61.The Northern Ireland Protocol did not explicitly guarantee unfettered access for goods moving from Great Britain to Northern Ireland in the same way that it did for goods moving in the opposite direction. However, Article 6(2) stated:
Having regard to Northern Ireland’s integral place in the United Kingdom’s internal market, the Union and the United Kingdom shall use their best endeavours to facilitate the trade between Northern Ireland and other parts of the United Kingdom, in accordance with applicable legislation and taking into account their respective regulatory regimes as well as the implementation thereof. The Joint Committee shall keep the application of this paragraph under constant review and shall adopt appropriate recommendations with a view to avoiding controls at the ports and airports of Northern Ireland to the extent possible.
Functional internal markets are predicated on businesses and consumers having equally unrestricted access to a marketplace where all participants buy and sell on equal terms. Witnesses repeatedly emphasised the importance of the movement of goods from Great Britain to Northern Ireland to Northern Ireland’s economy. The Northern Ireland Business Brexit Working Group told us that “unfettered access is not just about one-way movement,” noting that Northern Ireland is part of complex supply chains that cross the Irish Sea in both directions. The Freight Transport Association reported that in 2019 a total of 425,166 roll-on/roll-off freight movements were recorded entering Northern Ireland ports from Great Britain.
62.Contributors to the inquiry told us that the Protocol could potentially create significant compliance costs for businesses moving goods from Great Britain to Northern Ireland. The Government’s own analysis identified additional costs associated with east-west movements. The Impact Assessment accompanying the European Union (Withdrawal Agreement) Act 2020 estimated that the cost of declarations for such movements ranges from £15 to £56. In addition, the Command Paper confirmed that agri-food goods will be subject to additional checks on entry into Northern Ireland and that certain goods will require export health certificates and phytosanitary certificates. Aodhán Connolly of the Northern Ireland Retail Consortium told us that the current cost of an export health certificate is approximately £200. The Federation of Small Businesses told us that the various requirements “would add significant cost to small businesses.”
63.Some goods entering Northern Ireland from Great Britain may be subject to tariffs under the Protocol, if the UK and the EU do not negotiate tariff-free access for UK goods to the EU market. The Protocol gave the UK limited powers to reimburse or waive tariffs, but some firms may face additional costs (see paragraph 83). The Ulster Farmers’ Union stated that tariffs “would be a big issue,” because of the associated costs for consumers and the effect on competitiveness.
64.The effect of tariffs would be mitigated by a Free Trade Agreement between the UK and the EU. Angela McGowan of CBI Northern Ireland told us that “a zero-tariff trade deal…would ease things a lot.” Aodhán Connolly told us that at present 70 per cent of goods brought into Northern Ireland did so under zero-tariff or preferential tariff arrangements as a result of EU membership. He concluded that Free Trade Agreements to replace the current arrangements were needed “very quickly.” The Government stated that it will pursue a zero-tariff, zero-quota trade deal with the EU. However, the Chancellor of the Duchy of Lancaster told the Lords EU Committee that the UK might compromise on this objective in order to avoid signing up to level playing field commitments as part of the future relationship.
65.Businesses warned that the costs of compliance and of tariffs would place Northern Ireland at a competitive disadvantage with other parts of the UK. The Northern Ireland Business Brexit Working Group told us that this could result in some of its members losing business:
If it is easier to do business in Scotland or Ireland because of potential new burdens in Northern Ireland, they will do that. It is a matter of simple equations. If there are new costs in terms of tariffs, paperwork or staff hours, and if costs exceed the product margin, then the product or business model becomes unviable. Supply chains will always take the path of least resistance and businesses seek to reduce unnecessary uncertainties and risks.
66.We asked the Chancellor of the Duchy of Lancaster whether the Government would offer financial support to businesses to reflect any additional costs brought about by the need to comply with the Protocol, such as completing new declarations or setting up new hardware or software. He referred to a “generous package of support for businesses” and said that the Government was engaging with businesses to understand what support would be required, but he did not specify which costs would be covered. Such support would be required from 1 January, leaving limited time for any such scheme to be established. In providing such support, the Government will need to be mindful of state aid limits applying under Article 10 of the Protocol.
67.The Command Paper acknowledged that under the Protocol “UK authorities apply EU customs rules to goods entering Northern Ireland.” That means:
some new administrative process for traders, notably new electronic import declaration requirements, and safety and security information, for goods entering Northern Ireland from the rest of the UK. These are needed to make sure that tariffs are not paid on trade within the UK and that goods going to Ireland pay tariffs when they should.
The paper stated that those processes will be “electronic … streamlined and simplified to the maximum extent,” thereby avoiding the need for checks and new customs infrastructure at points of entry into Northern Ireland. However, the Government acknowledged that the situation is different for agri-food goods and that “some checks will be needed, supported by relevant electronic processes, in line with the island of Ireland’s existing status as a Single Epidemiological Unit.” Consequently, expanded infrastructure will be required at ports where checks are already carried out to handle increased volumes of checks.
