56.The in the aims to avoid the need for any customs or regulatory infrastructure related to trade in goods between Northern Ireland and Ireland. It does so by keeping the former bound by a wide range of EU legislation relating to goods, even while the rest of the UK is no longer under a legal obligation to follow EU rules in those areas following the end of the post-Brexit transition period on 31 December 2020.
57.The Protocol formally states that Northern Ireland is part of the UK’s customs territory and underlines the “importance of maintaining [its] place in the United Kingdom’s internal market”. However, in practice, it effectively keeps aligned with a range of EU laws related to the EU’s Customs Union and Single Market for goods. As of 1 January 2021, this has notably led to the application of regulatory formalities at entry points into Northern Ireland for goods coming in from Great Britain (and from other non-EU jurisdictions), such as food safety checks. Such trades now also require customs formalities, like import declarations, under the EU’s Customs Code. Generally speaking, these formalities were of course not applicable to trade between Northern Ireland and Great Britain trade previously.
58.The continued application of the EU Customs Code in Northern Ireland in certain cases also means the UK may have to collect EU tariffs on goods brought into Northern Ireland from outside the EU, including from Great Britain. This is the case where such duties would have been applicable under EU law if the goods had been brought directly into the EU Customs Union and they are deemed “at risk” of being moved into the EU from Northern Ireland. Goods are deemed to be ”at risk” unless they meet the criteria established for determining that they are “not at risk”. For example, when raw materials, like steel, are imported to be commercially processed into other products, they will be “at risk” unless an exemption is available. The aim is to stop businesses from avoiding paying EU customs duties by moving goods—or products manufactured in Northern Ireland with non-EU materials—across the land border with Ireland, which as noted will remain free of customs controls. In certain cases, this arrangement also creates a customs duty liability for domestic trade between Great Britain and Northern Ireland, with any revenue accruing to the UK Exchequer.
59.This element of the Protocol should also be seen in the context of the new UK/EU Trade & Cooperation Agreement (TCA). The amount of any EU duty payable on imports into Northern Ireland takes into account the EU’s preferential tariffs under relevant trade agreements. Because of the Protocol, the elements of the TCA relating to trade in goods essentially apply to Northern Ireland as if it were in the EU, not the UK. As that Agreement in principle provides for tariff-free trade in all goods between the UK and the EU, this is therefore also the case for goods moved into Northern Ireland from Great Britain under the Protocol. However, eligibility for tariff-free treatment under the TCA requires traders to demonstrate compliance with the Agreement’s “rules of origin” for the product in question. There are indications that doing so is sufficiently onerous that some businesses importing goods into Northern Ireland from Great Britain, like those importing British goods into the EU, are struggling to qualify for the tariff-free treatment foreseen by the TCA.
60.The substance of the UK/EU TCA therefore reduces, but does not remove, the possibility of EU tariffs being imposed on “at risk” goods shipped from Great Britain—and other non-EU countries—to Northern Ireland. This of course creates difficulties for Northern Ireland’s place within the UK internal market. In recognition of this, the Protocol contains a number of specific provisions to limit the circumstances in which EU tariffs would be payable on goods entering Northern Ireland from outside the European Union.
61.First, as noted, an EU customs duty liability under the Protocol only exists for goods which are “at risk of subsequently being moved into the [EU], whether by themselves or forming part of another good following processing”. Consequently, whether such a “risk” applies to a particular consignment entering Northern Ireland from outside the EU is made on the basis of two separate determinations:
62.These tests are independent, not cumulative. In other words, if a good is deemed to meet the conditions for only one of them, it will be formally “at risk” and therefore attract any payable EU tariff.
63.The Protocol empowers the Joint Committee established by the Withdrawal Agreement to set out detailed criteria for both “at risk” tests. In December 2020, the Government and EU struck an agreement on this matter, set out formally in . With respect to the “commercial processing test”, this Decision notably exempts goods brought in by small businesses and various consumer goods, as well as other goods brought into Northern Ireland for construction and healthcare, from being formally considered to be subject to “commercial processing” under the Protocol. All other goods moved into Northern Ireland from outside the EU are automatically deemed to be subject to such processing, meaning they are “at risk” under the Protocol and therefore attract the applicable EU tariff.
