Chapter 2: The economic impact of the Protocol
Introduction
38.In this chapter, we set out the evidence received on the emerging economic impact of the Protocol over the past year, including for trade and movement of goods between Great Britain and Northern Ireland, for North-South trade on the island of Ireland and trade with the EU, and specific issues identified by our witnesses that need to be addressed. However, we begin by setting out some caveats to this analysis.
Distinguishing the economic impact of the Protocol from other factors
39.A number of witnesses stressed that it was difficult to distinguish the economic impact of the Protocol from other issues. Owen Reidy, Assistant General Secretary, Irish Congress of Trade Unions (ICTU) Northern Ireland, said that it was hard to disentangle the effect of “three fundamental shocks” of Brexit, Covid and the cost of living crisis, exacerbated by the war in Ukraine.21 Dr Esmond Birnie, Senior Economist, Ulster University22, agreed that, while it was difficult to distinguish between the impact of various factors, that of Covid and the energy and food price shock were likely to be larger than the Protocol. Nevertheless, he argued that the Protocol, unlike other issues, was a “policy choice”.23 Some witnesses, such as Matthew O’Toole MLA, representing the Social Democratic and Labour Party (SDLP), stressed that the Protocol needed to be viewed through the prism of Brexit itself.24
40.Other witnesses pointed to the wider impact of other economic factors, such as labour shortages, not connected to the Protocol. Conall Donnelly, Executive Director, Northern Ireland Meat Exporters Association, said that in late 2021, the meat industry was facing labour shortages of between 10 and 15%—equivalent to a loss of £1 million per week to the local economy in Northern Ireland.25 Stephen Kelly, CEO, Manufacturing NI, agreed, warning that, following Brexit and Covid, “instead of the usual 100,000 people coming into the workforce, we will have fewer than 10,000 people in the next decades.”26
Conflicting, unclear or incomplete data
41.Some witnesses pointed to various economic data as demonstrating the drawbacks or benefits of the Protocol, including increases in costs of moving products from Great Britain to Northern Ireland,27 data pointing to a growth in North-South trade, or economic modelling showing Northern Ireland performing relatively well compared to other parts of the UK.28 However, the reliability or significance of these figures were disputed by others, which sometimes led witnesses to reach opposite conclusions.
42.Witnesses also stressed that economic data on the impact of the Protocol remained unclear or incomplete. Dr Esmond Birnie noted that “we do not yet have a full suite of statistics”, and there would be a data gap until the end of the year, when the statistics on Northern Ireland-Great Britain trade would emerge. He also said that initial data could be revised.29
43.The Northern Ireland Business Brexit Working Group likewise noted that official UK data on trade to and from Northern Ireland with Great Britain for 2021 will not be available until later in 2022.30 The Northern Ireland Food and Drink Association pointed out that “trade flows are still settling post Covid and are likely to be distorted as a result. It is our view that it is too early to have access to meaningful statistics to understand impacts.”31
44.This report sets out the views about the economic impact of the Protocol we heard from those who gave evidence. We have not sought to provide an independent economic analysis or to analyse existing economic or statistical data. In that context, we note that, as well as being an early stage at which to be able to draw any clear conclusions, various data are emerging from different sources.32
Trade between Great Britain and Northern Ireland
Overview
45.Several witnesses drew attention to the negative impact of the Protocol upon trade between Great Britain and Northern Ireland, noting that Northern Ireland’s trade with Great Britain was considerably larger than with Ireland, as set out in the table below.
Table 1: Northern Ireland trade in goods (2020)
Great Britain |
Ireland |
Rest of the EU |
Rest of the world |
|
|
Incoming trade /imports to Northern Ireland |
£10.6 billion |
£2.5 billion |
£2.0 billion |
£1.8 billion |
|
Outgoing trade/exports from Northern Ireland |
£6.7 billion |
£3.1 billion |
£1.8 billion |
£3.0 billion |
Source: Data from the Northern Ireland Statistics and Research Agency published at: Department for the Economy, Northern Ireland Broad Economy Sales and Exports Statistics: Trade in Goods and Services Results 2020 (6 April 2022): https://www.economy-ni.gov.uk/news/northern-ireland-broad-economy-sales-and-exports-statistics-trade-goods-and-services-results-2020 [accessed 14 July 2022]
46.Dr Esmond Birnie argued that, while all Brexit scenarios may well have led to a decline in Northern Ireland’s GDP, the Protocol was “peculiarly damaging” because of the greater size of trade flows between Great Britain and Northern Ireland.33 Dr Birnie cited HM Treasury analysis and business reporting as pointing to an increase of at least 6% in costs for businesses bringing goods into Northern Ireland from Great Britain, equating to £600 million per annum.34
47.Stephen Kelly acknowledged that, in respect of East-West trade, “the Protocol costs businesses in Northern Ireland money”, and estimated that it costs about £75 per consignment from Great Britain to Northern Ireland for businesses who use a broker, totalling £128 million for 1.7 million annual consignments: this provided “a decent idea of the actual administrative cost of the movement of goods from Great Britain into Northern Ireland”, while not accounting for “the free movement of goods elsewhere in our supply chains”.35 Stephen Kelly noted businesses in Northern Ireland reliant on supplies from Great Britain and selling internally “have all of the pain and none of the gain”. On the other hand, those with GB supply chains but also selling externally “have some of the pain, but they have significant gain. As a result they are willing to endure that pain.”36 Doug Beattie MLA, Leader of the Ulster Unionist Party, described this as “feast or famine. We have people doing very well and people on their knees.”37
48.The Northern Ireland Business Brexit Working Group cited figures from the Northern Ireland Chamber of Commerce and Industry that, in the first quarter of 2022, 65% of consultees said that they had adapted to the new trading arrangements (up from 52% in the second quarter of 2021), while 29% are finding trading conditions challenging (down from 37% in the second quarter of 2021). Around half of businesses surveyed have had to use existing or new staff resources, and/or pay for external support to deal with new trading arrangements. One in three have had to divert internal resources to deal with new rules and paperwork.38
The sectoral impact
49.We heard evidence on the impact on individual sectors of the economy.
Retail
50.Sacha Berendji, Managing Director, Marks and Spencer Ireland and Northern Ireland, said that his company had opened a new export centre in Motherwell in Scotland to facilitate deliveries to its stores on the island of Ireland, where separate vehicles for Northern Ireland and Ireland are dispatched. In both cases, an extra 24 hours is required for deliveries, with an impact on shelf life. However, the process for Northern Ireland was “much simpler” due to the grace periods and easements in place, and there had been a greater impact on availability in Ireland (where 600 lines out of 7,000 could not be exported) than in Northern Ireland. It can take an hour to dispatch every vehicle with the correct documentation to Northern Ireland, whereas it can take eight hours for Ireland. Overall, while the process for Northern Ireland was “significantly easier” than for Ireland, “it is still much more complex than it used to be.”39 For instance, Marks and Spencer was not able to offer Christmas food to order to consumers in Northern Ireland. Nevertheless, it was able to deliver most products for their customers in Northern Ireland.40
51.Walgreens Boots Alliance (of which Boots UK is a division) stated that they had already stopped supplying Boots branded sandwiches, salads, sushi, fruit and cakes to Northern Ireland, as well as reducing chilled food product lines to 30% of those available elsewhere in the UK.41
52.Andrew Opie, Director of Food and Sustainability, British Retail Consortium, noted that, overall, 75% of food sold in Northern Ireland supermarkets came from Great Britain. He said that GB-based firms serving Northern Ireland had faced initial start-up costs, for instance establishing new distribution centres. They now had to deal with the 24-hour pre-notification and channelling process, whereby companies had to notify DAERA that the product has arrived at its destination. He said that, while this added bureaucracy and had led to minor changes in range, availability and price, it is manageable, as shown by the maintenance in Northern Ireland of product ranges and “the same kind of price for the basic ranges across the UK”.42
53.Stephen Kelly stated that retailers supplying Northern Ireland from Great Britain faced the additional burden of moving goods to Northern Ireland that may already have been customs-cleared when entering Great Britain via international supply chains. He acknowledged that applying the full EU customs code was disproportionate to the risk posed by a supermarket in Strabane, for example, where “they may well have the odd meal travelling across the Lifford Bridge in Donegal, but there is no significant move in terms of an impact on the EU’s market.”43
Manufacturing
54.Manufacturing NI’s Protocol Tracker showed that the Protocol was fourth of four current concerns among businesses in the sector, below availability of labour. The numbers struggling with processes in the Irish Sea was below 25%, down from 40% six months before. Just over half reported a negative impact from the Protocol, down from 77% in April 2021. One in four reported a positive impact, up from one in six on 2021. GB sales appeared to have fully recovered after confusion at the beginning of 2021, and EU supply chains have almost fully recovered.44
55.However, Dr Esmond Birnie cited analysis by the Fraser of Allander Institute showing a larger net negative effect of the Protocol in manufacturing, and argued that there was not yet evidence of a bounce in manufacturing investment.45
Logistics
56.Sarah Hards, Sales Director, AM Logistics, said that, for the logistics industry, there was an initial 40% increase in costs for moving goods into Northern Ireland from Great Britain, with no decrease in costs since the first half of 2021.46 She also said that the requirements under the Protocol had added 24 hours to delivery schedules, although many customers had adjusted to this.47 On the other hand, the impact of the Protocol on the movement of goods from Northern Ireland to Great Britain was limited: “we are sending more goods from Northern Ireland than receiving, which is a first for us. We can tell that businesses here are taking advantage of the free access to the GB mainland.”48