68.Some elements of the approach outlined in the Command Paper will be at the discretion of the UK Government. The paper guaranteed “no export declaration, exit declarations, or customs and regulatory clearance for any goods as they leave the rest of the UK for Northern Ireland.” The paper noted that under the Protocol, UK authorities are responsible for the application of customs rules and can “exercise discretion, including with regard to the risk assessment of goods.” The Government argued that the UK can use that discretion to minimise checks:
It should be noted, for example, that the UK currently checks only 4% of third country movements notified through customs declarations, with under 1% involving physical fiscal checks of the consignments, and clearly goods from the rest of the UK will not present a similar level of risk to third country movements.
69.Other elements of the approach laid out in the Command Paper will require co-operation or agreement by the EU. On agri-food, the paper noted:
the process by which controls are conducted, and their frequency—including the level of physical checks required—will need to be discussed with the EU in the Withdrawal Agreement Joint Committee, within the context of the provision in the Protocol that both parties must use their “best endeavours” to avoid controls at Northern Ireland ports as far as possible, and adopt recommendations in the Committee accordingly. We will actively seek to simplify and minimise electronic documentary requirements for this trade.
The Government is also seeking to agree with the EU a principle that tariffs should not be levied on ‘internal UK trade’ and mechanisms for putting this into practice.
70.It is not clear what degree of agreement the Government believes that it needs from the EU in order to put into practice the approach set out in the Command Paper. The paper did not state whether the Government will be seeking customs facilitations allowed for under the Union Customs Code, such as deferred accounting or simplified declarations, or whether it will be seeking bespoke arrangements. Nor is it clear whether the EU would agree to any such requests. As we noted in Chapter 2 [see paragraph 33], the EU Commission has repeatedly stated its position that the Protocol cannot be renegotiated by the Withdrawal Agreement Joint Committee (WAJC). The scope of what the EU’s representatives on the WAJC may agree to is also limited by EU law, and so any decisions proposed by the Government will need to be decisions that the WAJC is empowered to make.
71.The Protocol recognised Northern Ireland’s integral place in the UK’s internal market. That recognition should mean that businesses and consumers in Northern Ireland can buy as freely from Great Britain as they can sell into it. The Command Paper confirmed that that will not be the case. Movements of goods from Great Britain to Northern Ireland will be subject to new administrative requirements, with associated costs. In this respect, Northern Ireland businesses will trade at a competitive disadvantage with other UK firms, and consumers in Northern Ireland are likely to see increased prices and reduced choice as a result. The net effect of those changes will create an imbalance in the UK internal market that may have wider implications for the Union.
72.The Government must deposit in the Libraries of both Houses of Parliament quarterly reports for the first two years after the introduction of the new arrangements, and annual reports thereafter, on the effect of the new customs regime on (a) investment and (b) business competitiveness in Northern Ireland.
73.The Government must commit to covering the costs to businesses of complying with the Protocol, such as the cost of completing new declarations and the cost of new hardware and software, to prevent any disincentive to trade between Northern Ireland and the rest of the UK. In providing such support, the Government will need to consider the effect of the provision of such support on compliance with Article 10 of the Protocol concerning state aid.
74.The Command Paper correctly prioritised minimising administration associated with moving goods from Great Britain to Northern Ireland. However, elements of the Government’s approach rely on agreement and co-operation by the EU, and the Command Paper does not specify what form such agreement and co-operation might take and what specific decisions the Joint Committee will need to take to implement that approach.
75.The Government must set out the decisions that it believes must be taken by the Withdrawal Agreement Joint Committee to implement the Protocol in the way outlined in its Command Paper. It must clarify which of the facilitations allowed under the Union Customs Code the Government would seek to employ, and whether it will seek any additional facilitations.
76.Following the publication of the Command Paper, the Government began to inform businesses of the processes by which they will be asked to comply with the Union Customs Code when moving goods across the Irish Sea into Northern Ireland. HMRC has begun to contact traders and inform them of how the new process for making customs declarations will work from 1 January 2021. Goods intended to be moved from Great Britain to Northern Ireland will require a declaration to be ‘pre-lodged’ before shipping across the Irish Sea. Declarations will be made using the new Goods Vehicle Movement Service (GVMS) IT platform developed by HM Revenue and Customs. Each vehicle will have a Goods Movement Reference (GMR) to provide HMRC with data about what is being carried, including detail required for making any necessary customs declarations. The GMR will be checked at the port of departure from Great Britain. If the GMR is invalid—for example, because data is missing—then the vehicle will not be allowed to board. Once all vehicles are onboard, the data for their cargo is uploaded to HMRC, where it can be analysed and assessed for risk during passage across the Irish Sea. Carriers will then be notified by HMRC of whether further checks are required on arrival. If no checks are required, vehicles will be able to continue to their destinations.
77.It is unclear what information will be required for a GMR to be considered valid and to be granted permission to board. It is also unclear whether that information will be equivalent to the information required for imports under the Union Customs Code. In addition, we do not know whether the declarations will be digital or whether paperwork will be required.
