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A New Border in the Irish Sea

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Written by Graham Gudgin

The Cabinet Office has published a paper outlining its approach to carrying the agreement in the Irish Protocol. The paper delivers the promise of Boris Johnson on unfettered trade from NI to GB, but sets up a border for imports into NI from GB, albeit one with limited checks.

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Just as the main talks on a permanent Brexit agreement are currently bogged down, the EU had begun to panic that the already agreed Irish Protocol was also stuck in the doldrums. The UK government had thus been under heavy pressure to begin tangible preparations to enact the measures agreed in last December’s revised Protocol. Brussels was demanding border infrastructure, computer systems for customs declarations and an office in Belfast to house EU officials who would oversee the customs measures.

On Wednesday the EU got their answer in the Cabinet Office command paper ‘The UK’s Approach to the Irish Protocol’ (CP226).   The essence of the UK position is: ‘No international Border in the Irish Sea, no new customs infrastructure, no customs declarations on exports from Northern Ireland to GB and no tariffs for imports into NI from GB except for goods passing through to the Republic of Ireland and no EU office in Belfast. The document stresses that Northern Ireland remains in the UK customs territory and can benefit from any free-trade agreements that the UK negotiates

This is a truly minimalist approach to the Protocol while at the same time respecting and abiding by the legal obligations contained in it. In the Protocol the EU seeks to establish the economic border of the EU in the Irish Sea between NI and GB in order to avoid the need for any customs land border between NI and the Republic of Ireland. The Protocol keeps NI within the EU Single Market and operationally within the EU’s customs union (even if it also says that NI is de jure within the UK customs territory). EU regulations on tradable goods, on state aids and aspects of VAT all apply to firms in Northern Ireland which can then enjoy tariff-free trade across the Irish land border with no customs checks.

The UK proposal builds on undertakings in the Protocol to have ‘unfettered’ exports from NI to GB, to“ impact as little as possible on the everyday life of communities”, with procedures “as easy as possible, and not too burdensome, in particular for smaller businesses”, and to use best endeavours to facilitate the trade between Northern Ireland and other parts of the United Kingdom, adopting appropriate recommendations with a view to avoiding controls at the ports and airports of Northern Ireland to the extent possible. The Government paper is within the spirit of the assertion in article 2(2) which says that “This Protocol respects the essential State functions and territorial integrity of the United Kingdom”.

Most strikingly the paper takes the EU’s aggressive reliance on the Good Friday Agreement as an argument for avoiding a land border and turns it against Brussels arguing that there are two communities in NI with strong concerns and what is sauce for the nationalist goose must also be sauce for the unionist gander.

The paper has received a reasonable welcome from the DUP who recognise that this is close to the best they could expect, and that Boris Johnson has tried hard to meet their concerns. The reaction of the EU is much more guarded. On one level they welcome the fact that there is a paper at all and that they can awake from their nightmare in which the British simply did nothing. At the same time, they worry that the paper’s arrangements are insufficient to do the required job of protecting the Single Market. In the words of the Irish broadcaster RTE the paper leaves ‘a wide-open backdoor to the EU single market’. Irish Foreign Minister Simon Coveney clearly does not like the paper and says the lack of customs infrastructure will cause concern in Brussels.

The paper sets out its arrangements on trade as follows:

  1. Trade going from Northern Ireland to the rest of the UK: this should take place as it does now. There should be no additional process or paperwork and there will be no checks or restrictions on Northern Ireland goods arriving in the rest of the UK – that is, there will be unfettered access, as provided for by the
  2. Trade going from the rest of the UK to Northern Ireland: we will not levy tariffs on goods remaining within the UK customs territory. Only those goods ultimately entering Ireland or the rest of the EU, or at clear and substantial risk of doing so, will face

 

  1. Although there will be some limited additional process on goods arriving in Northern Ireland, this will be conducted taking account of all flexibilities and discretion, and we will make full use of the concept of de- dramatisation. There will be no new physical customs infrastructure and we see no need to build any. We will however expand some existing entry points for agrifood goods to provide for proportionate additional