57.The then Minister for Europe and North America, Rt Hon James Cleverly MP, said that Logistics UK had calculated that since January around half of its businesses have had exports to Northern Ireland delayed or cancelled due to the challenges of the Protocol.49
Aerospace
58.ADS, the trade association for the UK’s aerospace, defence, security, and space industries, reported that, in respect to the aerospace sector, Northern Ireland manufacturing firms report a 2–3% rise in additional material burden and a 7–15% rise in logistics costs. They stressed that supplementary declarations will add significantly to administration costs, by between 10 and 15%, and logistics providers to the UK are likely to charge a premium for the service. They argued that “the additional costs and administrative burden placed on NI companies is not sustainable in the long-term.”50
Meat processing and agri-food
59.Conall Donnelly noted that the meat processing and wider agri-food sectors had managed the impact of the Protocol reasonably well. This was due in part to the key role of large businesses with experience in transporting SPS products to third countries, who were moving full loads of raw material as a single consignment with the same commodity code from one single site to another single site in Northern Ireland, with no groupage involved.51
60.Nevertheless, the Ulster Farmers’ Union stated that, for the farming industry, “many outstanding issues still remain on livestock, plant, and related product movements from GB to NI despite in certain instances solutions having already supposedly being found.”52
61.Anne Randles, Director of Corporate Affairs, Ornua, Ireland’s largest exporter of Irish dairy products, said that, while businesses and customers had adapted, “selling into Northern Ireland from GB involves a lot more paperwork, resources and complexity. Lead times have grown. We are also perhaps less capable of responding to unplanned orders and additional demand.”53
62.Sarah Hards said that:
“It is the SPS goods that prove a massive challenge. Even at the moment with the grace period, it is still an awful lot of work and really puts customers off sending SPS goods into the country. They prefer to source them in the island of Ireland, which is great but not always ideal when it comes to contracts they have in place.”54
Small and Medium-sized Enterprises
63.Doug Beattie said that businesses in Northern Ireland reliant on the Great Britain market, and in particular Small and Medium-sized Enterprises, “are absolutely on their knees”.55
64.The Northern Ireland Business Brexit Working Group (of whom the Federation of Small Businesses Northern Ireland is a member) likewise reported that SMEs have been negatively impacted in particular, as they may not have the financial or human resources necessary to deal with the additional challenges.56
The impact of derogations and grace periods
65.The genesis of the current derogations and grace periods is complex. In December 2020, in the weeks before the Protocol came into force, a series of UK and EU unilateral declarations were made in the Joint Committee, including the agreement of a one-year grace period for the supply of medicinal products; a six month grace period for the import of “certain meat products” into Northern Ireland from Great Britain; and a three-month grace period on the certification for certain food products brought into Northern Ireland. These unilateral declarations were subsequently confirmed at the meeting of the Joint Committee on 17 December. These agreements were then supplemented by a further grace period on the movement of parcels, which was announced on 31 December 2020, just hours before the Protocol came into force.
66.On 3 March 2021, and in subsequent guidance published over the following days, the Government unilaterally announced “temporary operational steps to avoid disruptive cliff edges … as part of the pragmatic and proportionate implementation” of the Protocol. These included extending the grace period for supermarkets and their suppliers from 1 April until 1 October 2021, and phased introduction of certification requirements; mitigating guidance on movements of parcels, plants, seeds, bulbs, vegetables and agricultural machinery from Great Britain to Northern Ireland; and a statement that flexibilities in relevant regulations mean that “no charging regime is required for agri-food goods”. On 15 March 2021 the Commission sent a letter of formal notice to the UK for breaking the substantive provisions of the Protocol and the good faith obligation under the Withdrawal Agreement, marking the beginning of a further formal infringement process against the UK.
67.On 17 June 2021 the Government requested the extension of the grace period on chilled meats from the end of June until the end of September 2021. On 30 June the EU agreed to the extension, subject to accompanying official health certificates, products being sold exclusively to end consumers in Northern Ireland supermarkets, and packaging and labelling requirements.
68.As we have seen, following the publication of its Command Paper in July 2021, the Government called for agreement with the EU of a ‘standstill’ on existing arrangements, including the continued operation of the various grace periods and derogations in force in relation to agri-food, medicines, parcels and movement of pets, and a freeze on existing legal actions and processes, to ensure there was “room to negotiate without further cliff edges, and to provide a genuine signal of good intent to find ways forward”.
69.The Commission subsequently confirmed on 27 July 2021 that it was not, at that stage, moving to the next stage of legal proceedings against the UK initiated in March 2021.57 However, on 15 June 2022, the Commission announced that, following publication of the Northern Ireland Protocol Bill, it was taking forward the infringement proceedings that had been put on hold.
70.A number of witnesses drew attention to the importance of the various derogations and grace periods in terms of mitigating the negative impact of the Protocol. James Cleverly stressed that “the Protocol unchanged as it is currently being implemented—and it is not even the full implementation that is currently on the table from the EU side—is causing problems in Northern Ireland.”58
71.As we have seen, Marks and Spencer said that the derogations meant that supply of goods to Northern Ireland was easier than supplying goods to Ireland.59 Walgreens Boots Alliance stated that ending the derogations under the various grace periods could affect over 300 products immediately (2.5% of Boots’ overall product lines), including 22% of its food supplement offer and 44% of its baby food offer.60
72.Conall Donnelly noted that “the retail sector, were it not for the grace periods, would have major challenges”, in particular because of its reliance on groupage, which made delays more likely if forms were not completed correctly.61
73.Stephen Kelly gave the example of the derogation for parcels:
“If that parcels grace period were removed, the likely impact on business would be a five-to-seven-times multiple of the customs requirements that businesses would have to endure in what they receive via fast parcel operators.”62
74.Andrew Opie stressed the importance of the simplified STAMNI63 process for sending food between Great Britain and Northern Ireland. If these arrangements were not in place, it “would have made a significant impact on our ability to continue to sell the same range of affordable products in Northern Ireland”, due to the high level of cost for compliance with checks and certification processes. Because each range of products requires an export health certificate, a lorryload could entail hundreds of certificates requiring veterinary approval, thus pushing up costs and consumer prices. More broadly, “because of the standstill processes we have largely been able to maintain the same service and affordability that we had pre-Brexit, which is great for Northern Ireland consumers, who have the lowest disposable income of consumers across the UK.”64
The Trader Support Service and Movement Assistance Scheme
75.A number of witnesses stressed the importance of the Trader Support Service and Movement Assistance Scheme in facilitating trade. Conall Donnelly noted that they had both been “critical in providing certainty and simplicity, where possible, and affordability.”65 Sarah Hards said that SMEs in particular were reliant on the Trader Support Service.66
76.ADS agreed that the Trader Support Service “has been useful to companies to help guide them through the new requirements and raise awareness that tariffs on ‘at risk’ goods will be required to be paid upfront. However, they warned that companies making extensive use of customs special procedures such as Inward Processing Relief (IPR) have found that their business models are not compatible with the current functionality of the Trader Support Service. This has required additional time and a general diversion of resources across businesses, stakeholders and Government officials to get goods through the customs process correctly.67
Willingness of GB-based companies to supply Northern Ireland
77.Notwithstanding these mitigations, a number of witnesses cited ongoing issues with the willingness of businesses based in Great Britain to supply the market in Northern Ireland, because of the actual or perceived bureaucratic burden of the Protocol. Sarah Hards said that, while businesses in Northern Ireland had good awareness of the new requirements under the Protocol, the same was not true of business in Great Britain wishing to trade with Northern Ireland:68
“We lost a fairly large retail customer at the beginning of Brexit because there were too many hurdles with their SPS goods coming in. … We lost customers straightaway overnight because they could not fathom the cost of veterinary certificates, et cetera. … It is GB to NI that has decreased due to lack of education, and people not wanting to educate themselves sometimes. It is too much work to send their goods to Northern Ireland. It is not worth it for them.”69
78.The Northern Ireland Business Brexit Working Group stated that, among businesses surveyed by Manufacturing NI, GB supplier readiness and willingness remains the big issue, although the situation is improving—one in seven now report that GB suppliers are still unwilling to supply Northern Ireland, down from one in five in 2021. Almost 40% say it is ‘business as usual’ with their GB supplier, although 36% report that preparedness of GB suppliers is their biggest challenge. They stressed that “communication and clarity is required from both the UK and EU about what is required for businesses to conduct their trade in compliance with the law. This is needed to be conveyed to GB businesses as well as NI ones.”70
79.The Northern Ireland Food and Drink Association likewise emphasised the need to “educate and support GB businesses trading into Northern Ireland. Smaller business or those with a marginal exposure to NI trade are perceived to have stepped back from trade due to the perception of it being ‘too difficult to trade’.”71
The impact of regulatory divergence
80.Several witnesses argued that regulatory divergence between the UK (in respect of Great Britain) and the EU exacerbated problems with the Protocol, and made it more difficult to identify solutions.