64.Goods brought into Northern Ireland from outside the EU which are exempt from the “commercial processing” test are still not automatically free from EU tariffs. As noted, they must also ‘pass’ the general “at risk” test. In this context, the UK and EU in the Joint Committee decided that goods are not at risk of being moved into the EU via Northern Ireland where they are brought in from Great Britain and there is no tariff applicable under the UK/EU TCA (which may require demonstrating compliance with rules of origin). Similarly, where they are imported from elsewhere in the world, they are not considered “at risk” if the applicable UK tariff is equal to, or higher than, the EU’s.
65.The Joint Committee also established a new ‘trusted trader’ scheme allowing UK businesses with a specific authorisation to that effect to bring certain products—mostly finished consumer goods—into Northern Ireland tariff-free that would otherwise be “at risk”, without having to prove any “rules of origin”. Businesses that want to make use of this optional “UK Trader Scheme” have to meet a number of requirements, notably a “high level of control of their operations and of the flow of goods” so that the authorities can evaluate what goods they are bringing into Northern Ireland. While authorisations for the scheme were issued on the basis of self-certification for the first two months of 2021, these will expire after four months. All traders wanting to make use of the scheme will therefore still , and from 1 March 2021 HM Revenue & Customs will need to monitor applications more closely.
66.The UK Trader Scheme has its limitations however. The scheme does not remove the “at risk” classification of most raw materials imported into Northern Ireland which are deemed to be likely “at risk” of commercial processing, which would therefore still face any applicable EU tariff. For goods brought into Northern Ireland from a non-EU country other than the UK, it can only be used where “the difference between the duty payable [under EU law] and the duty payable according to the customs tariff of the United Kingdom is lower than 3% of the customs value of the good”.
67.The Joint Committee Decision also makes special provision for goods subject to EU trade defence measures like anti-dumping duties. Such goods are wholly ineligible to be moved into Northern Ireland under the UK Trader Scheme. This means that goods subject to EU trade defence measures would almost always be liable for the EU tariff. The one exception is where such goods are brought into Northern Ireland from outside the EU and the UK, and the UK’s own tariff on the good in question was equal to or higher than the EU tariff. Where the EU maintains trade defence measures against specific goods from Great Britain, by definition the EU tariff would be higher than the UK tariff (which does not exist for intra-UK trade), and would therefore be “at risk”.
68.A specific issue has already arisen in relation to Northern Irish imports of steel in this regard. They are subject to EU safeguard tariffs to prevent dumping, with Tariff Rate Quotas (TRQs) establishing a permitted level of imports from third countries that can benefit from zero tariffs. However, EU law excludes imports to Northern Ireland from benefiting from the EU’s zero “in-quota” tariff under its TRQ for this product. As such imports into Northern Ireland from the UK and the rest of the world are “at risk” under the Protocol, they therefore attract a 25% EU tariff.
69.Goods moved into Northern Ireland from the rest of the UK which ‘pass’ both tests as set out above are formally deemed not “at risk” under the Protocol. These would not attract EU customs duties, even if they do not qualify for tariff-free treatment under the rules of origin in the UK/EU TCA. Moreover, even where ultimately the EU tariff does have to be paid on goods brought into Northern Ireland from outside the EU, including from Great Britain, the Protocol allows the UK Government to waive the cost to individual businesses, albeit only within the restrictions on subsidies to companies as set out in EU State aid law. This means that, typically, businesses could only receive a maximum waiver of €200,000 (£177,000) of payable tariffs over each three-year period unless the UK receives European Commission permission for a more generous arrangement. The Government has for businesses affected by the Protocol but its scope is, at present, limited (as it does not cover, for example, goods brought into Northern Ireland from outside the UK and EU). At this stage, it is unclear what proportion of goods sent to Northern Ireland will attract EU tariffs under the Protocol, and therefore the likelihood that companies may exceed the “de minimis” limit and have to pay any EU customs duty at their own expense.
