15/11/2021
This article was co-authored by Charlotte McClelland, Trainee Solicitor, London.
This article is the fourth in a series on what Brexit means in practice to businesses and the insurance market more widely. In this article, we focus on the Northern Ireland protocol. While the EU wants to protect the single market, for the UK Government, the protocol represents controversial post-Brexit trading arrangements – not least due to the political and security concerns that run alongside difficulties with trade. In terms of wider business impact, the current lack of clarity on trading rules is compounded by uncertainty around what may happen in practice if the negotiations remain deadlocked or the UK Government triggers Article 16 of the protocol to take corrective steps. Meanwhile, ongoing unease and instability around the future of the protocol is not helpful to businesses, with regard to access to trade considerations, added operational complexities, additional paperwork and associated costs.
This analysis offers an overview of what the key sticking points are, and looks ahead to what may happen should agreement not be reached.
In July 2021, Brexit Minister, Lord Frost, published a command paper containing proposals to replace the protocol. The UK Government argues that the protocol is ‘not fit for purpose’ in the long term due to the risk of economic and societal disruption in the UK, to the extent that it would be justified in triggering Article 16 to take unilateral ‘safeguard’ measures. In response, the EU has said it is prepared to soften some of the controls but that invoking Article 16 would have serious consequences – for both Northern Ireland and for UK-EU relations.
The impact of the situation depends on what happens next. While the UK Government may consider it is entitled to trigger Article 16, should it do so, it would represent a major clash with the EU.
Meanwhile, we set out five key sticking points, presenting both the UK’s and EU’s current position on each. We also offer commentary from our experts based in the UK, Northern Ireland and Ireland, in terms of some of the issues impacting businesses and the insurance market more widely.
All goods entering NI must comply with EU law as set out in the protocol. This includes sanitary and phytosanitary (SPS) rules that apply to animal and plant products.
EU rules don't allow certain products such as chilled sausages, to enter its market. A grace period, where the rules don't apply, has been in place since January 2021 but no long-term solution has been found. Tension around extending grace periods has been coined the “sausage war”.
The UK proposes that only goods moving from GB to NI, where their final destination is the EU, should require checks and paperwork.
Goods moving from GB to NI to remain in NI should not need additional checks and paperwork.
The EU is offering an approximate 80% reduction in SPS checks by way of a streamlined certification procedure and removal of physical checks.
This solution would be dependent upon the UK honouring its commitment to construct permanent Border Control Posts, including packaging and labelling indicating that the goods are for UK consumption alone, and strengthened monitoring of supply chains.
Supermarkets and other stakeholders have raised concerns relating to increased costs, supply chain issues and a lack of choice for NI consumers. For example, a leading retailer will not be running its Christmas food ordering service in Northern Ireland due to concerns it may not be able to fulfil orders.
Back in January 2021, the shelves in Northern Ireland were alarmingly empty in most supermarkets and even bottled water which originated from Great Britain was scarce. Many suppliers in Great Britain stopped delivering to Northern Ireland as the paperwork was considered too cumbersome and even free packets of seeds which accompany gardening magazines have been and continue to be absent because of the protocol. It impacts on daily life in Northern Ireland and may, more worryingly, impact on the supply of medicines with a body representing some UK pharmaceutical companies warning that the EU’s plan to guarantee the supply of medicines from Great Britain to Northern Ireland is unworkable.
Customs declarations are required on all goods moving from GB to NI.
However, the full effect of the protocol has been limited so far due to grace periods in certain areas.
The UK proposes that customs formalities should only apply to goods moving from GB to NI that are destined for the EU.
It would be the primary responsibility of any UK trader moving goods to NI to declare whether the final destination of those goods was NI or Ireland.
The EU is proposing to introduce a kind of red/green “traffic light” system for goods, where the definition of goods “not at risk” is expanded.
With this arrangement, the EU estimates that customs paperwork could be reduced by 50%.
Additional paperwork can be costly for businesses.
Concerns have also been raised around GB exporters failing to comply with EU origin rules when importing into the EU. This could lead to enforcement actions by EU authorities.
NI is part of the EU's internal market and therefore the EU's pharmaceutical regulatory system for medicines. However, the grace period means that there is currently no risk to supplies in terms of the movement of medicines from GB to NI.
The UK Government has proposed removing medicines from the protocol entirely.
The EU is offering to change its own rules on medicines, to guarantee that medicines licensed in GB can flow to NI.
The EU has been prepared to make some significant concessions to resolve the situation, including permitting GB to keep their regulatory compliance functions where they are currently located. Concessions also include placing medicines which are centrally approved in the EU, via the EMA procedure, on the NI market, without any further formalities.
