The new Brexit deal agreed by EU heads of state today would give Northern Ireland a special economic status. Here is a summary of the revised ‘Protocol on Ireland/Northern Ireland’ and what it could mean for business.
GB businesses will be outside the EU customs arrangements
Trade between the EU and England, Wales and Scotland would be treated as a third country trade for customs and duty purposes. Customs clearances and documentation would be required for cross-border trade.
The ‘Northern Ireland backstop’ in the previous Withdrawal Agreement negotiated by Theresa May created an EU-UK customs territory: in effect the UK remained within the EU customs union, guaranteeing zero tariffs and no extra customs administration between UK and EU; this would have remained in place until an open border between Ireland and Northern Ireland could be guaranteed as a result of a new comprehensive UK-EU trade agreement.
This previous backstop made an EU-UK customs territory the default for the UK’s future relationship with the EU. This has been removed from the new deal.
Northern Ireland becomes a ‘Schrodinger’s customs territory’
The new mechanism for ensuring an open border between Ireland and Northern Ireland is for Northern Ireland to be both in the UK customs territory and to enforce the EU customs union.
This ‘Schrodinger’s customs union’ means that goods shipped from Great Britain (England, Scotland or Wales) to Northern Ireland would either:
a) Be exempt from EU tariffs (if they are a category of goods a new ‘Joint Committee’ identifies as being ‘low risk’ of crossing the Irish border and entering into the EU from Northern Ireland); or
b) Have to pay EU tariffs on entry into Northern Ireland (if not categorised as 'low risk and exempt from EU tariffs). If the product remains in Northern Ireland, then the importer can reclaim the duty.
Goods shipped from a third country (e.g. USA or China) to Northern Ireland would either:
a) Be exempt from EU tariffs (if a category of goods regarded as ‘low risk’ of entry into the EU by a new Committee) and therefore pay UK tariffs; or
b) Have to pay EU tariffs on entry into Northern Ireland. If the product remains in the United Kingdom (including GB), then the importer can reclaim any difference between tariff rates.
For good shipped between the EU and Northern Ireland: there would be no customs or tariffs.
Regulation: EU standards apply in Northern Ireland
In addition, Northern Ireland would apply much of the EU single market regulatory rules for agriculture, food and manufactured goods. In effect, EU single market rules for goods would continue to apply in Northern Ireland. Products manufactured in Northern Ireland would not have any regulatory checks entering the EU and would not need any regulatory checks for sales to Great Britain.
Goods shipped from Great Britain to Northern Ireland would need to comply with EU single market regulations and there would need to be regulatory checks on some products (including animal/ food health checks) between GB and Northern Ireland.
VAT: EU VAT rules apply in Northern Ireland
EU VAT rules would continue to apply to goods in Northern Ireland. Any new VAT exemptions introduced in Great Britain could not be replicated in Northern Ireland, but Northern Ireland could match any categories zero rated in Ireland. Northern Ireland would also be part for EU-wide VAT reclaim processes (which can speed up VAT claims for EU trade). Note this is not intended to cover VAT on services, though there could be some grey areas where services are provided with a product (eg servicing or a helpline).
In summary: Northern Ireland would effectively be part of the single market regulatory regime for goods, the EU VAT regime for goods and both in and out of the EU customs union.
These Northern Ireland arrangements could last a significant period of time.
They would come into effect automatically on 31 December 2020; after four years the Northern Ireland Assembly would vote on whether to continue or end them.
If the Assembly votes to end the arrangements, then there is a two-year period before it ceases. If they vote to continue, this can be for another 4 years or (if a majority of both communities) another 8 years.
So, these Northern Ireland arrangements would last for a minimum of 6 years – through to 31 December 2026; and could last a lot longer.
There could be some advantages for some businesses to locate manufacturing in Northern Ireland, particularly as the arrangements provide stability for at least six years.
Against this, the arrangements also introduce significantly increased customs administration for businesses operating in Northern Ireland – documenting origin and destination of products will be critical and reclaims for domestic sales will impact cashflow.
Much of the detail is still to be worked out. If this deal gets ratified, we will be assessing in detail what the advantages could be for certain types of business.
Northern Ireland would effectively be part of the single market regulatory regime for goods, the EU VAT regime and both in and out of the EU customs union. There could be some advantages for some businesses to locate manufacturing in Northern Ireland, particularly as the arrangements provide stability for at least six years. But the arrangements also introduce significantly increased customs administration for businesses operating in Northern Ireland.