This blog post, written by Brendan McGurk of Monckton Chambers, is the second 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 Part explores the issues surrounding imports and exports between Northern Ireland and the UK, as well as the EU Committee’s assessment of how the Northern Ireland Protocol will operate, in particular in light of the UK Government proposals as to the implementation of the Protocol.
Movements of goods between Northern Ireland and the UK
Notwithstanding that Article 4 treats Northern Ireland as part of the UK customs territory, indicating that movements of goods between Northern Ireland and Great Britain will not be subject to any internal tariffs (unless they are to be moved into the EU), there will have to be customs checks on such movements for two reasons.
First, in relation to goods moving from west to east, and as noted in Part I, Article 5(1) of the NI Protocol provides that:
“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.”
Given the width of the concept of processing (as defined in Article 5(2) of the NI Protocol), a potentially very large category of goods coming from the UK might be said to be “at risk” of being moved into the Union. One solution suggested in the UK Government’s Command Paper is the introduction of a list of categories of goods that will benefit from a presumption (potentially arising through a system of certification) that they are for ‘internal UK trade’ only, such as to remove them from the “at risk” category. This would include goods destined for “dead-end hosts” such as Northern Irish supermarkets, most obviously in relation to just-in-time supplies such as perishables. The House of Lords EU Committee was, however, critical of the degree of detail set out in the Command Paper, noting (at [111]) that:
“The Government’s explanation of how such exemptions would work in practice is imprecise. It commits to providing full guidance before the end of the transition period, but time is running out and businesses will need certainty well before 1 January 2021 if they are to make adequate preparations.”
Goods moving from east to west may also have to undergo customs checks since goods arriving from the EU via Northern Ireland will be subject to the tariffs agreed further to any UK-EU trade deal. In addition, exit summary declarations will be required, albeit not, the Government has indicated, if the goods are Northern Irish goods. That again raises the question of how to distinguish between Northern Irish goods on the one hand from Irish and EU goods on the other where the obligation to submit exit summary declarations will only bite in relation to the latter. This is another area within the protocol where the tension in the customs’ status of Northern Ireland (this time between Articles 5 and 6 (the latter of which seeks to guarantee unfettered market access for goods moving from Northern Ireland to the rest of the UK)) is most stark.
Second, Article 5(4) of the NI Protocol which – as a result of the application of a host of EU Regulations relating to goods – creates a single regulatory zone for goods on the island of Ireland. That raises the prospect of regulatory divergence in relation to goods produced on the Island of Ireland and goods produced in Great Britain. As a result of that divergence, there may need to be further checks on goods moving in either direction for the purposes of ensuring regulatory compliance.
The EU Committee’s assessment
In light of the above and matters discussed in Part I, and as recognised in the Report, there is real and legitimate uncertainty amongst Northern Irish businesses, particularly insofar as 56% of all of Northern Ireland’s external trade is with Great Britain. Delay through additional customs checks puts just-in-time supply chains at risk and increases costs. If there is a risk of margins being eroded as a result of those costs, investments may be made elsewhere. As discussed in another post on this forum, the Government’s Command Paper on the implementation of the NI Protocol did not make many inroads to this uncertainty. Beyond the introduction of electronic import declaration requirements, the broad proposal in relation to goods being imported into Northern Ireland is twofold. First, retail goods would not be inspected at ports of entry (such that they would not need any additional infrastructure) but would be subject to in-land regulatory checks “through market surveillance authorities at business premises or on the market.” Second, more intensive checks would be required for sanitary and phytosanitary (“SPS”) checks, which the government has acknowledged will require infrastructure expansion at ports of entry.
The Report points out the significant gaps in the Government’s proposals in the Command Paper and observes the evident burden that now falls on the Joint Committee established under the Withdrawal Agreement to put in place practical arrangements that will mitigate the risks described above. It observed (at 91):
“unless the Joint Committee is able to take a flexible approach as regards the definitions of goods at risk and processing, the checks and processes on goods moving from Great Britain to Northern Ireland under Article 5 could have a serious detrimental impact upon the Northern Ireland economy. There is a real danger that businesses based in Great Britain could conclude that it is economically unviable to continue to operate in Northern Ireland, leading in turn to reduced choice and higher costs for Northern Ireland consumers, thus undermining Northern Ireland’s economic model, its future prosperity and, potentially, its political stability….”
