries in respect of those goods.

However, Article 4 must be read in conjunction with Article 5(3), which states that the EU legislation set out in Article 5(2) of Regulation 952/2013 “shall apply to and in the United Kingdom in respect of Northern Ireland (not including the territorial waters of the United Kingdom)”. That, in essence, encompasses almost the entirety of the EU’s customs legislation (with some exceptions for fishery and aquaculture products), including the Union Customs Code (which defines the legal framework for customs rules and procedures in the EU) and the Common Customs Tariff (“CCT”) (which seeks to ensure that goods imported into the EU from third countries are classified and taxed in the same way, irrespective of where they enter the EU).

The CCT was established under Council Regulation (EEC) 2658/1987, Article 1 of which establishes the Combined Nomenclature (“CN”). The CN provides a taxonomy system of goods according to an eight-digit numerical system under which goods can be classified. Each sub-heading defines the level of customs duties to which that product classification is subject. Annex I to the Regulation is updated and published annually as a stand-alone Regulation, changing the content of the CN to reflect any changes to the text which have been made. Those changes take into account developments in the EU’s commercial policy as well as technological and statistical requirements. They also reflect policy changes that have been agreed by the EU at an international level, either within the World Customs Organization (“WCO”) or within the World Trade Organization’s (“WTO”) framework with regard to conventional duty rates.

Imports and exports between Northern Ireland and Third Countries

The importation of goods from third countries (including Great Britain) into Northern Ireland therefore raises the question of whether those goods are either destined for the EU single market (which they will also be if, as provided in Article 5(1) of the NI Protocol they are at risk of subsequently being moved into the Union, whether by themselves or forming part of another good following processing, in which case the CCT will have to be applied at the Northern Irish port of entry (which for these purposes operates as the external EU border)) or are destined for the UK (in which case, they will be subject to the tariff sought to be independently imposed on those goods by the UK as a non-EU state).

That raises the question of how border officials in Northern Ireland are to determine whether goods from third countries are to be treated as destined for the UK market as opposed to the EU single market (and vice versa), which will require further guidance to be provided by the Joint Committee established under the Withdrawal Agreement on when it might be said that goods are “at risk” of being moved into the Union. However, the purpose of Article 5 is clear: it seeks to address the risk that Northern Ireland will become an open back door into the EU Single Market, leading to a substantial increase in the volume of goods from Great Britain or non-EU third countries passing through Northern Ireland and into Ireland. This perceived risk may have grown on 19 May 2020 when the Government published its proposed WTO schedules. These showed that many UK tariffs would be lower—though often only fractionally lower—than their EU equivalents.

By the same token, the export of goods from Northern Ireland to third countries outside the EU will raise the same question for border officials in those countries, namely, are these goods Northern Irish goods (such that they might take advantage of any lower tariff agreed between the UK and that country for those goods) or are they really goods coming from the EU (in which case, they may be subject to higher tariffs applicable in that country in relation to the import of such goods from the EU). And so a potential downside arising from the sui generis position of Northern Irish goods is the risk that they will be subject to more rigorous inspection by border officials in third countries insofar as they will have to ascertain whether they are genuinely Northern Irish goods such as to avail of any lower tariffs agreed with the UK, or EU goods such that they will be subject to the tariffs that that country has separately agreed with the EU.

Moreover, and as will be discussed in Part II, exit summary declarations may well be required in respect of goods that are EU goods being exported from the EU to third countries, but that again presupposes that some prior system is put in place to be able to distinguish Northern Irish goods from Irish/EU goods at the point of export.

Imports and exports between Northern Ireland and the EU

The position in relation to imports and exports between the Northern Ireland and the EU is rather different. Article 5(5) of the NI Protocol provides that: “Articles 30 and 110 TFEU shall apply to and in the United Kingdom in respect of Northern Ireland. Quantitative restrictions on exports and imports shall be prohibited between the Union and Northern Ireland.” Article 30 of the TFEU provides that customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States. It also makes clear that the prohibition also applies to customs duties of a fiscal nature. Article 110(1) TFEU prohibits Member States from imposing, directly or indirectly, any internal taxation on the products of another Member State, in excess of that imposed directly or indirectly on similar domestic products. That is, in essence, a prohibition on discriminatory taxation of imports as compared with comparable goods produced on the market of the importing Member State. Article 110(2) TFEU provides that no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products. That provision is designed to prevent Member States from imposing higher taxes on imported products which, whilst not technically similar, are in competition with domestic products so as to afford protection to the latter.

It follows that in relation to trade to and from the EU, Article 5(5) of the Protocol reflects the logic of treating Northern Ireland as a part of the EU for customs purposes. Unlike the position in relation to movements to or from third countries where the Northern Irish border will continue to be treated as part of the external EU border, there will be no third country border in relation to movements directly between Northern Ireland and the EU. That is one of the dividends for Northern Irish goods and one which arises from the fact that Northern Ireland continues to be treated as part of the EU’s Customs Union.  It will not be necessary, therefore, to seek to determine whether goods being exported from Northern Ireland to the EU are goods from Ireland or goods from Northern Ireland (a distinction which is only relevant in relation to movements to third countries including Great Britain). Northern Irish business will therefore continue to benefit from tariff-free trade in respect of intra-EU movements.

In addition, Article 7(1) of the protocol provides that the lawfulness of placing goods on the market in Northern Ireland shall be governed by the law of the United Kingdom as well as, as regards goods imported from the Union, by Articles 34 and 36 TFEU. Therefore, imports from the EU into Northern Ireland cannot be subject to any quantitative restrictions or measures having equivalent effect, subject to the standard list of Article 36 TFEU derogations permitting such restrictions in limited but familiar circumstances. The equivalent prohibition of quantitative restrictions on exports to other Member States under Article 35 TFEU was not included in the NI Protocol. However, it is hard to see the UK Government seeking to constrain Northern Irish businesses from exporting to EU markets to any extent.

In relation to direct NI-EU, EU-NI movements, a further dividend of the Protocol would appear to be that Northern Irish goods may get something of the best of both worlds. On the one hand, a certain category of goods may, when exported from Northern Ireland to a third country, obtain the benefit of any lower tariffs that the UK has agreed as compared with  those that would have applied had they been exported on the basis of an equivalent EU treaty with that third country. But those same goods will also benefit from tariff-free movement within the EU. That may give some Northern Irish exporters a marginal benefit compared with the situation that maintains at the moment. Whether it will off-set the additional burdens to which Northern Irish goods may be subject at third country borders remains to be seen.

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