81.Conall Donnelly said that divergence was a “major challenge” and a “big issue”:
“There must be a recognition that when the UK diverges from the EU it is actually diverging from Northern Ireland. … Our concern would be that divergence would eventually get to the point where you would struggle to source EU-compliant raw material in GB for processing in Northern Ireland. We think that could happen owing to something as simple as a change to a withdrawal period on an animal medicine, or a change to maximum residue limits on an animal medicine, which could create circumstances where a GB-based vet would be unable to sign an export health certificate.”72
82.Mr Donnelly called for “a UK internal market assessment or a Northern Ireland impact assessment, to ensure that consideration is given to the impact on Northern Ireland of any changes” either by the UK or EU:
“Both sides have to recognise that they have a responsibility. I do not really sense that they are owning the responsibility of the impact of divergence. Their respective stances will put pressure on the long-term sustainability of the Protocol, and something has to give. There needs to be an agreement that works for both sides, specifically for Northern Ireland business. It also has to work for us.”73
83.Andrew Opie called for dialogue on “how we stop divergence becoming a problem in the range and availability that Northern Ireland consumers have access to.”74 Walgreens Boots Alliance noted that certain cosmetics and food supplements ingredients had been banned by the EU but not yet in the UK, meaning that they were technically not allowed to sell the same products in Great Britain and Northern Ireland, leading to logistical costs and complexity.75
84.The Civil Society Alliance stressed the necessity of the Government’s review of retained EU law taking account of the impact on Northern Ireland. They also emphasised the importance of active monitoring and tracking of changes to EU law and their impact on Northern Ireland in the context of the Protocol.76
85.The Northern Ireland Business Brexit Working Group warned that “the more UK/EU standards diverge, the greater the difficulties posed for NI business. … There remains no suitable nor available process to manage divergence in relations to NI. An urgent resolution to this is required.”77
Conclusions
86.The most significant negative economic impact of the Protocol has been on trade between Great Britain and Northern Ireland, upon which the Northern Ireland economy has historically been dependent. This impact has been felt in terms of increased bureaucracy, staff resources, cost, and delivery times, as well as restricting the ability of firms to respond flexibly to supply and demand. This has had some impact on product availability and cost for consumers, although we note evidence that a number of companies have been able to mitigate this impact, and are adapting to the new rules in place.
87.The Protocol has created difficulties in relation to East-West trade across a number of sectors, including retail, manufacturing, logistics, aerospace, and agri-food, although they have not been felt consistently: some sectors such as retail have been affected more significantly, while some within the manufacturing sector have been able to take advantage of the offsetting effects of the Protocol. Furthermore, the nature of the Protocol has meant that the problems have largely arisen in relation to movement of goods from Great Britain to Northern Ireland rather than the other way round. Nevertheless, there are a number of consistent patterns.
88.Businesses and sectors that are reliant on supply chains from Great Britain are disproportionately affected. While larger firms have proved somewhat able to adapt to the new requirements and absorb their costs, there has been a disproportionately burdensome impact on SMEs. It is also accepted across all sectors of the economy that the Government’s unilateral continuation of the grace periods and derogations has significantly mitigated the full economic impact of the Protocol on East-West trade. The Government’s Trader Support Service and Movement Assistance Scheme have also helped facilitate the movement of goods from Great Britain to Northern Ireland, albeit that this support is only in place on a temporary basis.
89.In our July 2021 report, we reported on the lack of preparedness of businesses in Great Britain for the new arrangements under the Protocol, and widespread fears that businesses in Britain will withdraw from the Northern Ireland market. It is worrying that, in spite of some signs of improvement, these problems and fears largely persist. We repeat our call for the Government to take urgent action to encourage businesses in Great Britain to continue to trade with Northern Ireland.
90.There is also widespread concern within the business community about the impact on Northern Ireland of increasing regulatory divergence between the UK and the EU. We call on the Government and the EU to undertake a full impact assessment of the implications for Northern Ireland of regulatory divergence brought about by their legislative proposals, and for them to work together with business to formulate an effective process for managing such divergence in order to minimise its impact on Northern Ireland.
North-South trade and trade with the EU
91.A number of witnesses described the impact of the Protocol in terms of North-South trade on the island of Ireland, as well as trade between Northern Ireland and the EU.
92.Sacha Berendji said that Marks and Spencer were now sourcing 450 products locally via 25 key suppliers on the island of Ireland. A supplier in Newry will provide the full sandwich range to all 38 stores on the island of Ireland (20 in Northern Ireland and 18 in Ireland) by September. He said that this would “definitely lead to more employment”.78 Conall Donnelly said that the Protocol provided some Northern Ireland businesses in the food processing and manufacturing sectors with a competitive advantage compared to others who have lost market access.79
93.Sarah Hards welcomed her own business’ increase in trade with Ireland. She noted that a number of GB retailers had opened distribution centres on the island of Ireland, with economic benefits for the local economy: “jobs are being created and there is sourcing from local suppliers.” However, she noted that it took longer for goods to get from Irish distribution centres to stores in Ireland and Northern Ireland, as they used consolidated loads from Great Britain so as to minimise customs declarations.80
94.Stephen Kelly said that the “two big opportunities in the Protocol are in manufacturing and in distribution”, in particular in highly regulated sectors, in terms of import substitution and increases in cross-border trade. He said there were “countless examples” of small manufacturing businesses in Northern Ireland picking up trade with GB supermarkets, supplying stores not only in Northern Ireland but also in the rest of the UK.81 He cited the announcement by pharmaceutical firm Almac of 1,800 jobs, including 1,000 relocating to Northern Ireland, as it was “signing batches of drugs off into the UK and EU markets, and that that has given it an advantage”. He also said that Ardagh Metal Packaging had announced the single largest investment since the 1980s to service its customers in Northern Ireland, the UK and the EU.82 Overall, “people who are responsible for investment into Northern Ireland are reporting their healthiest-ever order book when it comes to interest in potentially investing in Northern Ireland.”83
95.Stephen Kelly added that 28% of manufacturers surveyed reported an increase in sales with the EU:84
“Our manufacturing exporters are having the time of their lives, frankly. They are seeing that Great Britain’s export sales to the EU have declined by 15%. Their export sales to Ireland have increased by 60%.”85
96.Dr Esmond Birnie agreed that statistics indicated that Northern Ireland’s trade surplus with Ireland in goods had improved, with a positive growth in trade of roughly £200 million.86 However, he said that this was due to trade diversion following the creation of a trade barrier in the Irish Sea, meaning that “the overall impact on the economy and people’s welfare may not be as good as the individual case studies of businesses that are … taking the opportunity from these changed markets.”87
97.Anne Randles stressed the importance of the Protocol for the operations of dairy firms such as Ornua, and the dairy industry on the island of Ireland as a whole:
“We export dairy products that contain both milk from Northern Ireland and milk from the Republic of Ireland. Having had to segregate that and separate it would have had serious implications for efficiencies, in processing efficiencies and in staff management. That is definitely an advantage. To be fair, that is what the Protocol was designed to do. It is working from a dairy farmer and a dairy processor perspective. … about 800 million litres of milk are delivered annually across the border from Northern Ireland. … There are no more additional veterinary requirements now than there were prior to the UK withdrawing from the EU, or prior to the implementation of the Protocol. … Importantly, the Protocol preserves the important supply chains and value chains that have been built up on the island of Ireland between companies and by companies. Of course it allows … for the free movement and unencumbered movement of products containing Northern Irish milk into the Single Market, which is a huge advantage without a doubt for Northern Irish dairy farmers.”88
98.The Northern Ireland Food and Drink Association stressed the importance of the Protocol in terms of avoiding disruption to cross-border trade in semi-processed products requiring multiple movements across the border for further processing. They stressed that these gains have been ‘banked’ and are seldom debated, but could be at risk if the Protocol is changed by solutions solely focused on GB to Northern Ireland trade: “NIFDA members must not be asked to choose between UK and EU access, both of which were expressly promised.”89
99.Declan Kearney MLA, representing Sinn Féin, argued that:
“From the outset, the Protocol opened up the strategic prospect of giving both the regional economy and the island economy, particularly the regional economy, a unique selling point with its dual access to the British Single Market and then to the European Single Market. All the indications to date are that that opportunity exists and that significant sectors of the regional economy are benefiting from that. … You are beginning to see green shoots, demonstrating that, if the Protocol is given fair wind … there can be much better days ahead, given the opportunities afforded by the Protocol.”90
100.Notwithstanding his concern at the impact on businesses trading with Great Britain, Doug Beattie acknowledged that:
“many [businesses] are absolutely booming because of the Protocol. Almac … is absolutely booming because of the Protocol. I met an agricultural machinery company that is booming because of the Protocol. I went to a pet-food store that does 60% of its trade in the Irish Republic, and it is booming because of the Protocol, so there are people benefiting because of the Protocol.”
