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The Protocol on Ireland/Northern Ireland Contents

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Chapter 6: Customs and movement of goods (Article 5)

Overview

52.Article 5(4), by applying a host of EU regulations as set out in Annex 2 to Northern Ireland, creates a single regulatory zone for goods on the island of Ireland. This in turn requires provisions for customs and the movement of goods between Great Britain and Northern Ireland.

53.Article 5(1) states that, for any good moving from Great Britain to Northern Ireland, “no customs duties shall be payable”, unless the good “is at risk of subsequently being moved” into the EU, either on its own or, “following processing”, as part of another product. Similarly, for goods moving into Northern Ireland from outside both the EU and the UK, UK customs duties will be applied unless the good is “at risk of subsequently being moved into the EU”, whether by itself or following processing. Article 5(6) states that the UK will levy customs duties, and they are not remitted to the EU.38

54.In October 2019, shortly after the revised Protocol was published, Jim Harra, Interim Chief Executive, HM Revenue and Customs, gave evidence to the House of Commons Treasury Committee on the operation of Article 5. He explained that for goods moving from Great Britain to Northern Ireland there were various interlocking requirements. First, “any goods going into Northern Ireland from Great Britain will have to comply with EU regulatory standards.” Second, for goods categorised by the Joint Committee as at risk of being subsequently moved into the EU, “the UK will [have to] make sure that a tariff equivalent to the EU tariff is applied.”39 These requirements will “necessitate declarations being made for goods moving from Great Britain to Northern Ireland”, in order to “ensure that regulatory standards are being met” and, for goods at risk of being moved into the EU, that “the correct tariff is charged”—even if that tariff is set at zero.40

55.Mr Harra affirmed that this “does not mean Northern Ireland is part of the EU’s customs territory”, as the controls necessary to police the rules “will be administered by HMRC”. Nevertheless, it meant that “administrative procedures, including a declaration, will be required for movements from Great Britain to Northern Ireland … Yes, there will be declarations, which will feel like a customs declaration, because they will contain information that is used for regulatory purposes.” Mr Harra added that HMRC did “not envisage … a significant level of physical checks of goods” but warned that such checks “could be required … to give effect to EU regulatory standards”.41

Uncertainty

56.Several months elapsed between the publication of the revised Protocol and the issuing by the Government of further guidance to Northern Ireland stakeholders about what its provisions would mean in practice. In February 2020 the Committee visited Northern Ireland to take evidence and assess the situation. Several witnesses expressed their deep frustration and dissatisfaction at the lack of engagement by the UK Government with the concerns of Northern Ireland businesses.

57.The Northern Ireland Business Network warned that the approach taken by both the UK and the EU made Northern Ireland feel like a pawn in the game. This was “untenable”, because it hindered Northern Ireland stakeholders from preparing for the “seismic change” that would happen on 1 January 2021.42 They feared that if clarity only came late in the day, it would be too late for businesses to prepare. In the meantime, businesses were making investment decisions:

“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.”43

58.Pamela Dennison, Chair of the Freight Transport Association Northern Ireland and manager of a family-run haulage SME, said that the Government should “stop telling businesses what you think they want to hear and tell them exactly what is going to happen”.44 She added that Northern Ireland businesses “are in limbo. Our customers are asking us how to prepare, but I cannot tell them, because I do not know, the Government do not know and trade bodies do not know.” Les Stracey, Director, Stena Line Ltd, said that “we are totally uncertain about the level of checks and customs formalities that will be required … It is fine having all of this on paper, but we really need information from government about what we need to do and what infrastructure arrangements will be required at ports.”45

59.There was also concern about the lack of specialist understanding of how the Protocol will operate in practice. Les Stracey was one of several witnesses who noted the “significant shortage of customs agents at the moment. If there are no customs agents around, who is going to complete the paperwork?”46

60.Given the significance of the agri-food sector in Northern Ireland, there was a particular call for clarity as regards the requirements for sanitary and phytosanitary checks. Some sanitary and phytosanitary (SPS) checks are already required between Member States. For instance, under the TRACES system health certificates accompanying consignments of animals may be checked by border control authorities as products move from one Member State to another.47 Dr Viviane Gravey, Lecturer, Queen’s University Belfast, said that, for the EU:

“This is about protection of the EU single market. The EU takes SPS controls and food crime especially extremely seriously. … farmers or agri-food suppliers in Europe [are] quite clear that they do not want a back door into the single market through Northern Ireland.”48