70.More generally, while Joint Committee Decision 4/2020 requires the Government to submit information to the EU on the flow of goods into Northern Ireland under the Protocol on a monthly basis, it is unclear if this data—at least in aggregate form—will be made available for parliamentary and public scrutiny. Data collected by the Government could underpin a review of the Joint Committee Decision, subject to a formal request to that effect by either the UK or the EU by August 2023 because of concerns around “significant diversion of trade, or fraud or other illegal activities”. The launch of such a review would by default lead to termination of the ‘trusted trader’ scheme for businesses to bring goods into Northern Ireland free from EU tariffs from 1 August 2024, unless the two sides formally agree otherwise (whether or not the concerns that led to the review were addressed in a “mutually satisfactory” way). If no review is requested by August 2023, the trusted trader scheme will remain in place unless and until the Northern Ireland Assembly votes to end the provisions of the Protocol requiring alignment with EU law.
71.Because of the numerous uncertainties surrounding the application of EU tariffs to goods entering Northern Ireland from Great Britain and other non-EU jurisdictions, we to the Chancellor of the Duchy of Lancaster on 16 December 2020 with a number of questions. These concerned, notably, how the Government would seek to ensure that it would be more cost-effective for businesses to comply with the requirements of the UK Trader Scheme rather than incurring an EU tariff, reconcile the commitment it gave in its Command Paper on the Northern Ireland Protocol that EU tariffs would not generally be paid on internal UK trade with the obligation to pay EU tariffs on goods subject to EU trade defence measures (such as the EU’s steel safeguard measures), and, in the interests of transparency, publish the data collected by the Government on the proportion of trade from Great Britain to Northern Ireland that is subject to “at risk” EU tariffs, even if these are waived by the Government within EU State aid limits.
72.In his , dated 5 February 2021, the Minister reiterated that the Government believes a “very significant majority” of internal UK trade would remain free of tariffs under the Protocol, but refused to commit to transparency by publishing aggregate data on the proportion of goods shipped from Great Britain to Northern Ireland considered “at risk” and “not at risk” respectively. He added that over 1,500 businesses had applied for provisional authorisation under the UK Trader Scheme between 14 December and 5 February, but conceded that the reimbursement arrangements for businesses which have had to pay EU tariffs are not yet fully operational. In particular, the Government “will establish a reimbursement scheme for goods that attract a [EU] tariff, but which can subsequently be shown to have remained in the UK customs territory”, for cases where traders were unable to claim the duty waiver at the point of bringing the goods into Northern Ireland. He refers to the EU’s State aid “de minimis” ceilings, suggesting the Government is not considering asking for European Commission approval for a reimbursement scheme that would be more generous. The Minister also explained that, even if the review process under Joint Committee Decision 4/2020 resulted in the termination of the UK Trader Scheme, goods sent to Northern Ireland from Great Britain could still be deemed not “at risk” if they are not considered subject to commercial processing and they qualify for tariff-free treatment under the UK/EU TCA. That would, of course, require businesses to demonstrate compliance with the applicable rules of origin.
73.As such, there are still uncertainties around the nature and scope of the reimbursement scheme for any EU tariffs companies might have to pay to bring goods into Northern Ireland from Great Britain, and—given the Government’s apparent reluctance to publish data on the proportion of goods on that trade route that are “at risk” under Article 5—on the extent to which EU tariffs are, or may become, applicable to intra-UK trade while the Protocol is in effect.
74.In previous correspondence with us, Ministers had also implied that goods considered not “at risk” under the Protocol would also benefit from wider facilitations beyond the absence of being subject to any applicable EU customs duty.
