The Northern Ireland Protocol: Advisory on EU-UK Relations
By Oliver Drewes, Andrew Smith, Robert Langmuir, and George Reid
The Northern Ireland Protocol is the agreement between the UK and EU that ensures that, following the UK’s full withdrawal from the European Union, the UK-EU Irish border sits in the Irish sea rather than on the border of Ireland, creating a situation in which Northern Ireland has a dual status of being within the EU and UK single markets.
The Protocol ensures that checks can occur at Northern Ireland’s ports on exports from the UK mainland to avoid a hard border between the Republic of Ireland and its status within the EU single market and Northern Ireland. The current protocol is part of the Brexit withdrawal agreement, a treaty concluded between the UK and EU and therefore part of international law.
The UK’s fundamental problem with the current operation of the Northern Ireland Protocol is it has undermined the mechanism that has delivered peace to Northern Ireland — the Good Friday Agreement and has also led to unnecessary bureaucracy for businesses that are moving goods between the UK mainland and Northern Ireland. The UK’s fundamental problem with the current operation of the Northern Ireland Protocol is that the Government claim that it has undermined the mechanism that has delivered peace to Northern Ireland — the Good Friday Agreement and has also led to unnecessary bureaucracy for businesses that are moving goods between the UK mainland and Northern Ireland.
The EU set out proposals in October 2021 which were rejected by the UK, and in May 2022 the UK set out plans to publish a Northern Ireland Protocol Bill which would unilaterally override elements of the Northern Ireland Protocol.
On the 13th of June 2022, the Government published the Northern Ireland Protocol Bill. According to the UK Government, the Bill will, when in law, implement the following four changes:
1. Green and red channels to remove unnecessary costs and paperwork for businesses trading within the UK, while ensuring full checks are done for goods entering the EU
2. 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 Northern Ireland consumers are not prevented from buying UK standard goods, including as UK and EU regulations diverge over time
3. Ensures Northern Ireland 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
4. Reforms governance arrangements so that disputes are resolved by independent arbitration and not by the European Court of Justice
This advisory poses and answers three questions that organizations may need to consider if the situation escalates between the UK and EU:
1. What are the political drivers behind the Bill in the UK, and what is its likely progress through Parliament?
2. What are the political dynamics in the EU driving its response to the UK’s approach?
3. What is the risk of trade disruption, and at what pace or scale could this occur?
What are the political drivers behind the Bill in the UK and its likely progress through parliament?
The UK Government’s core objective of the Northern Ireland Protocol Bill is to inject new vigour into negotiations with the EU over the operation of the Protocol. While the Government has stated that it
prefers a negotiated solution, the full publication of the Bill marks a significant deterioration in relations between the UK and EU.
Although there was a sense that the Bill would cause a significant divide amongst Conservative MPs in terms of support or opposition, there is a sense that the contents of the Bill has at least initially balanced the expectations of the Brexiteer European Research Group (which is currently reviewing the Bill line by line), and the more moderate One Nation group of Conservative MPs.
Over in Northern Ireland, the UK Government’s call for wholesale changes to the Protocol occur against a backdrop of the main Northern Irish unionist party, the DUP, not engaging with Sinn Fein to form a Northern Ireland Executive — a move that puts the power sharing agreement detailed under the Good Friday Agreement, under strain.
While it is the Government’s plan that the legislation clears its stages in the House of Commons before the July summer recess, it has been reported that the Bill will not be introduced into the House of Lords until the DUP has resumed a power sharing arrangement in Stormont. The DUP have said that they want to see progress on the legislation before considering restarting power sharing, and evidence that it has resolved the current impasse in Northern Ireland would put pressure on the Lords were the Bill will face significant opposition.
The DUP have set seven tests for a new Northern Ireland protocol. These include a requirement to remove the trade border in the Irish Sea — a fundamental part of the Protocol itself. Nonetheless, it is the UK Government’s strategy to seek to reform the Protocol to ensure that the DUP resume negotiations to form an Executive in the Stormont Assembly.
However, many businesses in Northern Ireland accept and indeed benefit from the existing principles of the Protocol. Indeed, both nationalist and non-sectarian members of the Northern Ireland Assembly who now form a majority of members, have made it clear that they oppose the legislation in a letter to the Prime Minister. Indeed, there can be no return to power sharing without the support of the DUP the main unionist party who see the current operation of the protocol as a threat to the longer-term relationships between Northern Ireland and the rest of the UK.
The Bill also has geopolitical significance outside Europe. The Biden administration and US Government has previously been vocal in its concerns over the implications of a fragmentation of the Good Friday Agreement as guarantor of the Good Friday Agreement. That said, officials in Washington have privately suggested that the current iteration of the Bill will not damage the UK’s current trade dialogues with the US.
So, in summary, the UK Government faces the strategic consideration of balancing the interests of unionists and the creation of an Executive in Northern Ireland, with the potential for considerable damage to EU-UK trade relations which could extend well beyond the Irish sea.
