Last week was a significant week in the EU-UK relationship. Here we explain why the Internal Market Bill has attracted such controversy, and what it could mean in terms of preparing your business for trade between Great Britain and Northern Ireland from next year.
The Northern Ireland Protocol
What is the Northern Ireland Protocol?
The Protocol on Ireland/Northern Ireland, commonly known as the Northern Ireland Protocol, is part of the wider EU-UK Withdrawal Agreement signed on 24 January 2020. This version of the Protocol replaced an earlier draft, which contained the equally controversial (and now defunct) ‘Irish backstop’.
What does the Northern Ireland Protocol do?
Put simply, the Northern Ireland Protocol is designed to avoid any need for a border on the island of Ireland. Once in force, goods can pass back and forth between Ireland and Northern Ireland without any customs and regulatory checks as they can now. Instead, the customs and regulatory checks will take place at the border between Northern Ireland and Great Britain.
It ensures that EU VAT and excise rules continue to apply to goods entering Northern Ireland from Great-Britain or a third (non-EU) country, and on goods leaving Northern Ireland to either Great Britain or a third country.
It also applies EU state aid rules to measures taken by the UK which affect either trade in goods between Northern Ireland and the EU, or trade in electricity between Northern Ireland and the EU. This includes complying with decisions adopted by the European Commission.
Which supply chains will be affected?
- Whilst Northern Ireland remains part of the UK customs territory, it also remains part of the EU’s customs union. This means no customs checks between Northern Ireland and Ireland are necessary.
- Whilst the UK is leaving the EU single market in goods, Northern Ireland will still apply 200 or so EU product regulations. This will create a ‘single regulatory zone for goods’ in Ireland, and so will avoid the need for regulatory checks for goods moving in either direction between Northern Ireland and Ireland.
- The changes arise for goods moving from Great Britain (England, Scotland and Wales) to Northern Ireland, and vice versa.
- Great Britain to Northern Ireland trade flows:
- EU customs entry formalities (import declarations) apply to goods entering Northern Ireland from Great Britain, or a third (non-EU) country.
- EU tariffs apply to goods entering Northern Ireland from Great Britain that are ‘at risk of’ entering the EU from Northern Ireland.
- Animals, plants, and products of plant and animal origin entering Northern Ireland from Great Britain or a third country must:
- comply with EU sanitary and phytosanitary requirements; and
- be subject to official controls applied by designated Border Inspection Posts.
- Goods entering Northern Ireland from Great Britain, or a third country, must comply with the 200 or so EU product regulations that Northern Ireland will still apply, and may be subject to risk-based checks.
- Northern Ireland to Great Britain trade flows:
- Goods entering Great Britain, or a third country, from Northern Ireland must undergo customs exit formalities (export declarations).
What is the controversy about?
The status of the border between Ireland and Northern Ireland was the most politically sensitive element of the withdrawal negotiations. This is because it represents:
- The “most tangible symbol of the Peace Process”1 ; where an open border was a prerequisite to the normalisation of Protestant and Catholic relations; and
- The only land border between the EU Single Market and the UK as a soon-to-be third country.
The EU and UK’s agreement to the Northern Ireland Protocol (previously rejected by Theresa May’s government) allowed the Withdrawal Agreement to be struck and the transition period to be defined.
On Wednesday 9 September, the UK Government stated that the Internal Market Bill will, in the form of domestic legislation, lead to a specific violation of the Withdrawal Agreement and, therefore, of international law.
What does the UK’s Internal Market Bill do?
Of relevance to this article, it contains express provisions allowing ministers to set aside provisions of the Northern Ireland Protocol or the Withdrawal Agreement.2 It would allow the UK Government to:
- remove any requirement for an exit declaration for goods leaving Northern Ireland for Great Britain; and
- “set out [its own] interpretation” of state aid rules in Northern Ireland, meaning the Government would not necessarily be bound by EU state aid rules.3
What has the reaction been?
- The Presidents of all three EU Institutions (Commission, Council and Parliament) immediately called upon the UK to honour its commitments under the Withdrawal Agreement.
- The European Commission also immediately demanded the UK withdraw all provisions of the Bill that disapply the Northern Ireland Protocol by the end of September, and has threatened subsequent legal action. The European Parliament has announced that it would veto any subsequent agreement with the United Kingdom as long as the provisions of the bill remain in place.
- Consequently, there has been a dramatic deterioration in the UK-EU negotiations.
- There has been a chorus of disapproval from UK politicians from all parties, and international politicians as influential as Nancy Pelosi (Speaker of the U.S. House of Representatives).
- Mounting opposition to the provisions on the Protocol in Bill in the House of Commons, which has to consent to it before it becomes law.
- Damage to the UK’s international credibility caused by a conscious decision to breach international treaty obligations.
What does this mean for businesses?
- No deal is an increasingly likely prospect. If you haven’t begun to do so, it is time to review and stress test your no-deal plans of last year.
- For those businesses with Northern Ireland-integrated supply chains, UK law as it stands requires the Northern Ireland Protocol to be implemented in full. Until UK law changes, businesses should be preparing for trade between Northern Ireland and Great Britain on the basis of the Protocol, as summarised in this article.
- If the Internal Market Bill as currently drafted is enacted, it will remove customs procedures within the UK rather than add to them. Supply-chain mitigation strategies can therefore be easily adjusted.
- Should the Bill be adopted, the EU may pursue further action to protect the integrity of the Single Market. This is likely to further increase regulatory divergence between both jurisdictions. Businesses should have an overview of the main EU and UK rules applying across their supply chains to identify potential and upcoming challenges.
DLA Piper is monitoring these developments, particularly the Commissions imposed deadline of 30 September for amendments to the draft Bill. If we can be of any support in your Brexit planning, please do get in touch.
Coming up next in the DLA Piper Trade Truths series
In light of Boris Johnson’s announcement last week that the UK will end negotiations with the EU on 15 October 2020 if there is no further progress made, it is more important than ever to prepare for a no-deal Brexit. With that in mind we provide an introduction to the principles of the World Trade Organisation (WTO) and, in particular, what doing business on WTO terms means for the goods and services sectors.
1Irish Government, “Ireland and the negotiations on the UK’s withdrawal from the European Union – the Government’s Approach”, May 2017, p. 24
2UK Internal Market Bill, Bill 177, s. 45(4).
3 United Kingdom Internal Market Bill - Explanatory Notes, para. 60.