75.A specific example would be the application of EU import VAT to goods entering Northern Ireland from Great Britain, which is administratively different to VAT on domestic transactions and a separate fiscal charge from customs duty. It must be applied to such goods because Article 8 of the Protocol requires Northern Ireland to continue applying EU VAT law “concerning goods”, which establishes such a requirement for goods entering the Single Market from non-EU countries. There is no explicit link between this obligation under Article 8 and the determination of whether a good is “at risk” under Article 5(2). Nevertheless, in September 2020, the Government that EU import VAT should also be waived for goods brought into Northern Ireland not “at risk” of ending up in the EU.
76.Similarly, in November 2020, the Department for International Trade that the question of which goods were “at risk” under Article 5(2) of the Protocol was “a policy under consideration by the […] Joint Committee, as part of work implementing [….] Article 5(1), 5(2), 5(3), 5(4) and Annex 2”. We recall that Articles 5(1) and 5(2) establish the principle that no EU tariffs are payable on goods entering Northern Ireland unless they are “at risk”, while Article 5(3) more broadly requires the application of EU customs rules in Northern Ireland, including when tariffs are payable. Those provisions therefore all relate to the question of when EU customs rules apply to goods entering Northern Ireland. Separately, Article 5(4) and Annex 2 of the Protocol apply specified EU legislation related to goods to Northern Ireland, but do not reference the “at risk” categorisation. These EU laws remain in effect in Northern Ireland, such as the on inspection of food, animals and plants entering the EU (and, therefore, Northern Ireland) from non-EU countries. The implication of the Government’s correspondence appeared to be that some of these formalities would also be waived for goods not “at risk”, although the Government has not, to our knowledge, stated so explicitly.
77.The Joint Committee Decision of December 2020 does not refer to any such wider derogations, and it is unclear if the Government is applying any unilaterally or seeking agreement for them within the Joint Committee.
78.The provisions of the Protocol relating to the potential applicability of EU tariffs on goods entering Northern Ireland, including from Great Britain, are complex, controversial and have given rise to various practical difficulties. These difficulties are also of great constitutional significance.
79.These issues include, in particular, the very restrictive definition of what goods are formally deemed “not at risk” of ending up in the EU Single Market as set out in Joint Committee Decision 4/2020, which means EU tariffs are now potentially applicable to an indeterminate number of imports into Northern Ireland from Great Britain, especially where the rules of origin of the new UK/EU Trade & Cooperation Agreement are not met. This is compounded by the lack of Northern Irish access to lower-duty imports under the EU’s Tariff Rate Quotas, (including for steel products), and the lack of a comprehensive UK Government duty waiver or reimbursement scheme for all types of imports into Northern Ireland which might face EU tariffs under the Protocol. We note that discussions are on-going between the Government and the European Commission to address the application of high EU tariffs to steel products entering Northern Ireland.
80.The Minister’s letter of 5 February 2021, in response to our initial consideration of Joint Committee Decision 4/2020, provided some additional information, but notably falls short with respect to the planned transparency—if any—of Government data on what proportion of goods moved from Great Britain into Northern Ireland will face EU tariffs under the Protocol (even if reimbursed).
81.Details are also still lacking about the Government’s precise plans to waive any applicable EU tariff for “at risk” goods under the Protocol. The existing waiver scheme is limited in scope. We note that the Government intends to create a “reimbursement scheme for goods that attract a [EU] tariff, but which can subsequently be shown to have remained in the UK customs territory”. Depending on the details of this scheme, this could potentially have wider relevance for the Protocol: if the Government can devise a robust way of determining that a good had not been moved into the EU via Northern Ireland, including by being transported across the land border with Ireland, in theory this could in the future inform negotiations between the UK and EU to reduce Northern Ireland’s level of alignment with EU rules. However, there are no details for this arrangement at present, and given the EU’s resistance to “alternative arrangements” in the past this is only ever likely to be a long-term solution to the tensions inherent in keeping the Irish land border free of customs infrastructure and the UK as a whole leaving the Single Market and Customs Union.