The first iteration of the Northern Ireland Protocol Bill has been deliberately fine tuned to ensure the maximum possibility of resuming power sharing negotiations in Stormont, whilst avoiding to the greatest extent possible an inflammatory Bill that splits the Conservative Party, drives opposition in Parliament and in Northern Ireland, and diminishes the possibility of a negotiated outcome with the EU. However, in the absence of power sharing negotiations, and continued tensions in Northern Ireland, the UK Government could be driven to swing the pendulum towards stronger, more robust measures within the Bill that give ministers further unilateral measures.
Ultimately, the central objective of the UK Government will be to show that this hard-line stance with the European Union has facilitated a resumption of power sharing, and that this tactical approach was essential to protecting the Good Friday Agreement whilst placating factions of Conservative backbench MPs that have long opposed the operation of the Protocol.
However, the success of this approach is highly dependent on sufficient support across the Northern Ireland Assembly to form an Executive and the creation of confidence in a “new” Protocol. At the same time, UK exposes itself to considerable risk of retaliatory measures which we explore in the next section.
What are the political dynamics in the EU driving its response to the UK?
The UK government believes there is a landing zone for a deal only if EU leaders provide Commission Vice-President Maroš Šefčovič with the permission to renegotiate the Protocol’s text.
However, even with an expanded remit for Mr Šefčovič, many of the UK’s proposed changes on the oversight of the European Court of Justice (ECJ), the application of the EU Customs Code, agri-food regulations and state aid regime needed to create ‘green and red channels’, fall outside the scope of the negotiating mandate of Vice-President Maroš Šefčovič as he is only mandated based on the international agreement and has no power nor mandate to negotiate outside of its scope.
While the Commission has acknowledged the way the Protocol currently works is causing some problems for Northern Irish businesses, the EU statement in response to the publication of the bill rules out renegotiating the Protocol, as there is a sense that such an arrangement would fundamentally impact the integrity of the internal market and “bring further legal uncertainty for people and businesses in Northern Ireland.”
The EU position is that joint solutions can be found within the current framework with changes to the way the Protocol operates. They point to solutions found in December 2021 without changing the Protocol to ensure that the same medicines continue to be available in Northern Ireland at the same time as in the rest of the UK. In its initial response to the publication of the bill, the Commission announced it will continue to work in this direction and will propose a “model for the flexible implementation of the protocol based on durable solutions” detailing how the Protocol could be made more manageable.
The EU’s broader position is that a fundamental change to the NI Protocol would require a wholesale renegotiation of the EU’s overall trade agreement (The EU Trade & Cooperation Agreement) on the grounds that the UK cannot have unfettered access to the EU’s internal market without EU or Customs Union membership. The EU feel that this would lead to the distortion of competition and the undermining of the basic rules of the Single Market.
What is the risk of trade disruption, and at what pace or scale could this occur?
The EU’s aim will continue to be to secure the implementation of the Protocol and Vice-President Šefčovič has warned that the reaction to unilateral action by the UK will be proportionate. The EU is already holding back access to the EU’s flagship Horizon research funding programme due to the row over the Protocol, and on the 18th of May EU ambassadors expressed support for a gradual phase in of retaliatory measures should the UK Protocol bill be passed.
A previous package of possible EU countermeasures from June 2021 indicate they could include tariffs, freezing data equivalence and imposing barriers to British tech and financial firms wishing to operate in the EU single market. Measures could also include unfreezing infringement procedures that have previously been put on hold and suspending parts of whole EU-UK post-Brexit trade deal.
Based on its assessment of the UK bill and its changes, Brussels is expected to set out different steps over time to “safeguard the functioning of the internal market.” As a first step, the Commission will consider moving ahead with an infringement procedure launched after the British government unilaterally delayed the introduction of post-Brexit checks for certain goods entering Northern Ireland from Great Britain. The procedure was frozen in July 2021 to allow space for negotiations. The EU will
also consider issuing “new” infringement proceedings to protect the Single Market. These proceedings could ultimately lead to the imposition of EU tariffs on British products.
The most drastic measure would be suspending the whole or parts of the EU-UK Trade & Cooperation Agreement (TCA), with serious repercussions on trade. Without the deal, the UK would be treated as a third country trading under WTO tariffs. In its statement, the Commission alluded to this threat, saying the UK’s decision undermines the trust necessary for bilateral EU-UK cooperation within the framework of the TCA. Nevertheless, scrapping the deal would take months and is seen in Brussels as the last resort option to avoid at all costs.
Meanwhile, the French government is seeking to make it easier to adopt countermeasures by changing the criteria for the Commission to take action, for instance by scrapping the need to prove the measures would be effective in inducing compliance or that the measures would provide relief to economic operators.
Want to work with us? Reach out to Oliver Drewes at ODrewes@webershandwick.com.
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