 

  1. Trade to and from Northern Ireland from third countries: this will be handled in accordance with these principles and, where the UK has Free Trade Agreements with those countries, Northern Ireland businesses will benefit from preferential tariffs just as the rest of the UK

 

West-East Trade

Not all of the proposals lie within the full control of the UK government even if it is clear that the UK is to deliver the Protocol. Article 6 of the Protocol states that EU procedures on the export of goods will apply to NI-GB trade if they are required under the EU’s international obligations. This has been interpreted by the EU as a requirement for export or exit summary declarations on NI-GB trade. The Government’s paper states that this should not be necessary but acknowledges that an exemption from export declarations will need to be agreed with the EU in the Joint Committee.

We should note the asymmetry in this UK position. While the EU insists that it must protect the Single Market by ensuring that any goods which do not meet EU regulatory standards are kept out, the UK takes a less restrictive attitude to goods from the EU which could reach GB via NI with no customs checks. The Cabinet Office paper says that “The UK’s customs and regulatory regime will apply to EU goods and businesses exporting to Great Britain, subject of course to any preferential terms we agree through a Free Trade Agreement”. EU goods will not be subject to the light-touch arrangements for NI goods, it says, and will instead face full UK customs and regulatory controls.

In the case of goods transiting via NI it is unclear how this is to be achieved with no customs checks or documentation at either the land border or the Irish Sea between NI and GB. One possible approach designed in a 2016 paper from the two most senior NI Civil Service officials (but suppressed on the orders of Theresa May’s No.10) is to have red and green channels for outgoing trade at NI ports and airports. Goods from south of the land border would be legally obliged to use the red channel and potentially be checked. However, the paper makes no reference to this.

This loophole in the UK’s customs defences could become an issue in trade talks if EU producers use this as a way of exporting goods tariff-free into markets with which the UK has a free-trade agreement, but the EU does not. Most immediately this could include the USA.

The document also insists that since NI is legally within the UK customs territory it can share fully in any gains from future FTAs. This is clear for exports from NI but less so for imports. If a future FTA between the UK and USA allowed hormone treated beef into NI this would breach the EU’s cherished defences of its Single Market. Indeed, the need for checks between GB and NI, especially for agri-foods is centrally aimed at preventing such goods getting into an NI which has no economic land border with the Republic.

East-West Trade

Avoiding customs checks on outgoing trade from NI has always been the easy part for the UK. The real difficulties are on trade into NI from GB and the success of the Cabinet Office paper will depend on just how light touch these can be made.

Article 5 of the Protocol states that goods travelling from GB to NI are deemed by default to be “at risk” of entering the EU (and therefore subject to EU tariffs). The Government’s paper states, “We will not levy tariffs on goods remaining within the UK customs territory. Only those goods ultimately entering Ireland or the rest of the EU, or at clear and substantial risk of doing so, will face tariffs.” It highlights that Article 4 of the Protocol is clear that Northern Ireland remains in the UK’s customs territory, and adds that the removal of internal tariffs is “fundamental” to the nature of a customs territory.

The Government acknowledges that some new processes and formalities will be needed.  For example, there will be electronic import declarations and other administrative processes on industrial goods travelling from Great Britain to Northern Ireland. However, these processes will be implemented without any new customs infrastructure in Northern Ireland except for food products expanding existing checks for food of animal origin.

The role of the Joint Committee and its NI Specialised Committee are important in all of this, deciding for instance which goods are at risk of entering the Republic from NI. The EU has tended to take the view that all goods are potentially at risk and that special ‘facilitations’ can be applied to reduce bureaucracy. Facilitations might for instance include trusted trader status for businesses like supermarkets delivering direct into the NI market. Decisions in the Joint Committee are subject to independent arbitration, with the ECJ ruling on matters of interpretation of EU law, so the UK cannot guarantee that its preferences will prevail.

