86.The Northern Ireland Protocol will take full effect on 1 January 2021, following the end of the transition period. Not only do the UK and the EU need to decide how the Protocol should be implemented by that point, but the UK will need to take a number of steps to comply with its obligations under the Protocol and to ensure that trade across the Irish Sea is not disrupted. Businesses moving goods across the Irish Sea will also need to be ready to comply with any new obligations. That will be a significant challenge, made more difficult by the stress that the Covid-19 pandemic is placing on both government and business resources.
87.Before businesses can prepare, they must know what they are preparing for. Although the Government’s Command Paper clarified how the Government intended to implement the Protocol, until that point businesses had little detail on what they would be expected to do. Aodhán Connolly of the Northern Ireland Retail Consortium told us:
The big cry from business is to give us that detail. If you are promising that it is unfettered, explain it to us. We want to see how it works because we need to prepare.
This issue was compounded by inconsistent messages from Government on what the Protocol would require businesses to do. The then Secretary of State for Exiting the EU, the Rt Hon. Stephen Barclay MP, initially told the House of Lords Committee on the European Union that no checks would be required for goods moving from Northern Ireland to Great Britain, before revising his remarks to confirm that exit summary declarations would be required. The then Secretary of State for Northern Ireland, the Rt Hon. Julian Smith MP, told our predecessor Committee that “there will be some information required, but it is a minimal amount.” However, two weeks later the Prime Minister told Northern Ireland businesses that there would be “no forms, no checks, no barriers of any kind,” without saying how this would be achieved. Before the publication of the Government’s Command Paper, businesses who gave evidence to our inquiry told us that they expected to complete exit summary declarations.
88.We heard that the Government conducted very limited engagement with Northern Ireland businesses about the implementation of the Protocol. Engagement may have increased after the publication of the Command Paper. Speaking before the publication of that paper, Wesley Aston of the Ulster Farmers’ Union told us:
I have not talked about Brexit for some considerable time, having spoken about it for the previous four years. We have had no involvement, no engagement.
We were told that engagement with business had fallen compared with that undertaken by the previous Government. Mr Connolly told us that “we have not had the sort of engagement that we had prior in the process and even up to perhaps last July.” He gave the example of the Business and Trade Union Alternative Arrangements Advisory Group, which was set up by the previous Government to explore solutions for avoiding a land border, but which has not met since August 2019.
89.In the Command Paper, the Government committed to setting up a Business Engagement Forum “to allow Northern Ireland’s businesses to put forward proposals and provide feedback on how to maximise the free flow of trade.” At the time of publication (14 July 2020) this forum, lamentably, has not yet met. However, the Secretary of State for Northern Ireland told us that “we have found businesses very keen to engage and their representative groups very engaged in the process.” The previous Government’s consultative groups also included a number of non-business representatives, such as trade unions, trade and customs experts and academics.
90.Despite the publication of the Command Paper, some aspects of how trade will work under the Protocol remain obscure. The Command Paper set out the Government’s aspiration, and while some aspects of its vision can be implemented unilaterally and can therefore be predicted with reasonable certainty, other aspects—particularly those relating to east-west trade—will require agreement in the Withdrawal Agreement Joint Committee.
91.The environment in which businesses will operate from 1 January will be shaped by whether the UK and the EU reach an agreement on their future relationship and on the terms of that deal. The exact terms on which businesses can move goods from Great Britain to Northern Ireland will remain unknowable until those decisions have been taken. If no deal is reached, businesses may need to make extensive preparations. In that case, businesses must be provided with the maximum time in which to prepare. We asked the Chancellor of the Duchy of Lancaster to confirm the cut-off date when the Government would tell businesses to proceed on the basis of no agreement. He replied that “we do not have a date per se pencilled in, but it is the case that, if we have not secured significant progress by October, it will be difficult.”
92.Previous experience suggests that many businesses may not be prepared for a sudden change in circumstances from 1 January. No deal was a realistic outcome on several occasions during the negotiations on the Withdrawal Agreement in 2019. The possibility of no deal led the Government to issue several warnings to business to prepare. In spite of those warnings, internal Government data published in October 2019 showed that 61 per cent of UK businesses had not begun to look at how to prepare. A UK-wide survey by the Federation of Small Businesses in September 2019 found that only one-fifth of businesses surveyed had prepared for a no-deal scenario, even though at the time the negotiating deadline was little more than a month away.