However, as we have seen, he stressed that this was evidence of the “feast or famine” impact of the Protocol, depending on whether a business was dependent on North-South or East-West trade.91
101.Sir Jeffrey Donaldson MP, Leader of the Democratic Unionist Party, argued that:
“the idea that there is an all-Ireland economy simply does not add up to any test that one would put forward to judge whether an economy exists. There are arrangements for cooperation. That is true, and we want to protect those arrangements, but the idea that the Protocol is necessary to protect an economy that does not exist while harming an economy that does exist—the United Kingdom internal market, of which we are an integral part—causes a real difficulty for us.”92
102.On the other hand, Matthew O’Toole argued that Brexit had created barriers to cross-border services on the island of Ireland not covered by the Protocol, and that “Northern Ireland and the Republic of Ireland are moving further apart in services because we are outside the EU”. He gave examples of the banking sector, movement of data and recognition of professional qualifications, affecting sectors including the legal profession and healthcare.93
103.Ibec, Ireland’s largest lobby and business representative group, agreed, and called on the EU and the UK to work together in areas of mutual interest such as financial services, to facilitate the mutual recognition of professional qualifications, and to maintain the free flow of data.94
Conclusions
104.We note evidence of the beneficial impact of the Protocol in particular for Northern Ireland businesses trading with Ireland and the rest of the EU, including in the retail, logistics, manufacturing, pharmaceutical and agri-food sectors. A number of businesses have been able to take advantage of the Protocol in terms of product substitution (for instance providing locally sourced goods previously supplied by GB-based suppliers) or trade outside Northern Ireland (whether supplying goods to Great Britain, Ireland and/or the rest of the EU) because they enjoy a competitive advantage compared to businesses in Great Britain or Ireland whose access to each other’s markets is now constrained.
105.We also note the evidence we have received of the importance of the Protocol for sectors of the economy such as the dairy and meat processing industries that are dependent on complex cross-border supply chains on the island of Ireland, and the damage that would be caused to these sectors should access to the EU Single Market be lost. We take note of business fears that the benefits of the Protocol in terms of facilitating North-South trade are being taken for granted, and may be placed at risk by steps to mitigate the impact on East-West trade.
106.Nevertheless, we acknowledge concerns that these benefits have arisen due to trade diversion rather than growth, and that the overall impact on the economy therefore remains uncertain. We also take note of concerns that they are evidence of the ‘feast or famine’ impact of the Protocol, whereby businesses able to take advantage of the Protocol benefit, while those dependent on trade with Great Britain lose out.
107.We also acknowledge concerns over the impact of Brexit upon cross-border service provision on the island of Ireland. We urge the UK and the EU (working with the Northern Ireland Executive, as and when it is functioning fully, and the Irish Government) to work collaboratively to provide the conditions for cross-border service provision on the island of Ireland.
Mitigations and solutions
108.Our witnesses set out their views on a range of potential mitigations and solutions to the problems to which the Protocol has given rise, including those put forward by the Government in its July 2021 Command Paper (and subsequently reflected in the Northern Ireland Protocol Bill), and by the EU in its October non-papers (since expanded on in its June 2022 position papers on customs and sanitary and phytosanitary issues).
The Government’s position
109.We invited James Cleverly to set out the rationale behind the Government’s proposals. He told us that it was a “three-legged stool”, seeking to protect the EU Single Market, protect the Belfast/Good Friday Agreement and secure the re-establishment of the power-sharing Executive, and “protecting the free flow of business and trade within the United Kingdom”.95
110.Mr Cleverly said:
“The sticking point is on the level of reassurance that the EU seeks … about the integrity of the Single Market. It is looking to put in processes that are not just practically but also theoretically watertight. Our argument is that because of the unique geography of Ireland as a member state of the EU, in that it has a land border with only one other country, and that is the UK, there are a whole load of practical fixes that address the real world concerns of the EU about the integrity of the Single Market without introducing onerous or excessive checks or bureaucracy or delays or time with East-West trade across the Irish Sea between different parts of the United Kingdom, and protects the North-South trade between the UK and Ireland.”96
Flexibility and proportionality
111.Several witnesses stressed the need for both sides to show maximum flexibility and proportionality in order to identify solutions reflective of Northern Ireland’s unique circumstances.
112.Owen Reidy said that “both parties to the Protocol should not be overly precious about it. No one should get too hung up about any flexibility that can make a Protocol work better or more differently.”97 Sorcha Eastwood MLA, representing the Alliance Party, said that “it is incumbent on all partners within this to be creative and flexible, and that applies to the EU as much as the UK.”98 The British Irish Chamber of Commerce stated that “a pragmatic approach to the Protocol is needed by both the EU and the UK to ensure that an Agreement that works in theory will work in practice.”99
113.The Ulster Farmers’ Union stated that “we do not accept that the EU have gone far enough on these issues nor that the UK Government is taking the pragmatic approach necessary.”100 The Northern Ireland Business Brexit Working Group underlined its six core principles for trading arrangements under the Protocol: stability, certainty, simplicity, affordability, education and representation. They argued that these objectives were in accordance with the respective regulatory regimes of the UK and EU, and in line with the objectives and integrity of the Protocol as a legal agreement.101
114.Matthew O’Toole argued that the EU had demonstrated flexibility through the publication of its non-papers, but:
“Unfortunately, in Westminster, particularly in certain quarters in London, we have got sucked into this discourse that the EU is being unbelievably unreasonable and that this has all been inflicted on the UK. It is, I am afraid, just not true. There has been movement from the EU. I am not just coming here as someone who is being blasé and saying the EU is a perfect organisation. It is not, but it is not reasonable to say that it has not moved.”102
115.Declan Kearney told us:
“The European Commission can and should do more, but that needs to be met more than half way by the kind of will, good faith, participation and urgency on the part of the British Government to build the trust that I believe the British Government have effectively dismantled throughout this process with the European Commission.”103
116.Mr Kearney was asked whether full implementation of the Protocol, for instance as envisaged in the October 2021 EU non-papers, would be negative or positive. He replied:
“I believe it would be positive. We need to ensure that there is minimum friction in relation to trade on an east-west basis. We need to see smooth and effective implementation of the Protocol. Most importantly, we need to de-weaponise and depoliticise the Protocol. While it continues to be used in the way that it is by some sections of political opinion, that creates impediments to the two parties to the negotiation and the agreement sitting down in a rational and reflective way to ensure that customs checks are minimised and removed, and that we find a landing zone in relation to SPS checks. … We want to see a smooth and effective implementation of the Protocol. None of the issues that are currently creating difficulty is beyond pragmatic resolution.”104
117.On the other hand, Sir Jeffrey Donaldson noted that:
“It is estimated that somewhere around 0.02% of all trade crosses the Irish border. In EU terms, this is minuscule. This is small beer. … I cannot believe that the solution to that is to create a customs and regulatory border between Great Britain and Northern Ireland, when one considers that Northern Ireland purchases four times more goods from Great Britain than it does from the whole of the European Union combined.”105
Goods ‘at risk’
118.Victoria Hewson, Head of Regulatory Affairs, Institute of Economic Affairs, said that, from an economic standpoint:
“The difficulties have been caused by the Protocol’s default setting that all goods are at risk of moving from NI to Ireland or elsewhere in the Single Market. … Reversing the default so that full customs and regulatory requirements apply only to goods declared for onward movement to Ireland or the rest of the Single Market would make the Protocol operate more efficiently by eliminating the costs that are currently borne by importers of the majority of goods brought to or produced in NI that are for domestic consumption or part of UK supply chains. These costs are out of all proportion to the risks to the Single Market.”106
119.Stephen Kelly likewise stressed the need to address the “presumption of guilt” in relation to goods moving from Great Britain to Northern Ireland ‘at risk’ of moving into the EU:
“It is a function of the Protocol itself. If the outcome were flipped on its head, we would have a much better outcome for Northern Ireland in which the presumption would be that the goods were not destined for the EU. That would remove quite significant burdens upon very many traders in Northern Ireland. Through other evidence such as VAT returns, company returns and a whole raft of other publicly available documents, you could quite clearly see who was trading with the EU and who was not, and who was providing goods to the EU and who was not.”107
120.Anne Randles agreed that addressing the ‘goods at risk’ issue was:
“where the focus of attention needs to be in improving overall practicality. If those goods can be identified up front prior to movement, they can be treated differently from a customs, veterinary and control perspective, because either the UK authorities or the EU authorities will have the surety and knowledge that the product is going where it is supposed to be going and is being consumed in Northern Ireland.”108
Simplifying checks, processes and regulatory requirements
121.Witnesses reflected on various means to simplify, streamline or clarify checks, processes and regulatory requirements under the Protocol in the context of proposals from the UK and the EU.
