More questions than answers: latest developments in the Brexit negotiations

25 June 2020

Author: Richard Gray
Practice Area: Corporate - M&A, EU and Competition
Sector: Brexit

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On 15 June a high level video conference took place between EU and UK leaders in an effort to add new impetus to a talks process which had become worryingly becalmed. Four rounds of negotiations have taken place so far with little progress. The prospect of a “no-deal” Brexit, temporarily banished from the headlines by the coronavirus pandemic, once more looms large.

Northern Ireland has again remained a key sticking point, with the UK Government coming under criticism from the EU for failing to provide sufficient detail on its approach to implementing the Northern Ireland Protocol to the Withdrawal Agreement (WA) and from the devolved administrations in Northern Ireland, Scotland and Wales over its refusal to seek an extension to the transition period. This article considers the implications of recent developments in the Brexit debate for the NI business community.

Joint Committee rules out possibility of extension

The second meeting of the Joint UK-EU Committee took place on 12 June 2020. The committee’s role is to oversee and monitor the implementation of the WA.

The UK’s lead representative on the Joint Committee, Michael Gove, confirmed that the UK Government will not seek an extension of the transition period and this position was formally accepted by the EU for the first time. This comes despite calls from the devolved administrations in Northern Ireland, Scotland and Wales for an extension and the EU’s openness to an extension of one or two years. Under the terms of the WA any decision to extend the transition period must be taken by 11:00pm on 30 June 2020. Unless there is a radical change of stance from the UK Government, the transition period will end on 31 December 2020, regardless of whether an agreement is reached on the future trading relationship.

The Committee agreed on a framework for intensifying talks over the coming months, with in-person negotiations planned for July, August and September, alternating between London and Brussels.

Revised Plan on GB Customs and Tariff Payments

In an apparent effort to address the concerns of UK business about the impact of such a no-deal Brexit on an economy already suffering the steepest economic downturn in 300 years, the UK Government has signalled a unilateral relaxation of the rules in relation to customs and tariff payments for firms in Britain. The ‘revised plan’ will be brought in on a three-stage process up to the summer of 2021. The three stage process is outlined below:

  • 1 January 2020 – checks on controlled substances e.g. alcohol and tobacco and checks on standard goods e.g. clothes and electronics, will all be subject to customs procedures. Businesses will have 6 months to complete customs declarations and pay relevant tariffs.
  • 1 April 2020 – imports of products of animal origin e.g. meat, egg and milk products, must pre-notify officials and provide the relevant paperwork.
  • 1 July 2020 – all goods will be affected by relevant tariffs and customs declarations including full ‘safety and security’ declarations. From this date, an increase on physical checks on livestock, plants etc. will be seen at ports and entry points.

It is important to note that this plan will only apply to imports into Britain, not Northern Ireland, and does not apply to goods leaving the UK. Checks on exports to the EU will be the responsibility of the EU.

UK Government sets out position on NI

The questions arises as to where this leaves Northern Ireland?

The UK Government’s published its long-awaited Command Paper on 20 May 2020. The UK Government has faced much criticism in recent months from EU negotiators for failing to provide clarity on its approach to Northern Ireland. The aim of the paper is to set out the UK Government’s approach to the Northern Ireland Protocol.

Tariffs and Customs Checks

The paper states there will be no tariffs on internal UK trade but accepts that some checks on goods moving between Britain and Northern Ireland might be necessary. Tariffs would only be relevant where goods are deemed to be ‘at risk’ of entering the EU.

The paper further states that UK authorities will apply EU customs rules to goods entering Northern Ireland which will involve a ‘new administrative process’, including new electronic import declaration requirements and safety and security information for goods that enter Northern Ireland from anywhere else in the UK. However it also stipulates that no new infrastructure will be created to carry out checks on goods entering Northern Ireland, instead existing infrastructure will be extended.

The frustration for business is that with so little time remaining so many questions remain unanswered. For example, what level of checks and certifications will be required? Can all documents be lodged electronically? How can an adequate IT system be developed within the time available to enable the system to operate?

Faced with so much uncertainty it is difficult to know how businesses are meant to assess the level of additional resource required and the likely cost of operating the new procedures. This issue is particularly pressing as the new customs changes will come into force in Northern Ireland in January 2021, rather than July 2021 for the rest of Britain under the revised plan referred to above.