61.In its technical note on implementation of the Protocol, the Commission stated that “animals, plants, and their products entering Northern Ireland from either a third country or Great Britain must comply with EU SPS requirements and be subject to official controls as prescribed by Union law”. The Commission invited the Government to clarify whether it intended to designate additional posts to undertake such checks.49

62.Prior to publication of the Government’s Command Paper, Mr Gove suggested it would be possible “to have light-touch checks that can be conducted on the ferry—through transportation—which will ensure that all the requirements can be met”.50

Shortage of time

63.These concerns were exacerbated by the shortage of time before the Protocol becomes operational on 1 January 2021. Colin Murray, Reader in Public Law, Newcastle University, said that, whereas the abandoned Northern Ireland ‘backstop’ was “an insurance policy”, implementation of the new Protocol had been “brought forward and accelerated, and consequently made much more difficult”.51

64.The Commission itemised the preparations that businesses need to make ahead of the Protocol becoming operational:

• the introduction of customs procedures and formalities for goods entering Northern Ireland from Great Britain, and for goods leaving Northern Ireland for Great Britain;
• the introduction of regulatory checks and controls, including SPS controls, for goods entering Northern Ireland from Great Britain;
• the introduction of prohibitions and restrictions in respect of goods entering Northern Ireland from Great Britain, and for goods leaving Northern Ireland for Great Britain;
• the new regulatory environment in Northern Ireland, in particular as regards technical regulations, assessments, registrations, certificates, approvals and authorisations;
• the new regulatory requirements for UK fishing vessels landing fish in Northern Ireland;
• the application of VAT and excise rules concerning imports and exports to goods entering Northern Ireland from Great Britain and goods leaving Northern Ireland to Great Britain; and
• the implementation of a dual VAT regime in Northern Ireland, with one set of rules applicable to a supply of goods, and a different set of rules applicable to a supply of services.52

65.The Northern Ireland Business Network told us in February 2020, before the full economic and societal impact of the COVID-19 outbreak had become apparent, that it would be a “Herculean task” to complete this work in the limited time remaining.53 In his letter of 8 April, Mr Gove acknowledged that “in the immediate term the attention of Ministers, officials and businesses is focused predominantly on the response to COVID-19”. Yet he was equally clear that “the transition period ends on 31 December 2020, as enshrined in UK law, and both the UK and the EU remain fully committed to implementing the Protocol”.54

The implications for Northern Ireland

Northern Ireland’s economic model

66.Given the uncertainty over the practical implementation of the Protocol, our witnesses were not able to estimate with any precision its likely economic impact. Nevertheless, the scale of current trade flows provides some indication of the consequences of the Protocol for Northern Ireland’s economic model.

67.In 2017, £13.3 billion of external purchases of goods and services in Northern Ireland were from Great Britain. In 2018, Northern Ireland sales to Great Britain totalled £10.6 billion, including £6.5 billion in goods and £4.0 billion in services. Northern Ireland exports to Ireland totalled £4.2 billion in 2018, including £3.1 billion in goods and £1.1 billion in services. £2.3 billion of goods were imported from Ireland to Northern Ireland in 2018. Overall UK exports to Ireland totalled £35.1 billion in 2018 (including £20.9 billion in goods and £14.2 billion in services), while imports to the UK from Ireland amounted to £21.6 billion (including £13.6 billion in goods and £8.0 billion in services). Northern Ireland exports of goods to the rest of the EU, excluding Ireland, totalled £2.2 billion in 2019, while imports from the rest of the EU to Northern Ireland totalled £2.9 billion. Exports from Northern Ireland to the rest of the world totalled £3.8 billion in goods in 2019, while imports from the rest of the world totalled £2.7 billion in goods.55

68.In total, nearly 23,000 Northern Ireland businesses trade to and from Great Britain, and that trade comprises 56% of Northern Ireland’s total external trade in goods, compared to 16% in the case of trade between Northern Ireland and Ireland.56

The practical impact

69.Notwithstanding the uncertainty we have described, our witnesses sought to illustrate the practical impact of Article 5 for Northern Ireland. Maurice Bullick, Finance Director, Belfast Harbour Commissioners, noted that 70% of Belfast Harbour’s traffic is trade with Great Britain. At present, the port is primarily an infrastructure provider, so is not involved in checking cargoes. He said that the port needed clarity on the impact of the Protocol on its infrastructure, but could not undertake any planning until the Joint Committee had provided further details.57

