After weeks of speculation interspersed with non-papers, the UK Government formally tabled its proposals on an alternative for the Backstop on 2nd October. In his accompanying letter, the Prime Minister stated that he believed the proposals were a “reasonable compromise” and represented a “broad landing zone” in which a deal could take shape. Whilst a draft legal text of the new Protocol on Ireland / Northern Ireland was also presented to the EU Commission’s Task Force 50, this document was not made publicly available. Instead, a 7-page explanatory note has been published by the UK Government and is accessible via: https://www.gov.uk/government/publications/uk-proposals-for-a-new-protocol-on-irelandnorthern-ireland
Proposal Key Points
- EU-Aligned Regulatory Zone: covering both agricultural and industrial goods would be created on the island of Ireland. This would include not just sanitary and phytosanitary (SPS) regulations and agri-food goods but would also include regulations relating to “all goods”, and is thereby intended to eliminate regulatory checks for trade between Northern Ireland and Ireland. Early indications suggest that this is being viewed positively by the EU as it directly addresses the problematic SPS issue which is relevant to over 40% of cross-border trade in Ireland. It also means that there would be an expanded range of checks on goods shipped from GB to NI as currently it is mainly live animals, plant and fertiliser products which are checked. However, the proposals also state that there would be “unfettered access” for NI goods entering GB.
- Regulatory Zone Contingent on Consent from NI Institutions: to be given on an ongoing basis, before the end of the transition period and every four years thereafter to overcome what the UK Government sees as a democratic deficit if significant sectors of the NI economy are governed by laws over which it has no say. This would also include an ability to exit certain areas of regulatory compliance, or to withhold consent to laws becoming applicable. In such cases, arrangements would not enter into force or would lapse (after 1 year), and arrangements would default back to existing rules, although it is currently unclear which rules these would be (UK rules?, previous EU rules?). As the Northern Ireland Executive has now been suspended for over 1,000 days, this presents significant problems to the EU as it could theoretically give the DUP a veto over the application of the rules – something which is not available to other non-EU entities. Even if the Stormont assembly becomes functional again, what happens if gets suspended again in the future? Do decisions then fall back to the Northern Ireland Office or both the UK and Irish Governments as co-guarantors of the Good Friday Agreement? The EU is going to scrutinise this issue closely.
- Northern Ireland to be fully part of the UK Customs Territory: it would no longer be part of the EU’s Customs Territory once the transition period is over. This means that all customs processes (including checks) to ensure compliance would need to take place on trade between Northern Ireland and Ireland. That said, the British Government is keen to point out that the vast majority of customs procedures (e.g. declarations) would take place electronically, with some simplifications, and any checks would be conducted at traders’ premises or other points in the supply chain, but not at the border. It is seeking a commitment from the EU to never conduct checks at the border in the future. In effect, any customs checks would take place away from the border in both Northern Ireland and Ireland, effectively establishing two customs border zones in each jurisdiction – one would be as part of the UK Customs Territory (NI) and the other as part of the EU Customs Territory (Ireland) as the map below depicts. This is highly problematic for the EU, especially Ireland, as in some ways it puts a degree of separation between the customs regime in Ireland and that of the remainder of the EU. It also raises multiple other questions over how unscrupulous traders would be identified as any price differentials created by varying tariffs or differences in VAT and excise would be quickly exploited by rogue traders, often with no registered business premises. It raises the prospect of mobile customs units becoming visible in the border region which could prompt a negative reaction by local communities.
- Special Provisions for Small Traders: linked with the previous point, simplifications in customs procedures would have SMEs as a core focus in order to minimise the regulatory burden. This includes a trusted (authorised) traders’ scheme to make compliance easier when trading between NI and Ireland. It envisages “temporary admissions” to permit short-term movements of goods across the border (presumably to facilitate trade shows for instance). In addition, some small traders would be exempted from certain procedures and may even be exempted from paying duty altogether. There would also be additional support for traders in most need to assist them with compliance. These provisions present significant challenges. For instance, could larger firms simply create multiple companies so as to qualify for exemptions? From an EU perspective, particularly given difficulties that the UK has had in the past in dealing with VAT fraud, there would be major questions on whether such proposals are legally operable and would undermine the integrity of the EU Single Market.
- Future UK-EU Trading Relationship: is still envisaged to consist of a comprehensive free-trade agreement and much of the detail not mentioned in the Government’s proposals (e.g. how Rules of Origin would be addressed) would be dealt with after the UK formally exits the EU. Again, the EU will have major difficulties with this as it is unlikely to view such arrangements as a legally operable insurance mechanism to prevent a harder border emerging in the future on the island of Ireland.
Overall, the UK proposals represent a significant step forward, but it is highly questionable whether an agreement (definite landing zone) is in sight as a result of their tabling. A formal response from the EU is expected on 3rd October (afternoon). It is likely that this response will have as a core focus, the three key objectives of the backstop: preventing a hard border re-emerging on the island or Ireland, preserving north-south cooperation and the all-island economy, and protecting the EU’s single market and Ireland’s place in it. It is obvious that having separate customs regimes in both jurisdictions would constitute a hardening of the border. The proposals also raise questions for the competitiveness of the all-island economy and creates some discomfort for Ireland as part of the EU Single Market and Customs Union. Therefore, a lukewarm response is likely from the EU. That said, it will be keen for talks to continue and the UK proposals merit further discussion at least.
Ultimately, the EU is likely to call for closer customs alignment between NI and Ireland/EU. An indication by the UK that its tariff levels for sensitive products (particularly agri-food) would remain similar to the EU’s, but within an independent UK trade policy, would help. This would also help UK farmers to safeguard against competitive pressures from the world market, if tariffs were suddenly reduced significantly.
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