122.The Northern Ireland Business Brexit Working Group stressed the need to adjust rules on notice for food supply:
“Having to submit information … 24 hours in advance of shipment will be impossible for some GB-NI food suppliers as their supply chain is built around items that they need to declare which are picked, packed and shipped on the same day. They would not be able to complete all of the detailed information required 24 hours in advance of dispatch in case the manifest was incorrect due to lack of availability.”109
123.The Northern Ireland Business Brexit Working Group also called for clarity and a “simpler approach” around rules of origin “that can be easily understood and delivered upon from the largest to the smallest trader.” They also requested a process review in relation to supplementary declarations, and the consideration of viable alternatives that would reduce “needless bureaucracy for traders”, as “the work associated with this return continues to be onerous and information is not readily available”. They noted in particular that for goods not at risk:
“Supplementary declarations are a purely bureaucratic activity of no value, given that the entry summary declarations and trader declarations provide all the information at point of entry to make the goods at risk decision. It should be noted that the EU say these are not required but the UK are insisting on them. This is one area in particular where a tripartite meeting with business could quickly provide clarity.”110
124.Sacha Berendji welcomed the movement on the part of the EU in its non-papers, but said that its proposals lacked detail as to what they would mean in practice, in particular in regard to simplified certification in terms of who would sign and what level of information is required.111 Andrew Opie agreed that, in terms of the EU’s proposal for a global certificate, “it is difficult to see how much supporting paperwork and authorisation would be required to operate that system.”112
125.Mr Opie said that it was difficult for the EU to move away from its import systems model, which was “quite a bureaucratic system of import controls”. He explained the difficulty of:
“adherence to the EU rules in terms of official controls that are not set up for this type of transport. Those export/import rules around certification work for things like a big boatload of New Zealand lamb, which has [taken] four or five weeks [to come] from New Zealand, and maybe has two or three certificates with it. We are moving thousands of products every day between Great Britain and Northern Ireland, each of which potentially requires a certificate. It is absolutely impossible to manage that system. … there are hundreds of lorries criss-crossing the Irish Sea delivering complex loads, each requiring an individual certificate signed by a vet. The bureaucracy is ridiculous, frankly, and I am not sure it adds much in food safety. … We need a bespoke system.”113
126.Anne Randles agreed:
“You are under huge time constraints when you are shipping either from Great Britain into Northern Ireland or from Ireland into Great Britain. There is a very short sea journey of three hours, yet built into it are systems where you need prenotification of 24 hours or longer. Officially, it could be up to four days. You have very onerous export checks and veterinary controls.”114
127.The Commission argued that its proposals would make a “tangible difference on the ground”.115 Its June 2022 customs position paper proposed a “durable solution” based on an expanded trusted trader scheme, simplified customs formalities for all trusted traders if their goods are not at risk of entering the EU, and a reduced data set for customs declarations from 80 pieces of data to 30. The Commission argued that this would lead to a 50% reduction in paperwork. Its SPS position paper proposed a “Northern Ireland-specific solution”, including a simplified three-page form for an entire truckload of retail goods moving from Great Britain to Northern Ireland (or, in the case of goods such as chilled meat subject to restrictions for import into the EU, an individual official certificate). The Commission argued that this would result in “vastly simplified certification and a significant reduction (approximately 80%) of official checks for a wide range of retail goods moving from Great Britain to be consumed in Northern Ireland.”116
128.However, as we have seen, the Government has argued that “the EU’s proposed approach, which doesn’t differ from what they have said previously, would increase burdens on business and citizens and take us backwards from where we are currently.”117
Red and green lanes/ express lane
129.We heard evidence on whether the UK’s proposals for ‘red and green lanes/channels’, and the EU’s proposal for an ‘express lane’, were a solution to these issues, and whether the two concepts were compatible with one another.
130.Dr Sylvia de Mars, Senior Lecturer at Newcastle Law School, Newcastle University, Dr Colin Murray, Reader at Newcastle Law School, Newcastle University, and Dr Clare Rice, Research Associate, Department of Politics, University of Liverpool118, argued that such a concept can be accommodated as an agreed application of what amounts to goods ‘at risk’ of entering the Single Market, “and thus amounts to talks about the application of the Protocol, and not a renegotiation of it”. They nevertheless noted that it relied on a high degree of trust between the UK and EU, including an agreed approach to data sharing in order to facilitate it.119
131.Victoria Hewson argued that the proposals for a green channel would help address both economic and constitutional concerns about the Protocol, and that “it would be in the EU’s interests to participate fully in data sharing and oversight of enforcement.”120 The Northern Ireland Food and Drink Association argued that the UK and EU proposals “are perhaps different ways of saying the same thing.”121
132.Doug Beattie said that, based on the engagement he had undertaken, all sides accepted that:
“The landing zone is to get things moving with no checks on goods between Great Britain and Northern Ireland if those goods are staying in Northern Ireland … For some reason, we cannot get to it, and that is deeply frustrating. We are having this circular argument with a landing site we all know but cannot reach.”122
133.Sorcha Eastwood acknowledged that “the concept of the red and green channels itself is perhaps not out of reach, but how we get there is key.”123 Matthew O’Toole agreed that the EU had not ruled out the Government’s calls for a green lane, “but the question is whether you are serious about engaging in the discussions, practicalities and modalities of that. That would involve live data sharing, for example, and that is something that the UK Government have not done as yet.”124
134.HE Adrian O’Neill, Ambassador of Ireland to the United Kingdom, argued that the EU’s proposals for an express lane for goods staying in Northern Ireland “would significantly reduce checks on goods moving between Great Britain and Northern Ireland”, and “were not presented as a fait accompli, but as a basis for discussion”. He also stressed the commitment of the Irish Government and the EU as a whole to:
“respond to legitimate concerns in Northern Ireland, particularly on the issue of making a significant differentiation between goods that are staying in Northern Ireland to be purchased and consumed there and those at risk of moving further into the EU Single Market.”125
Audited supply chains, trusted traders and facilitated movements
135.Several witnesses stressed that, in order for such a green or express lane scheme to work, it needed to be underpinned by a mechanism for audited supply chains by trusted traders. Andrew Opie said:
“We should be looking at authorised and audited supply chains rather than necessarily looking at quite an old-fashioned approach to trade, which is to move goods every time with a piece of paper, or even an electronic piece of paper. … We can demonstrate, through traceability on our IT systems, that they are going out of one of our depots in Great Britain to a store in Northern Ireland and will be only within the Northern Ireland market.”126
136.Sacha Berendji advocated:
“a facilitated movement scheme … where we would certificate the products and only need to change the certificates if the product composition changed. … we are certificating every product every day. The reality is that the certificate that was issued on the Monday came from the same source as it did on the Sunday. If we could move to a trusted model, where we only had to do that either once every certain period of time or on an auditable basis, and our obligation was to keep those records up to date, and make sure that they complied, it would take a lot of the friction out of the movement. … The theory of it is absolutely right. If you can separate goods going to Northern Ireland that will not go to the EU, there should not need to be checks on those products. We believe that most large food retailers … with a combination of date and batch codes would be able to identify where the products were going and prove it.”127
137.Anne Randles likewise said that an audited trusted trader arrangement was “not an outrageous or new concept. Trusted trader schemes are operated under customs rules all over the place, but you need end-to-end monitoring.”128
138.The Northern Ireland Business Brexit Working Group called for a digitised, auditable trusted trader agreement “proportionate to the low level of risk that UK retail goods coming into Northern Ireland might pose to the EU Single Market”, thereby facilitating a green channel at ports, and encompassing “as wide as possible a group of goods and traders from food to non-food, electronics and clothing.”129
139.On the other hand, Victoria Hewson warned:
“The reliance on trusted trader schemes … could have anti-competitive effects, with only supermarkets and larger retailers able to benefit and smaller retailers, wholesalers and manufacturers facing the greatest costs and distortions. According to UK government figures, of 16,000 businesses in NI that purchase goods from GB, 15,000 are small or micro enterprises with fewer than 50 employees. Such businesses have limited capacity to complete checks or meet the qualification criteria for the trusted trader facilitations that have been offered.”130
140.The Government has already established a UK Trader Scheme, and has stressed that “the green lane would be reserved for those in a new, trusted trader scheme covering all goods movements. Traders will provide detailed information on their operations and supply chains to support robust audit and compliance work.”131 The Commission has proposed extending the scope of the UK Trader Scheme to cover businesses established in Great Britain as well as Northern Ireland, more manufacturing sectors in Northern Ireland, in particular covering SMEs, and goods returning to Great Britain after processing in Northern Ireland.132
A dual regulatory regime
141.When invited to explain the rationale behind the Government’s proposal for a dual regulatory regime, James Cleverly told us:
“The dual regulatory regime will allow businesses to choose. We envisage that it will allow businesses to choose between UK or EU regulations. In practice, I suspect that, in many areas, to all intents and purposes there will be no difference between those. We share very similar attitudes towards animal husbandry, health and safety and so on. Of course, in the future there may be some modest divergence, but again in practical terms I do not think that it would be particularly difficult or onerous for businesses to be in a situation where their product standards, whether organic products or manufactured products, match both sets of regulatory regimes anyway. We want to make sure that there is something that is flexible and future-proof. That will also go a long way to addressing the EU’s concerns about the integrity of its Single Market.”133
142.Some witnesses welcomed the concept. Victoria Hewson said it “would largely eliminate the issues with the subordination of UK law to EU law in NI that unionist parties see as undermining its constitutional position, without reintroducing formal border controls and infrastructure that nationalist communities would reject.” She further suggested that the concept could viably be extended to the whole of the UK, given that “conformity with regulations is not generally controlled at international borders”.134