70.Les Stracey said that Stena Line operates 140 sailings a week between Belfast and Cairnryan, Heysham and Birkenhead, involving seven ships and carrying 540,000 freight units, approximately 67% of which are unaccompanied. Stena Line estimates that 97% of those units are intra-UK trade, not crossing the Irish land border. Mr Stracey said that, for unaccompanied freight, Stena Line would be classed as the carrier under the Union Customs Code, obliging it to submit safety and security declarations: “If there are 100 consignments in the back of a trailer, we would technically need to know all the details for every single consignment … To me, that is a nonsense. We are effectively being asked to collect data which we do not have.”58

71.Mr Stracey added that these sailings typically have a port turnaround of one hour 36 minutes: “Delays because of customs checks on the inbound traffic may cause problems with discharging ships and therefore problems loading them. If there are significant checks at ports, that will give us great concerns about what the impact on our timetable will be.”59

72.The Northern Ireland Business Network had been told that the EU expected the Irish Sea border to be the same as other EU external borders, and the same rules to be applied in Belfast as in Calais. But they noted that the Irish Sea was very different to the EU’s other external borders. At the EU’s eastern border a truck would typically move one item across the border, with a single customs and export declaration absorbed into the business model. In contrast, retail consignments made up 70% of crossings of the Irish Sea, and there could be hundreds of different items in any one lorry coming to Northern Ireland from Great Britain, to be dropped at a regional distribution centre, rebuilt and put out to shops.60

73.The Northern Ireland Business Network further noted that, for goods coming to Northern Ireland, this would mean: customs paperwork and export health certificates (which can cost £200 each); an entry summary declaration with 45 questions will have to be completed by the retailer; veterinary and professional standards checks; a requirement for certificates of origin to ensure goods can enter the EU market tariff-free; and a requirement that these, export control certificates and sanitary controls are pre-lodged before shipments leave Great Britain. This could get particularly complicated if separate forms are required for each destination, given that there can be several ‘drops’ per truck arriving from Great Britain. They noted a recent case of a lorry carrying 1392 different items crossing the Irish Sea, including 576 products of animal origin. They warned that, under the Protocol, each item will require a different tariff code, without which the lorry wouldn’t get on the boat.61

74.David Henig noted that, during the negotiations on the Withdrawal Agreement, the Commission published the list of standard checks that it makes. Certain goods, and defined percentages of certain goods, are checked. In many cases, the check is merely a customs paperwork check, and many products do not require an at-the-border check. However, for SPS products, particular checks have to be made at the border.62

75.The Northern Ireland Business Network explained that checks would require a product to be taken off the lorry, opened, inspected, tested and quarantined until deemed legitimate. They would be disruptive and could jeopardise the freshness of products. If the ports needed to inspect a retail lorry travelling from, for example, the north of England to Cairnryan, this could cause problems for the just-in-time models on which supermarkets rely. They noted that lorries typically arrive 20 minutes before the boat sails, and everything in supermarkets’ 24-hour cycle to shelves relies on catching that boat, because they depart only every three or four hours. They warned that delays would create significant problems with availability, and the supply chain could collapse.63

76.The Northern Ireland Business Network warned that these requirements seem far beyond what is plausible as a business model; if this friction leads to costs exceeding profit margin, then products will become unviable to sell in Northern Ireland. They feared that ultimately it will mean less choice for consumers and higher prices. They also warned that businesses based in Great Britain are particularly unprepared for the new processes required for dealing with Northern Ireland in the future.64

The Government’s Command Paper

77.On 20 May 2020, seven months after the Protocol was agreed, and seven months before it was due to become operational, the Government published its Command Paper on The UK’s Approach to the Northern Ireland Protocol. The Paper noted that “the core of the Protocol is the provisions on customs and trade”, and consequently the focus of the Paper is on these provisions.65

78.The Government confirmed the requirement on UK authorities to apply EU customs rules to goods entering Northern Ireland, and to collect tariffs on goods at risk of moving on into the EU at ports of entry.66 This will entail:

“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.”

79.Notwithstanding these requirements, the Government asserted:

“We see no need to construct any new bespoke customs infrastructure in Northern Ireland (or in Great Britain ports facing Northern Ireland) in order to meet our obligations under the Protocol.”67

It is not clear if this rules out the use of existing infrastructure at ports.68

80.The Government suggested that any regulatory checks could take place through market surveillance authorities at business premises or on the market, and do not have to take place at ports. This would be on the basis of risk assessment, “both by taking a pragmatic view of the risk posed by goods from Great Britain, and by lowering their risk profile through increased on-the-market activity”. Where Northern Ireland traders gain product approvals and certification for the Northern Ireland market from EU authorities and bodies, the UK will recognise those for the purpose of placing goods on the Great Britain market.69

81.The Command Paper also responded to the Commission’s request to identify the market surveillance authority that would operate in respect of Northern Ireland.70 The Government confirmed that the same authorities operating today will continue to be responsible for approving goods on the Northern Ireland market and enforcing EU rules.