In effect, the protocol subjects Great Britain to a “dual regulatory regime” in respect of the placing of medicines on the Northern Ireland market, with manufacturers and distributors in Great Britain being forced to comply with the regulatory requirements and obligations of Great Britain and Northern Ireland, respectively.
The onerous regulatory burdens posed by the protocol are of paramount concern for Great Britain based medicinal manufacturers and distributors, particularly suppliers of generic medicines which are subject to high volume production at low cost. The complex practicalities arising from the transfer of regulatory compliance functions (including marketing authorisation holders and batch testing) to Northern Ireland or the EU, and associated expense, will inevitably discourage the supply of medicines to the NI market, with many industry stakeholders having voiced their intentions of pulling out of the Northern Ireland market completely, should resolution not be reached imminently.
With indicators by Informa Pharma Intelligence showing that some companies are due to withdraw 90% of their products, it is clear that the small commercial margins within which some companies operate, do not allow for added complexities in the supply chain. According to the BBC, these potential hurdles have already triggered change, with 910 medicines so far being notified for withdrawal. The Health Department has been notified of a further 2,400 at risk.
Annex 2 of the protocol, lists all of the required pieces of EU legislation that continue to apply to NI to keep it aligned. Further, NI will need to keep pace with future changes/updates.
The UK Government has stated that “where EU law is applied or replicated in Northern Ireland under a rebalanced settlement, there should be more robust arrangements to ensure that, as rules are developed, they take account of their implications for Northern Ireland – and provide a stronger role for those in Northern Ireland to whom they apply.”
The EU is proposing enhanced engagement with NI stakeholders and authorities. The proposed solution includes:
There have been reports referring to a “democratic deficit”. Northern Ireland is not part of a Member State but must adopt a significant body of EU rules without having any formal opportunities to influence EU policy.
The protocol essentially states that that the ECJ has jurisdiction to rule on matters of EU law in NI.
The relationship between the UK and the EU should not ultimately be policed by the EU institutions including the ECJ.
The dispute settlement process should return to a normal treaty framework, with governance and disputes managed jointly between the UK and EU and disagreements ultimately resolved through international arbitration.
The EU has not put forward any proposals in this area.
In practice, the ECJ’s role in resolving disputes under the protocol has not proved hugely significant for Northern Ireland businesses to date.
According to the respected Economic and Social Research Institute (ERSI), it is estimated that Brexit has led to a 45% reduction in goods coming from the UK to Ireland. Before Brexit, UK trade represented 33% of Irish imports but that is now down to 12%. Conversely, the ERSI consider that “very little reduction [has been] observed over the past year” in Irish exports to the UK, despite certain sectors such as food and beverage exports to UK falling as much as 40%. The ERSI also reports a significant increase in trade between Northern Ireland and the Republic.
Brexit has also prompted changing trading patterns to and from Ireland. The UK landbridge was a preferred route for freight, from Dublin or Rosslare through Wales and then across the Channel to France. However, Brexit has incentivised a substantial increase in direct freight sailings from Ireland to the continent. For example, Dublin Port reports that container and trailer traffic to/from Great Britain is down 21.2%, whilst the same traffic directly to/from continental ports has increased by 36.3%. Containers and trailers in Dublin Port to/from Britain has dropped from 64% before Brexit to just over 50% now.
Despite the myriad of misunderstandings, for many businesses of Northern Ireland, the protocol is seen as an opportunity to continue trade with both the EU and UK, providing Northern Ireland with a unique economic opportunity. The danger though is that the ongoing disagreement will lead to political instability and continuing uncertainty for businesses on both sides of the border – a situation that is compounded by the governance of Northern Ireland being a highly emotive issue.
Should Article 16 be triggered by the UK Government, a long process would commence as outlined in Annex 7 of the protocol. Oversight of the Article 16 process is held by the Joint Committee. As such, alternative options could be put forward that include a suspension of surveillance measures or the freezing of the memorandum of understanding on financial services.
For now though, the talks between the UK and EU remain unresolved, which is reminiscent of the intensive discussions leading up to the Withdrawal Agreement in December last year. And, as stated above, the extent of the EU’s reaction depends on what steps the UK Government takes. If, say, the UK seeks to extend grace periods for importing foods to Northern Ireland, we may see little more than lengthy court proceedings. If, however, the UK seeks to override the provisions on the single market and cut out the ECJ, a more forceful response form the EU can be expected. As we now know, when it comes to Brexit, finding a way through a scenario to a satisfactory outcome is often protracted and highly political.
