What is the Northern Ireland Protocol?
In effect since 1st January 2021, the Northern Ireland was put in place to protect the EU single market and the Good Friday Agreement; with Northern Ireland (NI) leaving the EU with the rest of the UK, there was a risk that goods imported to NI from Great Britain would leak into the EU single market without adhering to the EU’s sanitary and phytosanitary (SPS) restrictions. To address this, all goods entering NI should be checked upon arrival at ports, effectively placing a border across the Irish Sea rather than a hard border with NI and the Republic.
The Protocol has led to conflict since its implementation but has only been implemented in part. The UK Government opted to suspend certain checks and customs procedures, including what would have otherwise been an outright ban on the movement of chilled meats from GB to NI. Around mid-2021, the EU estimated that only around 30% of veterinary checks required by the Protocol were being carried out. These suspensions and grace periods have mitigated administrative costs and other negative effects on businesses caused by the Protocol. The UK Government has spent £250 million annually on the Trader Support Service, Movement Assistance Scheme, and other measures to reduce the costs to businesses.
Impacts on businesses
Nonetheless, the Protocol is having detrimental effects. Limited evidence suggests that businesses are spending 6% of all costs on navigating the new system, including paperwork and products being held in Belfast. Since 2021, at least 200 British firms have withdrawn from or reduced offerings in NI. NI retailers with supply lines coming from GB have been most affected, while those with more local supply chains have received a competitive advantage. The Protocol seems to be diverting trade away from NI- GB in favour of NI to the Republic of Ireland (exports to the south up 65%, imports up 54% over 2020 levels). NI becoming more closely tied to the RoI and EU would increase the length of their supply lines (to Europe, rather than GB) and would likely increase food retail prices (RoI prices were 34% higher than the UK average in 2020).
Figure: New red and green lanes proposed for goods entering Northern Ireland ports. Goods destined for Northern Ireland markets only could bypass cumbersome customs checks, while those headed to the Republic of Ireland would be checked to ensure compliance with EU single market standards (BBC).
New Protocol Bill
The UK Government and EU have tried to find solutions acceptable to both parties, with limited progress. This issue has now come to a head, and the Northern Ireland Protocol Bill was introduced on 13 June and proposes measures to alleviate grievances with the current implementation of the Protocol:
- Burdensome customs processes: Green and red channels to remove unnecessary costs and paperwork for businesses moving goods destined for the Northern Ireland market only, while ensuring full checks are done for goods entering the EU. Introducing a Trusted Trader scheme with real-time data sharing.
- Inflexible regulation: Businesses to have the choice of placing goods on the market in Northern Ireland according to either UK or EU goods rules, to ensure that NI consumers are not prevented from buying UK standard goods, including as UK and EU regulations diverge over time.
- Tax and spend discrepancies Ensure NI can benefit from the same tax breaks and spending policies as the rest of the UK, including VAT cuts on energy-saving materials and Covid recovery loans.
- Democratic governance issues: Normalise governance arrangements so disputes are resolved by independent arbitration, not the European Court of Justice.
On 15 June, the European Commission took legal action against the UK for not keeping to the Protocol and called for them to return to negotiations. The UK Government asserts that they are acting within the law and allowed to change the terms of an international agreement to safeguard an essential interest, on the grounds that disputes around the Protocol threaten to undermine peace in Northern Ireland. Both parties maintain that they prefer a negotiated, permanent solution, but the UK states that the EU must be willing to amend the Protocol because problems are baked into it, which they are not willing to do. At the time of writing, the Bill is being considered by a Committee of the whole House of Commons, due to be discussed shortly.
Agricultural products are at the centre of this ongoing issue. Avoiding unnecessary costs is key to combatting food price inflation, and the current uncertainty is creating costs. The Protocol Bill may alleviate some of the impacts on UK businesses, however it will need to make it through both Houses of Parliament. Until then, the Protocol’s partial implementation is likely to continue as-is. Furthermore, if the EU chooses to take more serious action against the UK, this could have more dire impacts on businesses.
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