On 17 December 2020 the EU-UK Joint Committee formally endorsed all decisions and other practical solutions related to the implementation of the Withdrawal Agreement, applicable from 1 January 2021, , write Johnny Hanna and Frankie Devlin of our Brexit Response team.
This followed the publication on 10 December by the UK Government of its Command Paper and the accompanying Decisions.
The Decisions that were published with the Command Paper contain the legal text of what has now been formally agreed by the EU-UK Joint Committee on 17 December and it is the precise wording of these legal texts on matters such as when goods are not “at risk”, that will determine how the decisions are implemented and not the Command Paper.
The Protocol which was agreed as part of the Withdrawal Agreement seeks to avoid a hard border in Ireland, protect the EU Single Market and maintain Northern Ireland’s place in the UK internal market. It provides that whilst NI remains part of the UK VAT area and Customs territory, it also has access to the EU’s Single Market and to achieve this Northern Ireland (“NI”) is required to continue to apply EU Customs rules, Single Market rules on goods coming in and out of NI, as well as applying EU VAT rules on goods traded in NI.
The Protocol will become legally effective from 1 January 2021, irrespective of whether a Free Trade Agreement (“FTA”) is agreed or not between the UK and EU. Now that the formal decisions and practical solutions have been agreed, the UK Government has withdrawn clauses 44, 45 and 47 of the UK Internal Market Bill which could have threatened the full implementation of the NI Protocol.
Although many of the clarifications and derogations are positive, it has come very late and it will be a significant challenge and, in some cases, impossible for businesses to be ready for 1 January 2021 in respect of all of the trade, custom, regulatory, VAT and other changes. A number of the derogations have been required as the UK is not fully ready for the end of the transition period, in particular, regarding the import of food products from GB into NI. For this reason, the EU and UK have agreed a number of unilateral declarations to provide time limited solutions (i.e. grace periods) in a number of areas, such as Export Health Certificates, import of meat products, medicines and a number of other areas.
To some degree the additional safeguards may provide a softer landing for NI businesses than other parts of the UK, particularly if a trade deal cannot be agreed and tariffs are imposed on trade between the EU and UK. If there is a zero-tariff trade agreement then some of the complex criteria to determine if goods are not considered to be in the ‘at risk’ category may become less relevant, or at least be simpler to operate. The ‘at risk’ rules are discussed in detail below.
The main issues that have now been endorsed and agreed between the EU and UK relate to the following areas:
A number of other areas are covered including, state aid rules, SPS checks, continued flow of medicines into NI and the Single Electricity Market. We summarise the main areas below:
Whilst the NI Protocol is by no means perfect and was always going to be sub-optimal to having full membership of the single market and customs union as is the case for EU members, it does at least provide some additional protections to NI businesses, particularly if a comprehensive FTA is not agreed between the UK and EU. NI businesses will, in many cases, be able to trade as before with the EU, with continuing tariff free access and no customs procedures which will clearly not be the case for the rest of the UK.
The Protocol was never meant to stand alone, and a comprehensive FTA would greatly assist the opportunities that the Protocol may provide in the future. It would greatly simplify the complex “at risk” goods system highlighted above, that will otherwise be apply on goods imported into NI from GB and ROW. Even if a thin trade agreement that includes zero-tariffs is agreed, this should make the at-risk requirements much less onerous and costly for businesses. NI businesses also need to get continued access to EU FTAs with third countries, as this is required to retain and grow both the all-island economy with its closely linked supply chains but also to promote further export opportunities for businesses across the island. Whilst this is not provided for in the Protocol, businesses and their representatives continue to lobby for this with Government in Ireland, the UK and at EU Commission level.
However, there are still many areas that businesses have just not had the time to prepare for given the lateness of some of the Government announcements regarding customs, VAT and other regulatory issues with too little time to prepare for 1 January. Although the Trader Support Service may prove to be of great benefit to businesses in dealing with customs obligations, businesses are still not clear what details they must provide to the system to ensure customs declarations can be submitted.
Businesses in Northern Ireland should continue to follow the on-going developments in the wider EU-UK negotiations and the daily updates as this could impact on some of the operational aspects under the Protocol. Also, HMRC have now created a Northern Ireland landing page which brings together relevant information for businesses to prepare for the end of the transition period and it is advisable to review the information included here which is likely to be updated on a regular basis.
If you have any queries on how Brexit will affect your business, please get in touch with our dedicated Brexit response team.