143.While not commenting on the specifics of the Government’s proposal, Sir Jeffrey Donaldson told us that he was prepared to accept “arrangements whereby goods that flow from Great Britain into the European Union via Northern Ireland—and the quantity is small—are subject to arrangements that ensure that they respect and meet the requirements of EU regulations for goods entering the European Union.”135
144.However, a number of business representatives expressed reservations about the feasibility of the proposal. Conall Donnelly said:
“What is in the Command Paper probably sounds attractive, until you consider that we import whole carcasses from GB. We break them up and send each cut to the best possible market. Much of that product will return to GB because it is a GB product and British beef is in high demand in the UK market. However, certain cuts are more attractive to sell in Europe, or there is only a market for them in Europe. We need to be able to sell into both markets. Under current conditions, we have a kind of once-and-done approach to SPS. … We would like to retain that. My reading of the Command Paper is that it would not be a once-and-done approach. Processors would be able to import non-EU compliant product into Northern Ireland, but then they would be required to prove that that product will not enter the EU Single Market, so you are into extra costs to try to track and trace the product throughout the supply chain.”136
145.Sorcha Eastwood argued that the mechanism carried “a huge risk” in terms of business compliance with UK and EU rules, and was not being called for by the business community.137 The Northern Ireland Business Brexit Working Group stated that “a proposed dual regulatory regime would work for some, for instance retailers, but not others, particularly agri-food”, leading to “an existential issue for some sectors. It is clear that a ‘one size fits all’ is not possible.”138
146.Andrew Opie expressed concern about the proposal on the grounds that:
“Although we start in a very close position on alignment—we obviously adopted the EU legislation in UK legislation on food—I can see that there will be more divergence going forward, and I really worry that, unless there is some kind of agreement on that, it will be too difficult for the EU to accept that we could put products on the market that met either UK or EU standards.”139
147.The Northern Ireland Food and Drink Association warned that if the Government implemented the concept of dual regulatory standards:
“It is likely that the EU will require a border on the island to manage the risk of SPS divergence and tariff avoidance arising. Criminality seeking to arbitrage tax and standards differentials that will exist either side of the border will undermine the integrity of both marketplaces in their respective export markets. Europe will recognise this risk and thus, in response to legislation to implement dual regulatory standards, may seek to respond through the TCA, rather than resigning itself to creating a border. The result: a possible trade war.”140
148.Subsequent to publication of the Northern Ireland Protocol Bill, Vice-President Šefčovič asserted that “a dual set of rules—EU and UK—would lead to a mountain of paperwork and bureaucracy, enough to bury a small business in Northern Ireland that wants to profit from access to both, the UK’s internal and EU’s Single Market at once.”141
Continuation of the grace periods
149.There was strong support among business representatives for the view that the various grace periods and derogations currently in operation needed to form part of any permanent solution.
150.Stephen Kelly argued that “no one believes that the Protocol as written in the operational plan in December 2020 will be delivered … Our expectation is that some of the things that are already in a grace period will be permanently in a grace period”. He argued that the EU would be amenable to this because of the evidence that businesses in Northern Ireland could not sustain their removal, and that the grace periods would therefore ultimately be “replaced with something else”.142 The Northern Ireland Business Brexit Working Group called on the EU to acquiesce to their continuation “to give improved stability to NI businesses and those who supply Northern Ireland.”143
151.Anne Randles said that the standstill arrangements “definitely work for Northern Ireland”, and needed to be incorporated into the long-term implementation of the Protocol.144 Sacha Berendji agreed that they were welcome.145
152.Walgreens Boots Alliance stated that the current derogations for full border controls for Products of Animal Origin needed to be maintained as a minimum. Given that the company sends 5,000 parcels per week to Northern Ireland, ending the derogation for parcels would lead to significant additional operating costs for managing customs declarations, as their current system cannot segregate between customers based in Northern Ireland or Great Britain.146
153.The Government has contended that the EU’s proposals are based on the assumption that the grace periods will come to an end. James Cleverly stated:
“The standstill position is not the Protocol as envisaged in implementation by the EU. Its proposals in those non-papers envisaged more and tighter checks, which would add increased friction between GB and NI trade. The standstill position has already been communicated to us as not working. Our position is that we cannot envisage practically the Commission’s proposals, as they currently stand, working in this context.147
154.Andrew Opie acknowledged that “the EU has moved”, but expressed concern that the proposals in its non-papers were “a long way from where we are with the STAMNI process and would undoubtedly bring additional costs and burdens, and potentially reduce the availability that Northern Ireland consumers have at the moment if we were to follow the approach in the non-papers.”148
155.Victoria Hewson agreed that the EU’s proposals:
“come from a starting point of full implementation (i.e. an end to the grace periods and other ad hoc deviations currently operating) and UK alignment with relevant EU laws. Fully implementing the Protocol and then embedding the enhanced administrative facilitations set out in the non-papers would leave consumers and businesses in NI in a worse position than they are at present. … the partial implementation of the Protocol so far has been criticised by the Commission as not fit for purpose, and infringement proceedings against the UK in respect of the continuation of the grace periods were initiated (and then paused), but there is no evidence that the absence of the full border controls expected from strict implementation has led to leakage of unauthorised goods into Ireland or elsewhere in the Single Market.”149
156.In that context, we note that, following the publication of the Northern Ireland Protocol Bill, Vice-President Šefčovič announced that the Commission had decided to take the infringement procedure launched in March 2021—which had been “put on hold … in a spirit of constructive cooperation to create the space to look for joint solutions with the UK”—to its second stage by issuing a Reasoned Opinion, “as the UK’s unwillingness to engage in meaningful discussion since February—and this week’s unilateral action—goes directly against this spirit”.150 The Commission also stressed its position that “the current trading arrangements are not the benchmark, as the UK side is currently breaking its international legal commitments by having introduced unilateral grace periods that disapply specific parts of the Protocol in the customs and SPS areas.”151
An SPS agreement
157.Several witnesses stressed the importance of an SPS agreement to alleviate the burden of the Protocol. Stephen Kelly said that a UK-EU SPS agreement was business’ “number one call”.152 The Northern Ireland Business Brexit Working Group stated that a veterinary agreement could remove up to 80% of checks and documentation that would otherwise be needed.153
158.Anne Randles said: “We absolutely need an SPS agreement. It is at the basis of a lot of the problems in controls. … Unless you have an SPS agreement on the veterinary side, you will not eliminate the need for export health certificates.”154 Ibec and the British Irish Chamber of Commerce argued likewise.155
159.Conall Donnelly was “anxious to see” an SPS agreement, as without it, “divergence will always be a major issue for us in Northern Ireland”:
“People talk about a New Zealand style agreement and they talk about a Swiss style alignment that would rule out 80% of checks. We are probably going to need something specific to Northern Ireland. … [that] falls somewhere between equivalence and dynamic alignment in certain areas.”156
Labelling
160.Both the UK and the EU’s potential solutions involve labelling requirements—in its July 2021 Command Paper, the Government stated that goods manufactured either to UK or EU rules under the dual regulatory regime “should be labelled accordingly”,157 while the EU’s June 2022 position paper on SPS envisaged, as a condition for simplified certification requirements, labels stating “products for sale only in the United Kingdom”.158
161.Several witnesses pointed to the practical challenges of solutions around labelling. Walgreens Boots Alliance said that the introduction of dual labelling marks in a small market such as Northern Ireland created challenges for businesses. They called for UK-wide recognition of the CE mark, or, failing that, allowing products with either marking to circulate in Northern Ireland so as to remove the dual conformity assessment requirements.159
162.Sacha Berendji added that separate labelling requirements for goods destined for Northern Ireland would be even more cost-prohibitive than current arrangements, and was “definitely not the solution”.160 Anne Randles agreed that the proposals on labelling were “not the way to go. It does not work for a small market like Northern Ireland, and it would be cost-prohibitive.”161
Tariff Rate Quotas
163.Some witnesses also stressed the need for resolution of issues in relation to Tariff Rate Quotas. Conall Donnelly noted that Northern Ireland cannot directly access Tariff Rate Quotas on third-country products moving into Belfast Port. Traders had got around this by importing products via Great Britain, but “the sustainable solution is to allow us to import directly into Belfast Port.”162
164.The Northern Ireland Food and Drink Association stated that lack of access to UK or EU Tariff Rate Quota allowances puts Northern Ireland agri-food and steel businesses at a competitive disadvantage compared to Irish and British counterparts. They also pointed to the loss of tariff-free access to goods from the EU entering Northern Ireland if they are distributed via Great Britain, as well as future challenges, including access to Tariff Rate Quotas for agricultural cereals and steel products, “without which NI may at times be the most expensive place in the British Isles to land such products for local production and consumption.”163
Technological developments
165.Witnesses discussed the potential for technological solutions to these issues. Conall Donnelly noted their capacity to alleviate customs processes, but stressed that SPS checks were more of a challenge, as “technology as yet does not allow you to see into the back of the trailer and remotely scan bar codes, animal ear tags … so there is a limit to what can be achieved with technology on border checks.”164
166.Anne Randles agreed that the digitisation of trade may alleviate import controls, but warned that:
“Digitisation works only when the data is good. Somebody has to input that data. Food business operators will still have to input the data. It will probably be more beneficial for the customs authorities and the veterinary authorities. There will still be quite a considerable burden on data collection and data inputting by companies.”165
167.The Northern Ireland Business Brexit Working Group called for “continued improvement in the platforms for submitting data”, including automation of processes to remove repetitiveness. They noted that, because EU legislation requires that identity checks of trailers containing SPS products must be done by a person rather than any automated system, all SPS loads must undergo an inspection at the Border Control Post upon arrival in Northern Ireland. They called on the UK and the EU to agree to the introduction of an automated seal check system, to improve the efficiency and processing of SPS consignments from Great Britain into Northern Ireland.166
VAT and State aid
168.Two other key elements of the Government’s proposals are in relation to VAT and State aid. The Committee received limited evidence on these issues.