The existence of a system of customs declarations for all goods is extraordinary. It is difficult to think of another case among western democracies where customs declarations are needed between regions of the same state. The Government attempts to play these down saying that they will be used to prove that these goods are exempt from tariffs, but it is clear that the real purpose is to enforce an EU customs border.

We do not yet know what these declaration procedures will be, and Government should work with businesses to ensure they are the least burdensome possible. There appears to be an ongoing debate within government with one view that firms should not have to fill in forms themselves. Instead existing information from VAT returns and other forms could be reprocessed to provide a record of what is moving into NI from GB. The other, and perhaps dominant, view is that some direct basic reporting by firms will be needed but HMRC will help to minimise the cost and inconvenience to firms. If an approach without direct declarations from firms themselves is possible this should be the way forward.

The Government will need to formalise this objective of avoiding tariffs on internal UK trade by agreement with the EU in the Joint Committee. The aim appears to be to agree further exemptions in order to narrow the definition of an “at risk” good in Article 5 as far as possible. The Government points out a number of examples of goods crossing from GB to NI where the practical risk of diversion to the EU is very low.  The question of tariffs in the Protocol depends to a degree on the outcome of separate UK-EU negotiations on the future trading relationship. If a zero-tariff agreement between the UK and the EU is reached, it will be easier to implement the Protocol in the light-touch way the Government has outlined.

Conclusions

Even with the minimalist interpretation contained in the Government paper, the Protocol clearly sets Northern Ireland apart from the rest of the UK. Distinctive provisions for NI are nothing new but adding to them in a context of continual nationalist pressure for a united Ireland will inevitably be interpreted by many unionists as yet another weakening of the union. In one sense this reaction is correct, Northern Ireland will be less integrated into the UK than it was previously, but for the average voter we need to ask how much the new arrangements will be noticed or will matter.

The answer to this question will depend heavily on whether or not the UK negotiates a free trade agreement with the EU. Under an FTA there will be few tariffs or quotas and in this case less need for customs declarations or checks on goods crossing from GB into NI. Importantly there will also be less gain to NI business since tariff-free access to the EU would no longer depend on the Protocol itself. It would come as part of the UK-wide FTA. The main gain to business would be a lack of checks at the Irish land border but to secure this NI is subject to a raft of EU regulations over which it would have no say. NI businesses would also have to complete some form of customs declarations to import from GB and see their goods subject to checks, albeit infrequently. Since trade with GB is much larger than with the Republic of Ireland it is not obvious that this deal more advantageous to NI business than the alternative of checks at the Irish border.

In the case of an FTA the whole exercise can be seen as a way of avoiding inconvenience for border residents and small traders and importantly of meeting nationalist demands for maintaining a border-free island with a feeling of an all-island economy. This is why it is so important that unionists should feel that the arrangements are not a step en route to the Irish Unity that many nationalists say is inevitable. Whether the democratic constraint built into the revised Protocol is essential in this context is another matter. The get-out clause for a NI Assembly vote after four years was a masterstroke of innovative thinking by No.10 (significantly not the NIO). Given the electoral balance in NI it is perhaps unlikely to be invoked but it is nevertheless there if the unionist parties wish to make a case for dismantling the arrangements and are able to convince a majority.

Has all of this been worthwhile? The UK conceded the EU’s demand to settle the Irish border question before beginning negotiations on an FTA in order to secure a transition period and to proceed to negotiations. If the UK fails to secure an FTA with the EU, the transition period may be seen as having been of limited value. Some will then argue that the Withdrawal Agreement was conceded for little gain. The Government Paper argues that in the context of the UK leaving the EU the proposed arrangements are in the interests of all of Northern Ireland but it is understood that independent legal advice has been sought on alternative approaches if no FTA emerges.  Much is still to play for, but it is clear that within the constraints it inherited, the Government has made large strides in ensuring a light touch regime.

This article was first published on the Policy Exchange website at https://policyexchange.org.uk/a-border-once-again/

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About the author

Graham Gudgin