82.It is also unclear if the Government is still seeking further easements from the trade formalities now applicable to trade from Great Britain to Northern Ireland for goods not considered “at risk” of ending up in the EU under Joint Committee Decision 4/2020, as Ministers had implied at various points in 2020. We consider that there is a strong case for the Government to pursue the principle of so-called “mutual enforcement” in further negotiations with the EU to replace the provisions of the Protocol requiring continued regulatory alignment with EU law in Northern Ireland as discussed elsewhere.
83.In light of our assessment of the Joint Committee Decision and the wider relevance of the Protocol for the application of EU tariffs to goods entering Northern Ireland, we ask the Government the following questions.
84.What estimate has the Government made of the total amount of EU tariffs that are likely to be payable on “at risk” goods brought into Northern Ireland from Great Britain, and what proportion does it expect to waive or reimburse under Article 5(6) of the Protocol, for example on an annual basis?
85.Transparency of the proportion in which goods entering Northern Ireland are categorised under the Protocol as being “at risk” or not, and use of the new UK Trader Scheme, are crucial to Parliament and public understanding of the impact of the Protocol, not least on intra-UK trade. Can the Government commit to publication of the aggregate data on the proportion of goods deemed “at risk” and the amount of EU tariffs waived or reimbursed?
86.The Government has noted that “there are a number of options available to avoid paying any tariffs when moving goods into Northern Ireland from Great Britain”. What assessment has the Government made of the likely uptake of the UK Trader Scheme to avoid such tariffs, compared to the option of seeking tariff-free treatment of goods moved into Northern Ireland from Great Britain under the UK/EU Trade & Cooperation Agreement subject to rules of origin requirements?
87.HM Revenue & Customs current guidance on the duty waiver scheme for businesses which have to pay EU tariffs on “at risk” goods brought into Northern Ireland excludes goods imported from outside the EU or UK, and agricultural and fisheries products. Why are they not currently covered, and when does the Government envisage the duty waiver scheme will be available for these goods?
88.Does the Government envisage that it will need European Commission approval for any of its plans to fully implement Article 5(6) of the Protocol under State aid rules to the extent that they are applicable under Article 10 of the Protocol? In particular, is it planning any schemes that would allow businesses to seek waivers for EU customs duties under the Protocol in excess of the EU “de minimis” subsidy limit, if necessary?
89.What assessment has the Government made of the likelihood that larger companies in particular will breach the “de minimis” limit on their ability to seek a waiver on any EU customs duties incurred because of the Protocol, and the implications for prices of imported goods in Northern Ireland?
90.How does the Government envisage that its planned reimbursement scheme for goods that attract an EU tariff, but which “can subsequently be shown to have remained in the UK customs territory” will work in practice, in particular with respect to determining that a good had not crossed the border with Ireland?
91.Last year, the Government suggested that the question of whether goods were deemed “at risk” of being moved into the EU was also linked to other trade formalities under the Protocol, for example with respect to the need to apply import VAT. Is that still the Government’s position? If so, what other easements, derogations or exemptions in addition to not applying the EU customs tariff is the Government applying to goods not “at risk”, or discussing with the EU via the Joint Committee?
16 Recitals and Article 4 of the Protocol
17 The Protocol does not cover trade in services, where the UK – including the devolved authorities – are now free to regulate without being constrained by EU law.
18 There are also a more limited number of formalities that will need to be applied to goods sent from Northern Ireland to non-EU destinations, including Great Britain. We explore this in more detail in section 8 of this Report on exit formalities under the Protocol.
19 In particular, as the Government , while the UK was still an EU Member State, “North-South cooperation on agriculture […] enabled the island of Ireland to be treated in policy and operational terms as a single epidemiological unit for the purposes of animal health and welfare”.