Having previously declined to legislate to enshrine a commitment to frictionless trade between Britain and Northern Ireland, in recent days the UK Government has stated that businesses in Northern Ireland which are affected by tariffs in the event of a ‘no-deal’ Brexit, will be reimbursed by the UK Government. Michael Gove, has said, “We want to make sure that in the event of there not being a free trade agreement of whatever kind with the EU that we are in a position to indemnify and reimburse companies for tariffs”. Whilst secondary legislation would be required for any new tariff procedures, Gove has assured this would be established before January.

Again this high level commitment, whilst welcome, raises many questions of detail for business needing to make plans for the new arrangements. For example, what paperwork would be required? How long would it take for businesses to be reimbursed and what will be the impact on cash flow? How would any scheme sit within EU State-aid rules which will continue to apply to Northern Ireland?

The Agri-Food Sector

The Command Paper does acknowledge that the agri-food sector will be different. Some checks will be required which will involve using electronic processes and these will be in addition to the processes already in place at ports in both Larne and Belfast. However, the paper does not expand on what is envisaged. The paper indicates that this will be discussed with the EU however, the government has said it ‘will actively seek to simplify and minimise electronic documentary requirements for this trade’.

The All-Island Economy

The paper reiterates that for trade between the Republic of Ireland and Northern Ireland, EU Customs rules will apply to goods in Northern Ireland, although Northern Ireland will remain within the customs territory of the UK. An all-island economy will remain with no tariffs, border checks or customs controls for trade in goods between the two parts of the island. This process will be the same for goods moving between Northern Ireland and the EU with no tariffs or declarations required.

Trade in Goods

The paper promises ‘unfettered access’ for goods trading between Northern Ireland and Britain however, the UK Government will have to provide further guidance on goods moving from Northern Ireland and Britain which have originated outside Northern Ireland. For goods moving from Britain to Northern Ireland, new customs checks will be required but there is still some uncertainty over whether goods moving from Britain to Northern Ireland will require entry declarations. Michael Gove has stated that Northern Irish businesses will not need to complete exit summary declarations when exporting goods to the rest of the UK after the end of the transition period. However EU Chief Negotiator, Michel Barnier, has repeatedly emphasised the necessity of exit declarations for such goods as per the terms of the Northern Ireland Protocol, in order to comply with the EU Customs Code.

Conclusion

Any additional friction in the movement of goods between Northern Ireland and its main market in Britain which leads to increased costs will pile even more pressure on businesses already struggling to absorb the impact of the coronavirus.There is anecdotal evidence that it may also impact on the appetite of retail businesses in Britain, amongst others, to continue to trade in Northern Ireland.

Whilst the publication of the Northern Ireland Command Paper may be welcomed by many businesses in here as a first step in planning for the end of the transition period, there are still many unanswered questions and time is short to 31 December 2020.

It is vital that Northern Ireland businesses are given the necessary information to prepare for any new arrangements. Businesses will require enough time and support to prepare for any new arrangements specifically in relation to goods moving between Britain and Northern Ireland. The UK Government has said it will produce guidance for businesses before the end of the transition period in relation to the movement of goods, but when? It is also still unclear whether relevant training will be provided for businesses in Northern Ireland on how to comply with any new arrangements. In spite of the high level assurances given, the Command Paper has not stated what financial support will be available to limit additional costs as a result of the new arrangements.

The UK Government has said it is committed to boosting the growth of Northern Ireland’s economy and its competitiveness. It needs to begin to provide answers to the very many questions which remain. A comprehensive deal is vital for Northern Ireland and has the potential to bring certainty and benefits to the economy, creating new opportunities for example, in the area of highly regulated products, as Northern Ireland can trade within the EU and also, have unfettered access to Britain. Such a deal could also help to protect the Good Friday Agreement and bolster North-South co-operation.

In commenting on the lack of detail provided to date, Simon Hoare, Conservative MP and Chair of the Northern Ireland Affairs Committee, said recently that trying to obtain information from Michael Gove and Brandon Lewis, Secretary for Northern Ireland, made him feel like “Alice through the looking glass trying to divine what words mean”. Unfortunately unlike the clocks in Wonderland, the clock to the end of transition continues to run….

For further advice on the impact of Brexit, please contact Richard Gray or Kerry Teahan.

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