82.The Government acknowledged that a more intensive arrangement was required for sanitary and phytosanitary checks:

“We will maintain existing facilities and designations for the purpose of processing arrivals of agri-food goods at Belfast Port, Belfast International Airport, Belfast City Airport and Warrenpoint Port. Expanded infrastructure will be needed at some of these sites for the purpose of agri-food checks and assurance. Working with the Northern Ireland Executive, at a minimum we expect to request additional categories of commodities at Belfast Port, and to designate Larne Port for live animal imports … Subject to further work with the Northern Ireland Executive and delivery partners, further designations may also be required at other existing sites. There will be no construction at points of entry where no plant or animal health checks are currently carried out.”71

83.The Government stated that the process by which controls are conducted, their frequency, and the level of physical checks required will need to be discussed by the Joint Committee, and that the Government will “actively seek to simplify and minimise electronic documentary requirements for this trade”.72 The Government will in principle cover the costs of the agri-food requirements under the Protocol.73

84.The Government also committed to establish a business engagement forum, “which will meet regularly to allow Northern Ireland’s businesses to put forward proposals and provide feedback on how to maximise the free flow of trade”, and to consider how to take advantage of the “new freedoms” available following UK withdrawal from the EU. The Northern Ireland Executive will also be invited to the forum.74

Conclusions

85.During our visit to Belfast in February 2020, Northern Ireland businesses and stakeholders expressed deep frustration at the Government’s lack of engagement with them, and with their concerns about the “seismic change” that the Protocol will require, in particular in relation to customs and the movement of goods. They were particularly frustrated by the high level of uncertainty over implementation of the Protocol, and the lack of guidance on the steps that they needed to take to prepare.

86.We therefore welcome the Government’s publication of a Command Paper on The UK’s Approach to the Northern Ireland Protocol, though we regret that it took seven months for it to appear.

87.The Government has confirmed that new administrative processes for traders, including electronic import declaration requirements and safety and security information (including entry summary declarations) will be required for goods moving from Great Britain to Northern Ireland. Nevertheless, the Command Paper leaves many questions unanswered. The Government has stated that it sees no need to construct new bespoke customs infrastructure in Northern Ireland, or in ports in Great Britain facing Northern Ireland, and that there will be no construction at points of entry where no plant or animal health checks are currently carried out. It is incumbent on the Government to explain how the new processes required under the Protocol can be undertaken, in the absence of new infrastructure. In particular, it needs to clarify whether and how existing infrastructure at ports will be used.

88.The Government has suggested that regulatory checks could take place through market surveillance authorities at businesses premises and in the market on the basis of risk assessment, rather than at ports. The Government needs urgently to detail what this will involve.

89.We welcome the Government’s confirmation in relation to sanitary and phytosanitary checks and processes that there will need to be expanded infrastructure at Belfast Port, Warrenpoint Port, Belfast City Airport and Belfast International Airport; and that Larne Port will be designated for live animal imports. We also welcome the Government’s commitment in principle to cover the costs of the agri-food requirements under the Protocol. Nevertheless, the Government needs to set out with urgency the detailed steps that it will take to ensure that the necessary infrastructure is in place before 1 January 2021.

90.In particular, the Government, through the Joint Committee, urgently needs to explain how agri-food controls will be conducted, their frequency and the level of physical checks. More detail is needed on the statement that “further designations may also be required at other existing sites”. The Government needs to clarify if the Chancellor of the Duchy of Lancaster’s suggestion that some checks could be conducted during the sea crossing from Great Britain to Northern Ireland remains a live proposal. The Government should also explain what it means when it states that it will “actively seek to simplify and minimise electronic documentary requirements” for agri-food.

91.The provisions of Article 5 ensure that Northern Ireland will continue to be able to participate in the EU Single Market for goods, thereby maintaining supply chains on the island of Ireland. However, the evidence of Northern Ireland businesses suggests that, 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.