20 The Protocol allocates responsibility for “implementing and applying the provisions of [EU] law made applicable by this Protocol” to the UK itself. As such, ensuring compliance with the Customs Code at Northern Irish ports and collection of any customs duties, subject to the exemptions foreseen by Article 5, is the responsibility of HM Revenue & Customs, subject to oversight by European Commission officials. Any revenue from import duty raised from goods entering Northern Ireland also accrues only to the UK Exchequer. Under Article 12(4) of the Protocol, the UK remains subject to potential infringement procedures before the EU Court of Justice for incorrect application of EU law as it applies under the Protocol.
21 Conversely, no customs duties will be payable on any goods moved from the EU into Northern Ireland or vice versa.
22 In autumn 2020, the Government implied that it would seek powers under UK domestic law to unilaterally dis-apply any requirements under the Protocol to charge customs duties on intra-UK if the EU “insist[ed] that GB-NI tariffs […] should be charged in ways that are not related to the real risk of goods entering the EU single market”. Ultimately, Ministers did not seek a statutory power to unilaterally dis-apply this aspect of the Protocol.
23 Similarly, the applicable customs duties would take into account the EU’s unilateral tariff reductions or waivers for developing countries under its “Generalised System of Preferences” (GSP).
24 Northern Ireland Affairs Committee, Oral evidence: , HC 767 (6 January 2021)
25 Goods brought into Northern Ireland for further processing would not automatically be at risk if they are a) brought in by small traders whose annual turnover is £500,000 or less or b) were imported for the “sole purpose” of sale of food to end-consumers; the construction of buildings in Northern Ireland; direct provision of health or care services to people in Northern Ireland by the importer; not-for-profit activities in Northern Ireland; the production of animal feed for final use on premises located in Northern Ireland.
26 Goods that are subject to further processing and not specifically exempted (see above) are formally “at risk” and therefore not eligible to be brought into Northern Ireland free from any applicable EU tariff under the UK Trader Scheme.
27 Tariff Rate Quotas (TRQs) allow certain quantities of a good to be imported into the EU at a lower or zero tariff, with any excess imports above the quota incurring a higher customs duty. It is used, for example, as a safeguard measure to onto the EU market after the US introduced restrictions on steel imports in 2018.
28 In December 2020, the EU passed legislation to make it explicit that EU tariff rate quotas should only be available for goods that clear customs in one of the 27 Member States, but not Northern Ireland. In essence, to protect the EU’s Single Market, this law means the higher EU tariff for TRQ goods will always be applicable to such goods brought into Northern Ireland where they are considered “at risk” of ending up in the EU under the Protocol (see above).
29 EU State aid rules will continue to apply in the UK under the Northern Ireland Protocol, subject to certain limitations. This is explored further in section 7 of this Report.
30 This “de minimis” limit also covers other government subsidies that a company may be in receipt of.
31 The waiver scheme currently does not cover EU tariffs on goods brought into Northern Ireland from outside the UK or EU, and it does not cover primary agricultural and fishery products.
32 Article 8 of Joint Committee Decision 4/2020.
33 In his reply, the Minister notes only that neither the Protocol nor Joint Committee Decision 4/2020 require publication of this data.
34 In its on the “notwithstanding” clauses of the Internal Market Bill, which would have allowed the Government to unilaterally dis-apply parts of the Protocol under domestic law, the Government said that it would consider using these powers if the EU “insiste[d] that GB-NI tariffs and related provision such as import VAT should be charged in ways that are not related to the real risk of goods entering the EU single market” (emphasis added). In November 2020, the Treasury conflated the issue of EU tariffs and import VAT under the Protocol in a on the import of Covid-related medical goods, but without explicitly stating that goods not “at risk” would not be subject to EU import VAT rules.
35 The European Commission did , in early February 2021, that the UK was not properly applying the “official controls” on animals, plants and food products entering Northern Ireland from Great Britain as mandated by EU law under the Protocol.
36 See, in particular, the principle as expounded by Sir Jonathan Faull KCMG (former Director-General at the European Commission) in Joseph H.H. Weiler, Daniel Sarmiento and Jonathan Faull, (Verfassungsblog: On matters constitutional) 22 August 2019. See also Centre for Brexit Policy, (February 2021)