93.Businesses are also likely to have less capacity to prepare because of the disruption caused by the Covid-19 pandemic. The Director of CBI Northern Ireland, Angela McGowan gave us an example:
I had a very large pharmaceutical company say to me last week that at its board meeting it had to make a decision in early March: “Are we going to now concentrate on Brexit and getting ready, or are we going to concentrate on Covid?” It chose Covid. At the moment, I can honestly say that companies are not even thinking about this. They do not have the capacity to put any plans in place.
94.Business engagement will be needed beyond January 2021. Changes to EU law applying under the Protocol and future UK legislation both have the potential to change the basis on which Northern Ireland trades with the rest of the UK by creating new divergence between Great Britain and Northern Ireland. In addition, businesses may be asked to comply with new requirements at relatively short notice without the benefit of a transition period of the kind negotiated as part of the Brexit process and without the necessary training and equipment to comply. The new Business Engagement Forum may be a suitable mechanism for alerting businesses to relevant changes to legislation.
95.There is a widespread perception that the Government has failed to communicate effectively with businesses and wider society in Northern Ireland, and that the Government has not involved Northern Ireland stakeholders sufficiently in developing the arrangements under which traders will be expected to operate once the Protocol takes effect.
96.The Government must begin registering businesses for its new customs systems by 1 October 2020. Businesses must be told what preparations they need to make in order to avoid disruption to goods movements in January 2021.
97.We welcome the formation of the Business Engagement Forum to improve communications with businesses in Northern Ireland. The Government must publish terms of reference for the forum, so that its purpose can be properly understood, and it must clarify how it will engage small businesses and trade unions with the forum. Given that the Cabinet Office leads the Government’s work on the Withdrawal Agreement Joint Committee, whose decisions will be of significant consequence for businesses, the Cabinet Office must work closely with the Northern Ireland Office on business engagement.
98.The Government must ensure that the Business Engagement Forum is informed and consulted on future developments in relation to the Protocol, including new UK Government legislation, new EU legislation that may apply under Annex 2 of the Protocol and decisions of the Joint Committee.
100.The Command Paper confirmed that expanded infrastructure will be needed at Belfast port, Belfast International airport, Belfast City airport and Warrenpoint port to handle increased volumes of agri-food goods requiring checks under the Protocol, and that Larne will be designated as an entry point for live animals. The Department for Agriculture, Environment and Rural Affairs (DAERA) in Northern Ireland has begun work on the required infrastructure. In June 2020, the Department provided an update to the Agriculture, Environment and Rural Affairs Committee (AERA) on progress, where it noted the limited time to implement the required infrastructure before the end of the transition period. The Permanent Secretary of DAERA, Denis McMahon, told the AERA Committee that:
While some preliminary work had been done, we have only been in a position since 27 May 2020 to really develop options for a minimum viable product, which is really a way of saying the basic product to make things work to meet the requirements of the protocol.
The Permanent Secretary said that “we have a huge task ahead of us and very little time to accomplish it.” He confirmed that DAERA’s delivery assessment for the project was amber/red, meaning:
successful delivery of the programme or project is in doubt with major risks or issues apparent in a number of key areas; urgent action is needed to ensure these are addressed, and whether resolution is feasible.
101.The Permanent Secretary told the AERA Committee that the current infrastructure at Northern Ireland’s ports is:
paper-based, labour-intensive and representative of working patterns that existed before e-certification and electronic signatures became acceptable. The supporting infrastructure, including IT, is not of a sufficient standard—in fact, it is almost non-existent—and we have facilities that do not meet the demands of modern import/export management systems, regardless of the need for changes under the protocol.
Despite the challenges involved in overhauling the system, he noted the opportunity to digitise processes and deliver “significant efficiencies” that could make Northern Ireland a more attractive place to do business in the future. Several contributors to the inquiry agreed that the Protocol could provide the impetus for modernising customs processes and to encourage businesses to take up new and more efficient practices.
102.DAERA stressed the need for co-operation from the UK Government and the EU to make the new arrangements work. It welcomed the Government’s commitment to fund the construction of new infrastructure for agri-food imports required by the Command Paper.