92.We welcome the Government’s commitment to establish a business engagement forum. Given the scale of the challenge of implementing the Protocol, the many unanswered questions, and the shortage of time, that body needs to begin its work immediately, and intense engagement with the business community must be maintained in the months ahead. Administering such complex new systems will require significant IT, financial and human resource. The Government must therefore set out how it will support businesses in Great Britain and Northern Ireland in adapting to the Protocol, including providing information on and explanation of its provisions, and providing opportunities to test the new requirements before they become operational.

93.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. The Joint Committee will also need to take the changed circumstances arising from COVID-19 into account.

Mitigating factors

94.Mr Gove offered the following reassurance:

“Article 5 is just an article; it needs to be read alongside the other articles, and the operation of it, therefore, needs to be agreed … We want to ensure that the bureaucratic and administrative burdens placed on Northern Ireland businesses are as light as possible. It would be curious if, to safeguard the peace process in Northern Ireland and help the people of Northern Ireland, there was a requirement to impose upon them economic costs and bureaucracy … whereby they would be poorer and potentially more prey to division. In that sense the cure would be worse than the underlying condition it professes to address.”75

95.The Command Paper developed the argument:

“The economy of Northern Ireland is heavily dependent on small and medium sized enterprises. Subjecting traders to unnecessary and disproportionate burdens, particularly as we wrestle with the economic consequences of COVID-19, would not serve the interests of the people of Northern Ireland for whom the Protocol was designed.”76

96.The Government therefore asserted that an “appropriate and proportionate” approach to the movement of goods was “the only way in which to support Northern Ireland’s prosperity and the economic development that the 1998 Agreement recognised was essential to a broader transition to a peaceful and shared society”.77

97.This view was shared by our witnesses. Professor David Phinnemore, Professor of European Politics, Queen’s University Belfast, told us: “I do not think you will find any economic operator in Northern Ireland who believes that this is a good deal for Northern Ireland. So it is imperative that any arrangements that create a degree of flexibility and create certainty for Northern Ireland, are put in place as soon as possible.”78

98.There are a number of potential means to mitigate the impact of Article 5 on Northern Ireland:

• The Joint Committee’s decisions on definitions of goods at risk and processing;
• Streamlined customs processes;
• Other exemptions under the Protocol;
• Technological solutions; and
• The agreement of a comprehensive UK-EU free trade agreement.

Defining processing and goods at risk of being moved into the EU

99.As we have seen, Article 5(2) explains that goods brought into Northern Ireland from outside the EU will be considered at risk of subsequently being moved into the EU unless it can be established by the importer that a good:

(a)will not be subject to commercial processing79 in Northern Ireland; and

(b)fulfils the criteria established by the Joint Committee tasked with overseeing the operation of the Withdrawal Agreement.

100.Before the end of the transition period the Joint Committee must establish a) the conditions under which processing will not fall within the definition set out in the Protocol (taking into account the nature, scale and result of the processing), and b) criteria governing the operation of the provisions dealing with goods at risk of moving into the EU. In so doing, it must “have regard to the specific circumstances in Northern Ireland”, while taking into account, among other matters:

(a)The final destination and use of the good;

(b)The nature and value of the good;

(c)The nature of the movement; and,

(d)The incentive for undeclared onward-movement into the Union, in particular incentives resulting from the customs duties payable (a general catch-all term covering potential criminal activity such as smuggling).80

101.From the EU’s point of view, the provisions of Article 5 are necessary 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 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.81

102.Dr Sylvia de Mars observed that the drafting of Article 5 meant that the apparent exception (the payment of customs duties) was in reality the rule:

“It actually means that all goods that can move into Ireland—basically all goods—will be subject to customs duties. That is the rule. What they then have to define is the exception to the rule, whereby customs duties will not be applied … if they do not agree a definition, my understanding is that the EU tariffs will simply apply to all goods because they will all maybe be at risk of moving from Northern Ireland to Ireland.”

Dr de Mars added that the Protocol is “beautifully silent” as to how any disagreement would be resolved, “but if there is no agreement and if the parties are not both happy with saying that EU tariffs apply on all products going from Great Britain to Northern Ireland, then one of the two parties is likely to start consultations in the Joint Committee leading to arbitration on that point”.82

103.Whereas the Protocol refers only to goods “at risk” of moving into the EU, the Command Paper strikingly introduces references to goods “at clear or substantial risk”, or at “genuine and substantial risk”, of doing so.83 It gives some practical examples that, in the Government’s view, should be considered as ‘internal UK trade’:

“If a supplier in Great Britain sends goods to a business for sale in Northern Ireland, then that is internal UK trade. Raw produce from Great Britain for agri-food processing in Northern Ireland which is then sent back to Great Britain is another good example of trade which is internal and has no impact on the EU market. A supermarket delivering to its stores in Northern Ireland poses no ‘risk’ to the EU market whatsoever, and no tariffs would be owed for such trade.” 84

104.Northern Ireland businesses are supportive of such exemptions. Pamela Dennison called for a derogation for goods destined for “dead-end hosts” in Northern Ireland. In the case of a supermarket delivery to its stores in Northern Ireland, for instance, “we know exactly where that comes from—its UK mainland distribution centres—and it goes straight to the final destination of the shop in Northern Ireland. There is no threat to the EU Single Market, because we know the route exactly and there is traceability on that side of things.”85

105.The Government argues that the principle of ‘no tariffs on internal UK trade’, inferred from Article 5(1), needs to be formalised with the EU within the Joint Committee:

“There are various ways of making it work in practice. There are many cases where goods could automatically be classified as internal UK trade, particularly where a business could certify that it was selling its goods in Northern Ireland and not the EU, or where, for example, goods were perishable or it would be uneconomical to try to divert them in to the EU market through Northern Ireland.”86

106.The Command Paper adds that “the Government will also work closely with the Northern Ireland Executive and businesses to develop these proposals. We will produce full guidance to business and third parties before the end of the transition period.”87

107.The stated objective of the Protocol is to avoid a hard border on the island of Ireland, and the intention of Article 5 is to achieve this while protecting the integrity of the EU Single Market. If the Northern Ireland economy is to be protected, the Protocol needs to be implemented in a way that takes full account of the unique circumstances in Northern Ireland, and in particular the reliance of its economic model upon fast and efficient supply chains within both the United Kingdom and the island of Ireland.

108.The Joint Committee is tasked with establishing criteria for determining that goods brought into Northern Ireland from outside the EU are not at risk of subsequently being moved into the EU, and with establishing the conditions under which processing is to be considered outside the scope of Article 5(2). The default position is that all goods, with specific exemptions set out in the Protocol, will be deemed to be ‘at risk’ of moving into the EU Single Market (and therefore subject to customs processes), unless the Joint Committee agrees otherwise. Likewise, the definition of processing in Article 5(2) is the default.

109.Whereas the Protocol refers only to goods ‘at risk’, the Government’s Command Paper, in an apparent effort to reinterpret the Protocol, introduces references to goods at clear, genuine and substantial risk.

110.Northern Ireland businesses have warned that an inflexible approach to these issues could be economically disastrous. The Command Paper provides some practical examples of activity that should be considered as internal UK trade and therefore should not incur tariffs. The Joint Committee will need to take a proportionate approach as it discusses these issues.

111.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.

112.In order to make a compelling case to the EU, the Government urgently needs to explain in detail how its proposals for automatic classification of goods as internal UK trade would work in practice. The Government also needs to use the new business engagement forum to provide clarity to and support for Northern Ireland business.

Streamlined customs processes

113.In its Command Paper, the Government stressed that it would “ensure these electronic [customs] processes are streamlined and simplified to the maximum extent, and we will set out more detailed plans for extensive HMRC support for businesses engaged in them”. The Government also committed to reviewing these new procedures on an annual basis, and, “if they should turn out to impose a disproportionate burden on goods moving wholly within the UK, we will consider how this burden can be reduced further or removed”.88

114.The Government also stressed that UK authorities would administer these rules, and would be able to exercise discretion, including with regard to the risk assessment of goods. They suggested that, given the lower risk, the level of checks could be below the 4% rate operated by the UK for third country movements notified through customs declarations, and the 1% physical fiscal checks of consignments.89

115.The Government states that it will seek to streamline and simplify customs processes, but provides little detail on how it will do so. We call on the Government in the Joint Committee to investigate the potential for bespoke forms, and for the completion of single forms per load rather than for each individual consignment, thereby minimising the checks required. Such flexibility will be vital in securing the continued viability of the supply chains on which the Northern Ireland economy depends.

116.The Government also commits to set out more detailed plans for HMRC support for businesses, but again, time is short: this engagement needs to start immediately, keeping businesses informed of the Joint Committee’s deliberations and the steps that HMRC will take to implement the new systems as they take shape. The Government commits to reviewing the new procedures on an annual basis, but it is unclear how much discretion the Government will have to reduce the administrative burden if they are found to be disproportionate.

117.The Government needs to explain what it means when it states that it has discretion in relation to the risk assessment of goods. Greater discretion on the Government’s part may inhibit the EU’s willingness to show flexibility in the operation of Article 5.