Ultimately, though, responsibility lies with the UK Government to protect Northern Irish businesses who were sold this alternative to the backstop on the basis of a promise of effectively seamless NI-UK trade (the Tayto crisp factory declaration). The reality, six months out, looks rather different. The Report thus states:
“Even before the COVID-19 outbreak, Northern Ireland stakeholders described preparing for the Protocol to become operational on 1 January 2021 as a Herculean task. That task has become even more difficult, given the impact of COVID-19 on the economy and the capacity of individual businesses to cope with the problems confronting them. Given its refusal to countenance an extension to the transition period, the Government must urgently explain to Northern Ireland stakeholders the practical steps that will be taken to ensure the Protocol is operational from 1 January 2021…”
Looking ahead
If there is to be no extension to the transition period, and if a comprehensive UK-EU trade deal does not materialise, the NI Protocol will become operational on 1 January 2021. Given the degree of detail that is still needed to provide certainty on how it will be applied, one suspects that political imperatives will, at least in the short term, drive the interpretation and application of the Protocol in practice. On the one hand, the UK Government will feel compelled to make good its commitment to seamless trade between Northern Ireland and the rest of the UK. On the other hand, the EU will be constrained in any pursuit of the strict enforcement of Article 5, lest it be seen to be imperilling prosperity and peace in Northern Ireland.
It seems highly likely that the UK Government will avail of those mechanisms in the NI Protocol which will offer Northern Irish business the greatest mitigation against uncertainty and financial hardship. That will include (i) exercising a liberal discretion over the extent to which checks and risk assessments are conducted on UK-NI movements; and (ii) taking advantage of Article 5(6) which provides scope for the UK to reimburse duties on goods brought into Northern Ireland; waive customs debts in respect of goods brought into Northern Ireland; provide for the circumstances under which customs duties are reimbursed on goods “shown not to have entered the Union”; and to “compensate undertakings to offset” the application of these provisions.
There is already more than a hint of this in the Command Paper on the implementation of the NI Protocol where the Government has indicated it would make “full use” of the provisions for reimbursement where goods were deemed to be at risk, in order to ensure that “trade flows freely”. By the same token, it may be difficult for the EU to monitor strict compliance with these provisions even if there were a political will to do so. Article 12(1) of the NI Protocol provides that UK authorities shall be responsible for implementing and applying EU law applicable to Northern Ireland under the Protocol. Nevertheless, Article 12(2) states that EU representatives will have a right to be present at “any activities of the United Kingdom related to the implementation and application of provisions of Union law made applicable” by the Protocol, as well as activities related to the implementation and application of Article 5, on customs and movement of goods. The UK is required to facilitate such presence, and, upon request, carry out control measures in individual cases for duly stated reasons. That provides the EU with broad supervisory powers in relation to the implementation of the Protocol by UK officials (at least on the Northern Irish side of the Irish Sea: there is uncertainty as to whether the Protocol entitles the EU to undertake any supervision of the treatment of Northern Irish goods at UK ports).
The lack of trust between the two sides has been reflected in the spat over whether the EU should be permitted to open an office in Belfast, from which it can exercise its supervisory role. The UK has flatly refused this request, stating that “such [supervisory] work can be undertaken by other means, for example through ad hoc visits, which we would of course facilitate as necessary.” That indicates a firm intention on the part of the UK Government to keep the EU’s involvement to a strict minimum.
Supervision of the UK’s compliance with the NI Protocol might therefore default to enforcement by litigation and ultimately infraction. If Northern Irish businesses feel that they are losing out through the application of the Protocol, they will be able to notify the Commission, but also take legal action in the Northern Irish Courts. As to the former, the Commission can still exercise enforcement powers in relation to the application of EU law, via the Protocol, in Northern Ireland. Ordinary individuals and businesses will likely, as ever, be the eyes and the ears of the Commission for these purposes. As to the latter, the Protocol confers full jurisdiction on the CJEU to oversee the operation of EU law applying to Northern Ireland in relation to customs and technical regulations (along with all other areas of EU law that will continue to be applicable in Northern Ireland after 1 January 2021). Preliminary references will therefore continue to be made by the High Court in Belfast (and the UK will have the right to participate in any litigation before the CJEU). But litigation and infraction proceedings take time. It is likely, in the interim, that a politically expedient approach to the interpretation of the Protocol will be sufficiently business-friendly to ensure that the worst of the existing (and any remaining) uncertainty might be mitigated in favour of Northern Irish goods. In that way, Northern Irish business might yet find a route through.
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