169.Sir Jeffrey Donaldson supported the Government’s intention to address VAT and State aid, arguing that Northern Ireland was not able to benefit from measures applying to the rest of the UK.167
170.Dr Sylvia de Mars, Dr Colin Murray and Dr Clare Rice noted that the Foreign Secretary had told the House of Commons in May 2022 that “citizens in Northern Ireland are unable to benefit fully from the same advantages as the rest of the UK, like the reduction in VAT on solar panels”. In their view:
“It is not clear how this is causing either practical or constitutional problems in general in Northern Ireland, and so the EU’s appetite for renegotiating the VAT arrangements in place to enable goods to move across the island of Ireland (and into the EU) without charging VAT is likely to be limited. This does not preclude collaborative adjustments to VAT, or even temporary exceptions to the EU VAT regime that the UK Government can present as working to address economic or societal difficulties.”168
171.We also note that, in evidence previously submitted to the Committee, both Martin Howe QC, 8 New Square and Chair of Lawyers for Britain,169 and James Webber, Shearman and Sterling LLP,170 argued that Article 10 of the Protocol should be removed as it had been superseded by the TCA, and that the TCA’s provisions should be applied to Northern Ireland instead.
Conclusions
172.We note the proposed mitigations and solutions put forward by business representatives and other stakeholders to ease the practical impact of the Protocol, many of which are unchanged since the Committee’s July 2021 introductory report. We note, without prejudice to the views of individual members on the Protocol and on the UK and EU positions, and recalling the position set out in paragraph 36 of this report, that several of these recommendations are reflected in the proposals brought forward by the Government and by the EU.
173.Businesses have stressed the key importance that the default position under the Protocol, whereby all goods moving from Great Britain to Northern Ireland are considered at risk of moving into the EU Single Market unless deemed otherwise, should be reversed. We accept this criticism, and urge the two sides through the Joint Committee to undertake a further review setting out realistic criteria for determining risk under Article 5 of the Protocol.
174.We also repeat our concern that the rules on notice for food supply, supplementary declarations and import controls, while suitable for the shipment of containers of goods from across the globe, appear wholly unsuited to the regional supply chains used by businesses in Great Britain and Northern Ireland, many of whom are SMEs with limited resources, and where the risk of goods moving into the EU Single Market is low. The EU has argued that its proposals will ease the amount of paperwork involved considerably, which the Government disputes. These claims need to be tested against the views and experience of the companies that would need to implement any revised systems, and we will seek further feedback from them in the autumn.
175.The UK has proposed a system of green and red lanes or channels: green for goods destined for Northern Ireland only, and red for goods moving into the EU Single Market. The EU also proposes an express lane for goods moving to Northern Ireland only. This ‘lane’ approach, which in the UK case requires changes to the Protocol itself, and in the case of the EU requires a lighter touch application of existing Protocol articles, has widespread support in the business community, but there is frustration that the two sides have not been able to agree a common position or understanding on its operation. We call on the UK and the EU swiftly to reach agreement on how such a mechanism would work in practice. In that context, we stress the importance of a robust and mutually acceptable approach to real-time data sharing, monitoring and enforcement.
176.We also note the widespread calls for such a system to be supported by an enhanced trusted trader scheme with audited supply chains and facilitated movements of known products. Such a system would have significant benefits for the free flow of goods, although we note concerns that, depending on its scale, it could benefit larger companies at the expense of SMEs. Both the UK and the EU accept the need for an enhanced trusted trader scheme in principle, but disagree over how it should work in practice. We urge the two sides to work together with business to reach agreement on its scale and application, and to ensure that it covers as wide a range of businesses as possible.
177.We acknowledge the intention behind the Government’s proposals for a dual regulatory regime. We note that some witnesses welcomed the concept. However, there is widespread concern among business about its practical feasibility and implications for complex cross-border supply chains, in particular in the context of growing regulatory divergence between the UK and the EU. There are also concerns that such a regime may not suit all sectors of the economy. The Government urgently needs to explain how its proposals will ensure in practice that, as well as facilitating East-West trade, they do not imperil North-South trade, and to provide reassurance that businesses will not be forced to choose between trade within the UK and trade with Ireland and the EU. In that context, we urge the Government to engage with and address the specific concerns of business representatives over the feasibility of its proposals.
178.We acknowledge widespread support for the continuation of the various grace periods and derogations, amidst warnings of the serious economic impact should they come to an end without being replaced. In that context, we note that the grace periods have been unilaterally extended by the UK, and there are concerns that the EU’s proposals for changes to the Protocol appear to be based on the assumption that the grace periods will come to an end, amplified by its decision to continue the infringement procedure against the UK in relation to the grace periods begun in March 2021 but subsequently put on hold. In view of business concerns over the negative impact should they come to an end without being replaced, we urge both sides to agree to the permanent continuation of the grace periods and derogations.
179.We reiterate the conclusion of our July 2021 introductory report, that one of the most significant single measures to alleviate the regulatory and administrative burden of the Protocol would be a UK-EU SPS/veterinary agreement. It is regrettable that there has been no compromise in the intervening period between the EU’s preference for a dynamic alignment model, and the UK’s preference for an equivalence framework. We again urge both sides to work towards a common position on an SPS agreement designed with the specific circumstances of Northern Ireland in mind.
180.Both the UK and the EU envisage specific labelling requirements in relation to goods in circulation in Northern Ireland. We note the concern of business representatives around the feasibility of a system of differential or dual labelling for goods in a market as small as Northern Ireland. We stress the need for both sides to identify a mutually agreed, practical solution to this issue.
181.We also underline the importance of resolution of outstanding issues and difficulties regarding the application of Tariff Rate Quotas in Northern Ireland, and in particular to address concerns that Northern Ireland businesses are placed at a competitive disadvantage.
182.Although we have taken limited evidence on the Government’s proposals in relation to VAT and State aid, business urgently needs clarity on the application of the Protocol in these areas. We will scrutinise these important issues further in the autumn.
183.While we note the potential for technological solutions and mitigations in relation to many of these issues, we also acknowledge that they cannot resolve all of the issues in relation to the movement of goods, at least in the short term. Nevertheless, we call on both sides to work with business to explore what solutions technological developments can provide.
Business support and engagement
184.Our witnesses stressed the crucial importance of support and engagement by the UK and the EU for businesses affected by the Protocol.
Joint engagement with the UK and EU
185.Conall Donnelly welcomed the “great level of engagement “ by both the UK and the EU with business.171 However, the business community was:
“talking to both sides independently, so each side then takes different things away from the same conversation. It would make more sense to have joint technical meetings with industry. I have no doubt that that would be uncomfortable for some of the officials on both sides, but I think it would be helpful, none the less, because there would be no question of people coming back and taking different things from meetings.”172
186.The Northern Ireland Business Brexit Working Group stated that:
“A long term workable solution is one that is done with business not to business. … The UK and EU should be engaging on a tripartite basis with business and its technical and administrative experts to: (i) audit where we are now, (ii) provide a firm and shared foundation for reignited negotiations, (iii) overcome confusion, mistranslation and suspicion, and (iv) test to ensure that proposals are workable and durable.”