Other exemptions under the Protocol

118.The Protocol sets out a number of other explicit exemptions or caveats.

Fisheries and aquaculture products

119.Northern Ireland’s fishing fleet comprises approximately 310 registered vessels, forming 6% of the UK’s fishing fleet. It takes a 17,000 tonne catch per year worth about £30 million in total.90 However, the cultural and strategic importance of the fishing industry for Northern Ireland goes beyond its economic significance.

120.Annex 2 to the Protocol applies a set of regulations on fisheries and aquaculture to Northern Ireland, including the Regulation establishing a Community system to prevent, deter and eliminate illegal, unreported and unregulated (IUU) fishing. In its technical note on the implementation of the Protocol, the Commission acknowledged that under Article 5(3), Union customs legislation does not apply to and in the territorial waters of the UK. The Commission stressed, however, that UK fishing vessels are, for the purpose of the Protocol, considered third country vessels in Northern Ireland. They added that all landings in Northern Ireland of fish by UK or third country fishing vessels must be subject to EU customs rules, including EU customs tariffs, and SPS rules applicable in the EU to landings by third country vessels; and all landings in Northern Ireland of fish by UK or third country fishing vessels must be subject to the IUU Regulation, including as regards designated ports and prior notification requirements.91

121.Article 5(3) states that the Joint Committee will agree rules under which fisheries and aquaculture products brought into the Union by vessels flying the flag of the UK but registered in Northern Ireland will be exempt from duties.92

122.In its Command Paper, the Government acknowledged the importance of the fishing industry to Northern Ireland, and expressed its determination “to ensure that fishers from Northern Ireland are not placed at any disadvantage either through customs duties or associated barriers”.93 We also note that during consideration of the Fisheries Bill, the Government reiterated its commitment to the maintenance of the Voisinage Agreement, an informal agreement which allows Ireland and Northern Ireland vessels reciprocal access to fish in the 0–6 nautical mile zone of each other’s territorial waters.94

123.We call on the Government to explain the impact of Article 5(3) and Annex 2 of the Protocol on vessels registered both in Great Britain and in Northern Ireland and operating in UK territorial waters around Northern Ireland. The Joint Committee should, in implementing these provisions, take all the measures necessary to ensure the continued viability of Northern Ireland’s fishing industry.

Reimbursing duties

124.Article 5(6) provides scope for the UK to reimburse duties on goods brought into Northern Ireland;95 waive customs debts in respect of goods brought into Northern Ireland;96 provide for the circumstances under which customs duties are reimbursed on goods “shown not to have entered the Union”;97 and to “compensate undertakings to offset” the application of these provisions.98 The ability to reimburse is subject to the provisions of Article 10, on State aid, though in taking decisions under Article 10, the Commission “shall take the circumstances in Northern Ireland into account as appropriate”.

125.David Henig told us that, in order to qualify for a rebate on any EU duties paid, consumers and businesses would have to prove that the good concerned had not been subject to onward processing or sale.99 The Northern Ireland Business Network said that goods on supermarket shelves should be covered (for instance through an Authorised Economic Operator scheme), but it was not clear if intermediate processes would be. They were uncertain whether inward processing relief could be applied in a way that was viable for sectors with a 1–1.5% margin, taking into account other SPS costs.100

126.In its Command Paper, the Government implicitly acknowledged the risk that the EU will not accept its argument concerning the definition of goods at risk, when it stated that it would “in any case” make “full use” of the provisions for reimbursement where goods were deemed to be at risk, in order to ensure that “trade flows freely”. It did not, however, elaborate on how they would operate in practice.101

127.We welcome the Government’s commitment, reflecting the provisions of Article 5(6), to reimburse duties, waive customs debt or provide compensation to offset the impact of customs duties. But such a system is likely to be complex, and the Government needs to explain how it will work in practice. We invite the Government to confirm whether it will reimburse businesses for intermediate processes incurred in paying customs duties, and to explain how it will support businesses with small profit margins, for whom the costs of paying and seeking reimbursement for customs duties may prove prohibitive.

128.We also note that the provisions of Article 5(6) are subject to the provisions of Article 10, on State aid. We invite the Government to explain the impact of the Protocol’s State aid provisions on its ability to reimburse duties and waive customs debt.

Personal property and goods of negligible value

129.Article 5(1) states that no duties will be payable on the movement of UK residents’ personal property from Great Britain to Northern Ireland. Article 5(7) states that no duties shall be payable on consignments of negligible value, sent from one individual to another, or contained in personal baggage.

