Insight: the Northern Ireland Protocol

The Northern Ireland Protocol – part of the UK-EU Withdrawal Agreement – was set to prevent a hard border on the island of Ireland by aligning Northern Ireland with EU law in some areas to maintain frictionless trade. This means that some goods entering Northern Ireland via Great Britain are also subject to checks to comply with EU law – and both parties disagree on how thorough these checks should be.

What are the current business challenges of the NI Protocol?

The Protocol created unique opportunities to many businesses in Northern Ireland, giving them preferential access to both the GB and EU markets. However, for firms importing goods from GB into NI, it has made this movement more complex and more expensive – introducing more customs complexity, new checks and increases in VAT.

The business challenges have been carried over into the pollical debate in Northern Ireland, with the Democratic Unionist Party (DUP) refusing to enter into a power-sharing agreement with the other NI parties until the issues are sufficiently tackled.

This has left Northern Ireland without a devolved government in place.

What are the UK and the EU proposing?

For over a year, the UK government has argued the Protocol is creating unacceptable barriers to trade within the UK internal market and has been seeking changes – outlined in a July 2021 command paper.

The EU rejected these demands and, in October 2021, put forward their own proposals to reduce checks, but not remove the level of checks and controls in the existing legal text. The UK says these changes do not go far enough.

Now, after months of protracted and unsuccessful negotiations, the UK has published the Northern Ireland Protocol Bill so that it can take unilateral action

What is the Northern Ireland Protocol Bill?

The Northern Ireland Protocol Bill seeks to introduce powers to the UK Government to not fully apply some parts of the original Protocol. Alongside this, the government also outlined a number of proposals to replace the existing arrangements.

These proposals included removing checks on goods to Northern Ireland not “at risk” of entering the Republic of Ireland and the EU’s Single Market via a “red/green lane” system that would determine goods’ customs and tariff treatment.

It also called for a dual regulatory regime that would allow NI businesses a choice between UK and EU rules, or both.

How has the EU reacted?

Not well. The vice president of the European Commission, Maroš Šefčovič, responded to the publication of the NI Protocol Bill stating that taking unilateral action broke international law and that it was damaging to the mutual trust of the UK-EU relationship.

As a first step, the EU has restarted and launched legal action against the UK – these have focused on the UK’s lack of compliance with the Protocol since coming into effect on 1 January 2021, not the Bill itself.

However, in a signal that compromise is still possible, the EU also published two new position papers with additional solutions to the Protocol.

Are we heading for a trade war?

No, not yet. While Šefčovič was reluctant to talk about possible sanctions against the UK in his press conference, and he stressed the EU’s desire for a negotiate agreement – and gave the UK two months to reply.

On the UK side, it is also worth noting the Bill will take many months – with the Bill unlikely to get to the Lords before the Autumn after what could be a rocky ride through the parliament, with likely opposition form MPs and Lords on both sides.

This means the summer recess, starting on 21 July, will effectively hit pause on the Bill, potentially giving breathing space for the UK, the EU and the NI political parties to negotiate in parallel to find a solution to the Protocol.