They also expressed disappointment that the joint business consultative group first promised by Rt Hon Michael Gove MP (the then Chancellor of the Duchy of Lancaster) and Vice-President Šefčovič in February 2021 “so that we could have a direct conduit into both the EU and UK … has still not happened.”173
187.The Northern Ireland Food and Drink Association supported calls for a tripartite working group, in particular as “misunderstandings are arising from apparently conflicting advice given by the UK and EU”, for instance in relation to supplementary declarations, labelling and State aid.174
Trader Support Service and Movement Assistant Scheme
188.As we have seen, several witnesses drew attention to the importance of the Trader Support Service and Movement Assistance Scheme in facilitating trade between Great Britain and Northern Ireland. In its July 2021 Command Paper, the Government summarised the “extensive support schemes” for business, including the Trader Support Service through to the end of 2022, and the Movement Assistance Scheme confirmed in place until the end of 2023.175
189.Conall Donnelly stated that the Government’s rolling 18 month commitment was “not great. It would be good to see an indefinite commitment. It is fundamental to Northern Ireland’s participation in the UK internal market that you have these facilitations in place.”176
190.Sarah Hards likewise called for the permanent extension of the Trader Support Service: “If it were to disappear overnight, I think the trade would almost disappear overnight as well.”177 As we have already noted, ADS warned that some business models were not compatible with the current functionality of the Trader Support Service.178
Tariff reimbursement scheme
191.Likewise, Stephen Kelly stressed the need for the Government to meet its commitment to set up a tariff reimbursement scheme:
“The UK Government committed to reimbursing that tariff for all the goods that may be subject to a tariff being applied that remain in Northern Ireland or go back to the UK. That scheme should have been in place by July last year, but we are sitting here today on 23 March and that still has not been applied.”179
192.The Northern Ireland Business Brexit Working Group stressed that “it is essential that this is delivered urgently to protect businesses from unaffordable cash flow implications given the current broad reach of the at-risk rules.”180
Conclusions
193.We welcome the engagement by both the UK and the EU with businesses affected by the Protocol. However, business representatives have stressed that there is an urgent need for the UK and the EU to engage jointly with business representatives, to ensure they send and receive a consistent message, and to prevent mutual misunderstanding or misinterpretation. We urge the UK and the EU to provide for such dialogue by fulfilling their commitment, first given in February 2021, to set up a joint consultative business group.
194.We welcome the support and assistance provided by the UK’s Trader Support Service and Movement Assistance Scheme. However, there are concerns over the compatibility of the Trader Support Service’s functionality with some existing business models. Furthermore, both are temporary measures, and there are significant concerns around the impact on businesses of the discontinuation of this support. We also note that the Government’s promised tariff reimbursement scheme is now significantly overdue. We urge the Government to make permanent the Trader Support Service and Movement Assistance Scheme and to ensure that as many businesses as possible are able to benefit from this support. We also call on the Government to implement the promised tariff reimbursement scheme without delay.
Economic impact of political uncertainty
195.Several witnesses stressed the negative economic impact of continued political uncertainty over the Protocol.
196.Sarah Hards said that Northern Ireland was in a unique position in terms of its trading relationship with the UK and the EU, but that it would not be possible to take advantage of this position without certainty over what procedures should be in place to govern trade:
“Uncertainty of any type will always have a negative impact on the economy. To have such political uncertainty around the Protocol makes everyone uneasy. It makes suppliers in GB uneasy; it makes anyone who would want to invest in Northern Ireland uneasy. The quicker we can get answers, get this resolved and get processes in place, the quicker we will see improvements in the economy.”181
197.Stephen Kelly said that uncertainty “is a real risk to boardrooms and Northern Ireland’s potential attractiveness as a place to invest.”182 Walgreens Boots Alliance agreed that ongoing uncertainty hindered business planning and investment.183 The Northern Ireland Business Brexit Working Group warned that “if solutions are not forthcoming, multiple pressures will increase on businesses, as tensions grow UK-EU and within NI. The current instability does not allow businesses to plan, nor to garner investment for the future”.184
198.Sacha Berendji underlined the importance of “a stable environment and to reach a mutual agreement that creates a predictable business environment for us to do business in.”185 The British Irish Chamber of Commerce warned that “any temptation to place the economic burden of political differences on the shoulders of businesses must be resisted.”186
199.Witnesses were concerned at the loss of momentum in the discussions between the UK and EU. The Northern Ireland Business Brexit Group stated:
“Whilst we were heartened by increased levels of engagement between the UK and the EU in the second half of 2021 and at the beginning of 2022, we are frustrated at both the pace and the delivery from these discussions since February 2022.”187
200.Doug Beattie regretted that:
“Both the UK Government and the EU decided that, in February, they would stop the negotiations and keep it at a far lower level, and they lost momentum. We have lost complete momentum since February of this year. There are no substantive negotiations between the EU and the UK to deal with the Protocol issue. We have had the election. We are the other side now, and we are in salvage mode and a circular conversation.”188
201.Notwithstanding the acknowledgement by business representatives that the continuation of the grace periods was economically beneficial, some witnesses expressed concern at the economic impact of unilateral action by either side. The Ulster Farmers’ Union argued that “confrontational approaches will not build the necessary stability nor certainty which business and investors need.”189
202.ADS said that the consistent feedback from its members was that scrapping the Protocol “would be the worst possible outcome, with a preference to continuously seek improvements to current arrangements.” They expressed concern that unilateral legislation, and retaliatory action by the EU, would have a damaging economic impact.190
203.The Northern Ireland Business Brexit Working Group stated that “it remains our view that anything other than a negotiated outcome is sub-optimal and that the UK and EU should use the time during the Bill’s passage to negotiate and find agreement.”191 Andrew Opie stressed that “our preference would absolutely be to find an agreed solution between both sides. From our interaction with both sides, that should be possible.”192
Conclusion
204.Business representatives have repeatedly stressed the damaging economic impact of continued political uncertainty over the Protocol. Notwithstanding their acknowledgement of the economically beneficial impact of the continuation of the grace periods, they have also set out serious concerns over the economic consequences of unilateral action. Without prejudice to the views of individual members on the Northern Ireland Protocol Bill or the EU’s response, we stress that a mutually agreed solution is the optimal outcome, and that the continued lack of agreement between the two sides is having an economically damaging effect. We therefore call on the UK and the EU urgently at a political and technical level to resume dialogue, in a spirit of flexibility and proportionality, and including full engagement and consultation with business, with a view to reaching such agreement.
22 Giving evidence in a personal capacity.
28 Written evidence from Ibec (FUI0011), citing statistics from Ireland’s Central Statistics Office and the Office for National Statistics, respectively.
32 For example, the Office for National Statistics produces a quarterly series on regional Gross Value Added (GVA), including Northern Ireland: Office for National Statistics, ‘Model-based early estimates of regional gross value added in England, Wales, Scotland, and Northern Ireland Statistical bulletins’: https://www.ons.gov.uk/economy/grossvalueaddedgva/bulletins/modelbasedearlyestimatesofregionalgrossvalueaddedgvaintheregionsofenglandandwales/previousReleases [accessed 11 July 2022]. The Irish Central Statistics Office (CSO) similarly publishes regular data measuring trade between Northern Ireland and Ireland: Central Statistics Office, ‘Goods Exports and Imports April 2022’: https://www.cso.ie/en/releasesandpublications/ep/p-gei/goodsexportsandimportsapril2022/ [accessed 11 July 2022]
35 Ibid.
57 Euronews, ‘EU halts legal action against UK over Northern Ireland Protocol breaches’ (27 July 2021): [accessed 20 July 2022]
63 Scheme for Temporary Agri-Food Movement to Northern Ireland. See Department for Agriculture, Environment and Rural Affairs, ‘Scheme for Temporary Agri-food Movements to Northern Ireland (STAMNI) Compliance Declaration’ (January 2021): https://www.daera-ni.gov.uk/publications/stamni-compliance-declaration [accessed 11 July 2022]
110 Ibid.
115 European Commission, Remarks by Vice-President Maroš Šefčovič at the press conference on the Protocol of Ireland / Northern Ireland (15 June 2022): https://ec.europa.eu/commission/presscorner/detail/en/speech_22_3758 [accessed 11 July 2022]
116 Protocol on Ireland / Northern Ireland - Position paper on possible solutions - Customs; Protocol on Ireland / Northern Ireland - Position paper on possible solutions - Sanitary and Phytosanitary Issues; and Questions and answers on the Commission´s reaction to the United Kingdom’s bill overriding core parts of the Protocol on Ireland / Northern Ireland
117 BBC, ‘NI Protocol: Three-page certificate for GB lorries entering NI - EU’ (15 June 2022): https://www.bbc.co.uk/news/uk-northern-ireland-61808606 [accessed 11 July 2022]
118 Written evidence submitted jointly and in a personal capacity.
127 Ibid.
128 Ibid.
141 Remarks by Vice-President Maroš Šefčovič at the press conference on the Protocol of Ireland / Northern Ireland
150 European Commission, Press release: Commission launches infringement proceedings against the UK for breaking international law and provides further details on possible solutions to facilitate the movement of goods between Great Britain and Northern Ireland (15 June 2022): https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3676 [accessed 11 July 2022]. The Commission also began two new infringement procedures against the UK for failing to: (i) carry out the UK’s obligations under the EU’s sanitary and phytosanitary (SPS) rules; and, (ii) to provide the EU with certain specific trade statistics data in respect of Northern Ireland, as required by the Protocol.
151 Questions and answers on the Commission´s reaction to the United Kingdom’s bill overriding core parts of the Protocol on Ireland / Northern Ireland
155 Written evidence from Ibec (FUI0011) and written evidence from British Irish Chamber of Commerce (FUI0012)
157 Northern Ireland Protocol: the way forward [accessed 11 July 2022]
158 Protocol on Ireland / Northern Ireland - Position paper on possible solutions - Sanitary and Phytosanitary Issues
169 Oral evidence taken before the Sub-Committee on the Protocol on Ireland/Northern Ireland on 20 January 2022 (Session 2021–22), Q 10 (Martin Howe), giving evidence in a personal capacity.