130.David Henig said that there were certain de minimis requirements below which customs duties and VAT were typically not payable. In Ireland’s case, consignments under €22 are exempted.102

131.We welcome the fact that, under Article 5(1) and 5(7), no duties shall be payable on consignments of negligible value or on personal possessions.

Technological solutions

132.Several of our witnesses referred to the work of the Government’s technical advisory group on alternative arrangements before the revised Withdrawal Agreement and Protocol were agreed. Colin Murray noted that there had been no update on its work since September 2019, and it was not clear if it had met since then. However, “if we are looking to reduce friction at the sea border, that group needs to stay operative. The problem has not gone away, it has just moved … Trusted trader schemes and assurance schemes are all much easier to do in a sea border framework than they ever would have been with a land border framework.”103 David Henig agreed.104

133.The Northern Ireland Business Network expressed concern at the length of time it would take for trusted trader schemes and Authorised Economic Operator status to become operational.105 Sylvia de Mars highlighted Michael Gove’s statement that it would take until 2025 for a smart border to become operational.106

134.The Government’s Command Paper makes opaque references to use of “sophisticated data on trade flows for goods entering Northern Ireland” and “the latest technology, risk and compliance techniques”, in particular to combat fraud and smuggling.107 It provides no further detail.

135.We note the potential for technology to reduce the friction arising from customs checks required under the Protocol. We therefore regret that the Government’s technical advisory group on alternative arrangements appears to have gone into abeyance since the revised Protocol was agreed. We invite the Government to provide an update on the work of the group, and in particular on the potential for technological solutions to reduce the friction arising from customs checks under the Protocol.

136.The Chancellor of the Duchy of Lancaster has stated that a smart border will not be ready until at least 2025. Technological solutions, important as they are, currently only have the capacity to mitigate rather than to eliminate friction arising from customs checks and processes.

A UK-EU free trade agreement

137.Article 13(8) holds out the possibility of the Protocol (or parts thereof) being superseded by a future UK-EU agreement. The Government’s ‘Explainer’ for the revised Protocol states that Article 5 was “designed to operate without a Free Trade Agreement between the United Kingdom and the EU in place. If an ambitious agreement with low or zero tariffs and quotas is concluded before the Protocol comes into force, then a significant proportion of goods would qualify for zero tariffs in any case.”108

138. David Henig told us:

“If we agree a free trade agreement between the UK and the EU that has no tariffs and no quotas, we will all breathe a deep sigh of relief and say, ‘Thank goodness we don’t have to deal with this issue in the Northern Ireland Protocol.’ If that is not the case and we fail to reach a free trade agreement by the end of the year and have to implement the Northern Ireland Protocol with tariffs and quotas in place, it will be even more complicated than we are saying at the moment.”109

139.Mr Henig added that regulatory alignment between the UK and the EU could further reduce the level of checks. EU trade agreements such as the EU/Canada Comprehensive Economic and Trade Agreement (CETA) typically include an equivalence regime, which reduces the percentage of products which are checked to as low as 1 or 2%. He also highlighted the importance of mutual recognition of Authorised Economic Operators within trade agreements. He concluded:

“I cannot think of a thin free trade agreement in the style of the EU-Canada agreement that has removed all checks. It will not remove checks in their entirety, but some will be removed … The more one agrees with the European Union, whether in the form of a free trade agreement or in other mutual recognition agreements, the more checks between Northern Ireland and Great Britain one should be able to remove.”110

140.As we have seen, the Northern Ireland Business Network feared that even if a deep and comprehensive UK-EU deal was struck, tariffs would still be payable on goods coming into Northern Ireland from third countries, which would place it at a competitive disadvantage.111 Without some flexibility around the application of Tariff Rate Quotas, complex customs procedures would be required for trade into Great Britain to claim back EU tariffs paid on inputs for goods manufactured for the UK market.112

141.Article 13(8) makes provision for a future UK-EU trade agreement to supersede the Protocol (or parts thereof). A UK-EU free trade agreement could reduce (but not eliminate) the friction caused by customs and regulatory checks on goods moving between Great Britain and Northern Ireland. The greater the future regulatory alignment between the UK and the EU, the less burdensome such checks will be.

142.From Northern Ireland’s perspective, it is therefore highly desirable that a comprehensive UK-EU free trade agreement should be concluded by the end of 2020. If it is not, the consequences for Northern Ireland’s economy arising from the imposition of all the checks and processes envisaged in the Protocol will be significant.

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