103.We welcome the Government’s clarification that, although existing infrastructure at points of entry may require expansion, it does not intend to create new infrastructure at points of entry that do not already process plant or animal products.
104.The implementation of the Protocol is potentially an opportunity to update the UK’s customs and port infrastructure with digital technology. We note that modernising Northern Ireland’s customs infrastructure has the potential to make Northern Ireland a more attractive place to do business.
105.Operating the Protocol will require the creation of new digital platforms. HMRC has already informed businesses moving goods from Great Britain to Northern Ireland that they will need to use the Goods Vehicle Movement Service (GVMS) platform to do so. However, the Committee on the Future Relationship with the European Union was told by the Port of Dover that this system was still at the “specification phase” and had not undergone full testing. Witnesses to CFREU’s inquiry nonetheless thought it possible to have such a system up and running in time for the end of the transition period, noting that French customs had specified and built a similar system in six months. Giving evidence to the Treasury Committee in October 2019, the Chief Executive and First Permanent Secretary to HMRC Jim Harra said that:
We will be working between now and 1 January 2021 to make sure both that we have the systems in place and that businesses have the guidance they need to comply with whatever the new requirements are.
We will aim for that to happen by 1 January 2021. That is what we will work up plans to do. From our point of view, with internal systems we feel confident about that.
106.Other platforms are likely to be required in addition to GVMS. For example, a rebate system will be needed to run the UK’s system of tariff waivers and reimbursements, so that businesses can be compensated for any tariffs paid on goods travelling from Great Britain to Northern Ireland. A further system may be required to oversee the operation of VAT, in view of the continued application of EU VAT laws in Northern Ireland under Article 8 of the Protocol and the divergence this could create between administration of VAT in Northern Ireland and in the rest of the UK. Neither the Command Paper nor the information shared with business so far specify how these systems will work or whether the two systems are either compatible or capable of being made compatible.
107.Any new systems would require businesses to be registered before they can trade under the Protocol. Many businesses did not prepare for Brexit and now have reduced capacity due to the economic effects of the Covid-19 pandemic on existing business models.
108.The Government stated that many administrative requirements on Great Britain to Northern Ireland movements can be simplified or waived using digital processes. Such facilitations will require co-operation with and agreement by the EU. We welcome the aspiration to streamline customs processes, but businesses need more detail if they are to take advantage of these facilitations and avoid incurring new costs. The Government will also need to ensure there is sufficient time to trial and test the new processes so that business can use them with confidence from 1 January.
109.HMRC’s engagement with businesses on the IT required to implement the Protocol is welcome. As previous Brexit deadlines have shown, however, supporting businesses to prepare appropriately is challenging. This challenge is compounded by the effects of Covid-19 on businesses and on public finances.
110.The Government must publish the risk register for the implementation of its IT platform for managing the movement of goods across the Irish Sea, so that this project can be properly scrutinised. HMRC officials should agree to provide a written update to the Committee before the end of July, and to appear before the Committee to give oral evidence on the implementation of the project before the end of October.
111.The administration of the Northern Ireland Protocol will generate increased volumes of customs declarations and certifications of goods. Northern Ireland-based companies responding to a survey carried out by Northern Ireland’s Department for the Economy in March 2020 said that they expected the volume of declarations they dealt with to rise from 500 to 600 per month to hundreds per day. Meeting that surge in demand will require workforce expansion.
112.Although some traders will have the capacity to fill out their own customs declarations, many will outsource those functions to customs services companies. The Road Haulage Association has suggested that some 50,000 new customs staff will be needed UK-wide to meet additional demand. The Government has not provided its own estimate, but it acknowledged that that figure is “not far off.” The British International Freight Association warned that recruitment is falling “many thousands short” of this target. The Department for the Economy’s survey of customs providers noted that “there are very few Customs Clearance Agents currently operating in the local market, and these businesses have been very conservative in terms of scaling up for Brexit, with little recruitment during 2019.” The report found that many providers were “adopting a wait-and-see policy” until the Brexit outcome became clearer. Some respondents to the Department for the Economy’s survey noted that there was a “lack of available suitable personnel.”