78.Animal and plant products will be subject to further Sanitary and Phytosanitary (SPS) checks, as acknowledged in the Command Paper. These will be required to move through a designated Border Control Post (BCP), which must be approved by the EU. The Command Paper stated that the Government will, at a minimum, designate Larne port as an entry point for live animals, because Larne is already a point of entry for livestock, and request designations for additional categories of goods at Belfast port. Animal and plant products will also require documentation. Animal products will require export health certificates, and plant products will require phytosanitary certificates. However, the Chancellor of the Duchy of Lancaster told us that the requirement for phytosanitary certificates would “depend on the nature of the product.” Further declarations may be required, such as certificates of origin to determine the point of origin of the goods. That might be necessary to, for example, determine whether a good would qualify for preferential tariff rates under a future UK-EU trade agreement. The Chancellor of the Duchy of Lancaster was unable to confirm whether certificates of origin would be required for goods moving from Great Britain to Northern Ireland under the Protocol.
79.The Government must clarify by 1 October 2020 under what circumstances, if any, movements of goods from Great Britain to Northern Ireland will be subject to customs or regulatory checks. Specifically, the Government must confirm the circumstances under which the following would be required:
80.Under Article 5 of the Protocol, goods entering Northern Ireland that are subject to processing or that are deemed to be ‘at risk’ of entering the EU Single Market via the Irish border will be subject to EU tariffs. This creates the possibility that goods entering Northern Ireland from Great Britain may be subject to tariffs, with the increase in the cost of bringing goods into Northern Ireland potentially being passed on to consumers. A study by the UK Trade Policy Observatory estimated that 64 per cent of goods travelling from Great Britain to Northern Ireland would face tariffs under the Protocol. That risk would be mitigated if the UK and the EU were to agree a future relationship that enabled tariff-free trade, which is the Government’s stated ambition. The Command Paper stated that tariffs should not be levied on internal UK trade and that the Government will seek agreement for that approach in the WAJC. In the absence of such an agreement, however, the default situation would be tariffs being applied to goods subject to processing or at risk of onward movement to the EU.
81.Article 5(6) of the Protocol allowed the UK to reimburse or waive tariffs applicable under the Protocol. The Chancellor of the Duchy of Lancaster confirmed that “we want to make sure that, in the event of there not being a free trade agreement of whatever kind with the EU, we are in a position to indemnify and reimburse companies for tariffs.” This could lower the cost to business of bringing goods into Northern Ireland. However, the cost may not be eliminated completely.
82.Crucially, the UK’s ability to waive or reimburse tariffs will be subject to EU state aid limits, as set out in Article 10 of the Protocol. As a result, the UK would only be able to waive or reimburse any single business for tariffs up to a de minimis value of €200,000 over any continuous three-year period before requiring approval from the EU Commission. Many larger firms would probably reach that limit and would need Commission approval. The Protocol stated that “in taking decisions under Article 10, the European Commission shall take the circumstances in Northern Ireland into account as appropriate.” However, it is not clear what view the Commission would take on any state aid exceeding the de minimis threshold. If the Commission were to refuse to approve state aid beyond that limit, further tariff waivers or reimbursements would not be possible without breaching Article 10 of the Protocol.
83.The design of the system will affect costs for traders. For example, if tariffs are waived then businesses will not bear the same up-front cost as if they have to apply for reimbursements. In either case, businesses will need to demonstrate that their goods qualify for compensation, and a mechanism would need to be applied to calculate and track compensation. These processes will create administrative burdens and costs for traders. The Government is yet to confirm how the system of waivers and/or reimbursements will work in practice.
84.We welcome the Government’s assurance that it will waive and/or reimburse tariffs on goods moving from Great Britain to Northern Ireland, even where such goods are classified as being ‘at risk’ of entering the EU market. This assurance is key to maintaining business confidence in Northern Ireland, the UK and the EU.
85.The Government must confirm how it intends to use the flexibilities allowed under Article 5(6) of the Protocol to waive or reimburse the cost of tariffs on the movement of goods from Great Britain to Northern Ireland.
84 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, Article 5(3)
85 Northern Ireland Business Brexit Working Group ()
86 Freight Transport Association ()
87 , Bill 7 -2019], p. 55
90 FSB Northern Ireland ()
94 HM Government, , 27 February 2020
95 , Q15
96 ; , 5 June 2020
97 Northern Ireland Business Brexit Working Group ()
99 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 12
100 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 12
101 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 12
102 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 12
103 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 12
104 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 13
105 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 12
106 Twitter, [Brexit Correspondent, Bloomberg], 29 June 2020
107 Twitter, [Brexit Correspondent, Bloomberg], 29 June 2020
108 Twitter, [Brexit Correspondent, Bloomberg], 29 June 2020
109 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 13
110 Twitter, [Brexit Correspondent, Bloomberg], 29 June 2020
113 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, Article 5(2)
114 UK Trade Policy Observatory, , 9 December 2019, pp. 2
115 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, Article 5(2)
117 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, Article 5(6)(d)
Published: 14 July 2020