113.The Government committed resources to increasing recruitment in the sector. The Chancellor of the Duchy of Lancaster said that the Government is working to establish a “customs agent academy” to train some of the required staff, although a date for the academy’s opening has not yet been confirmed. It also announced a new funding package to support customs intermediaries to scale up their operations to handle increased volumes of EU trade. However, it remains unclear whether the UK will have sufficient customs capacity to facilitate the implementation of the Protocol from 1 January. Respondents to the Department for the Economy’s survey noted that it can take between six and 12 months to train a new employee, suggesting that recruitment will need to take place very soon. The amount of new capacity required may also not be apparent until a late stage, because aspects of the Government’s approach to implementing the Protocol will depend on decisions being taken in the WAJC. It is likely that the situation will not become clear until at least October, by which point time to act before the Protocol takes effect on 1 January will be extremely short.
114.The Protocol will increase demand for export health certificates (EHC), which are required for agri-food products. An EHC must be signed by an Official Veterinarian. The Dairy Council for Northern Ireland told us that it was unlikely that the UK would have sufficient vets to meet demand “for a period after the end of the Transition Period.” The Chief Veterinary Officer for Northern Ireland, Robert Huey, told the Northern Ireland Assembly’s Agriculture, Environment and Rural Affairs Committee that “I have what I have. There is no cavalry coming over the hill,” but that the Department would work with its existing capacity and divert resources from elsewhere if necessary. In addition, vets would be supported by port inspectors, where possible.
116.On 1 January 2021, the basis on which Northern Ireland trades with other parts of the United Kingdom will change literally overnight. As our report shows, this will require the operation of a new legal arrangement and of a multitude of new systems and processes. What is more, the new arrangements have been developed in haste as a result of the political imperatives of the UK’s decision to leave the EU. In these circumstances, the Protocol will undoubtedly create new opportunities for smuggling and fraud. The Protocol acknowledged that risk. Article 5(2)(d) stated that the Withdrawal Agreement Joint Committee must take that factor into account when defining whether goods are considered to be “at risk” and therefore subject to EU tariffs.
117.The Protocol is designed to address Northern Ireland’s unique circumstances and to secure the gains of the peace process. In the past, organised criminals used the proceeds of smuggling and fraud to fund campaigns of violence and terror seeking to undermine the hard-won gains of peace. Such criminals will undoubtedly attempt to exploit the new situation created by the Protocol and will seek to profit illegally from the new trading arrangements in Northern Ireland.
118.The introduction of new customs arrangements is an opportunity for new kinds of customs fraud. We note that in the past the proceeds of such crimes have been used to fund paramilitarism. The Protocol was conceived to protect the gains of the peace process, and it must be implemented effectively in order to serve that function. An important element of effective implementation will be close liaison with the Police Service of Northern Ireland and the Gardaí to prevent exploitation of the new arrangements for criminal gain. Our Committee intends to monitor this issue closely.
119 , 21 October 2019, Qq 9–10
120 , Q3
121 Belfast Telegraph, , 8 November 2019
122 Federation of Small Businesses Northern Ireland (); Northern Ireland Business Brexit Working Group ()
124 HM Government, , 26 June 2019; PQ 23539 [On the Business and Trade Union Alternative Arrangements Advisory Group]
126 HM Government, , 20 June 2019; HM Government, , 26 June 2019
127 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 7
129 Politico, , 17 June 2020
130 Financial Times, , 27 September 2019
132 Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 13
133 Northern Ireland Assembly, , 4 June 2020
134 Northern Ireland Assembly, , 4 June 2020
135 Northern Ireland Assembly, , 4 June 2020
136 Northern Ireland Assembly, , 4 June 2020
137 Stephen Cox (),
138 Northern Ireland Assembly, , 4 June 2020
139 Northern Ireland Assembly, , 4 June 2020; Cabinet Office, The UK’s Approach to the Northern Ireland Protocol, , 20 May 2020, pp. 13
140 Financial Times, , 23 June 2020
141 , 23 June 2020, Qq469–470
142 , 22 October 2019, Qq272–273
143 Department for the Economy, , March 2020
144 The Guardian, , 28 February 2020
145 Financial Times, , 26 May 2020
146 Department for the Economy, , March 2020
147 Belfast Telegraph, , 4 May 2020
148 HM Government, , 12 June 2020
149 Department for the Economy, , March 2020
150 Dairy Council for Northern Ireland ()
151 Northern Ireland Assembly, , 4 June 2020
152 HM Government, , 18 October 2019
Published: 14 July 2020