The current arrangement, widely known as the Northern Ireland Protocol (Protocol) was a key component of the 2019 UK-EU trade deal. The Protocol was a heavily negotiated solution to the “hard” Brexit pursued by the UK Government but has been a source of tension in NI since it came into force at the start of 2021.

The Protocol

Special trading arrangements were needed for NI as it has a land border with an EU country – the Republic of Ireland (RoI). Before Brexit, it was easy to transport goods across this border because both sides had the same EU rules.

Brexit resulted in the UK leaving the EU’s single market so a new system was required because the EU has strict food rules and requires border checks when certain goods (e.g. dairy products) arrive from non-EU countries.

The UK and the EU agreed that protecting the NI peace deal (the Good Friday Agreement) was a key priority in the Brexit negotiations and acknowledged that the “border” remains a sensitive issue in NI due to its troubled political history. So as an alternative to checking goods at the Irish border, the Protocol agreed that any inspections and document checks would be conducted between NI and Great Britain (GB). These take place at NI’s ports (which are based in unionist heartlands). It was also agreed that NI would continue to follow EU rules on product standards.

These arrangements have led to customs checks on goods travelling between GB and NI – i.e. treating goods from GB to NI as if they were entering the EU with accompanying checks on safety, SPS import requirements (EU controls to protect animal, plant or public health) and full customs processes, irrespective of whether their ultimate destination is NI or the RoI – despite Boris Johnson repeatedly stating that there would be no such checks. Enough said about Boris.

Recognising the supply chain disruption and cost implications of the checks, the EU and UK agreed a number of concessions to minimise the checks required on products going to NI for the majority of products in retail chains. These concessions (or “standstill”) remain in place with the tacit approval of the EU. The concessions were designed to be temporary until a negotiated settlement was agreed that found a long term solution to the Protocol. To date, the UK and EU have been unable to agree a settlement. The key obstacles are the level of scrutiny the EU requires and control on which products could be placed on the market in NI versus the UK position to reduce controls to a minimum.

Political paralysis in NI

The customs checks have angered NI’s unionist community and parties who support NI being part of the UK. They feel betrayed by the effective erection of a trade border in the Irish Sea, which they feel undermines NI’s place within the UK.

NI’s largest unionist party, the Democratic Unionists (DUP), is refusing to take part in NI’s power-sharing government unless its Protocol concerns are resolved. The DUP came second in May's elections to Sinn Fein – a nationalist party which accepts the Protocol. However, due to what was agreed in the Good Friday Agreement, a new NI government cannot be formed without the DUP’s support.

Some ministers claim that the Protocol jeopardises the Good Friday Agreement, which finally brought peace and stability to NI after nearly 30 years of a civil war.

Protocol Tensions

Despite Boris Johnson agreeing to the Protocol in 2019, he subsequently claimed that it “is not working effectively” and that the checks are disrupting trade within the UK. The UK Government has said trade between NI and GB is “critical” to the economic success of NI.

Despite professing its preference for negotiations, the UK Government decided that a negotiated long term solution with the EU is unlikely and threw a large spanner in the works by acting unilaterally and publishing controversial legislation – the NI Protocol bill (Bill) – which will tear up large elements of the Protocol. Ministers say the Bill is “necessary to ensure the stability of supply chains” and protect the Good Friday Agreement.

However, many NI businesses support the Protocol because it continues to allow frictionless trade with the RoI, which remains in the EU, giving NI businesses the best of both worlds and a much needed competitive edge (it’s a shame we’ve had no functioning Executive to take advantage of this edge and use it to bring much needed investment to NI).

Many NI political parties – including Sinn Féin, Alliance and the Social Democratic and Labour Party (SDLP) – say the Protocol is a necessary compromise to mitigate the effects of Brexit in NI. They refute the UK Government’s claims that the Bill will solve the supply chain issues and view the Bill as akin to paying a “ransom demand” to the DUP.

The Bill

The Bill radically overhauls many of the principal commitments in the Protocol. The UK Government claims that the Protocol has 4 operating issues which the Bill seeks to address:

1. ‘Burdensome customs processes’

At the heart of the Bill is the concept of separate “green” and “red” lanes for goods travelling between GB and NI. Goods staying in NI would travel through the “green” lane and be freed of “unnecessary” paperwork. Goods destined for the EU (via the RoI) would travel through the “red” lane and would be subject to full checks and controls and full customs procedures to protect the EU single market.

2. ‘Inflexible regulation’

All goods currently coming into NI from GB must comply with EU rules even if they do not enter the EU. Under the Bill, businesses would have the choice of placing goods on the market in NI according to either UK or EU rules. The UK Government says this is to ensure that NI consumers are not prevented from buying UK standard goods.

3. ‘Tax and spend discrepancies’

Currently, NI has to abide by EU state aid rules, meaning changes to VAT rates for businesses made by the UK government cannot be implemented in NI. Ministers say this has created a “two tier” tax system in the UK. The UK Government argues that the Protocol means people in NI are missing out on VAT cuts on energy-saving materials and Covid recovery loans.

4. ‘Democratic governance’

The UK Government claims that there is a “democratic deficit” because the European Court of Justice (an EU court) settles any disputes over the Protocol. The Bill would allow disputes to be resolved by independent arbitration.

The Bill is high level and gives the UK Government the power to determine how key elements of the Protocol should be implemented. It is envisaged that the detail of the Bill (e.g. how the ‘green’ lane will work in practice and how businesses would qualify to use it) will be agreed in secondary legislation (allowing ministers to make further significant changes). An informative guide to the current approach of the UK Government and these high level principles is here.

Defending the Bill she introduced as foreign secretary, Liz Truss said: “This is a reasonable, practical solution to the problems facing Northern Ireland. It will safeguard the EU single market and ensure there is no hard border on the island of Ireland. We are ready to deliver this through talks with the EU. But we can only make progress through negotiations if the EU are willing to change the Protocol itself – at the moment they aren’t. In the meantime the serious situation in Northern Ireland means we cannot afford to allow the situation to drift.” (Incidentally, Liz is the only candidate to mention the Protocol in her leadership bid, stating "In the face of EU intransigence I developed the Northern Ireland Protocol bill. It breaks the deadlock in a legal way, upholding the Belfast Good Friday Agreement and preventing the tearing apart of our precious union.")

How has the EU responded?

Unsurprisingly, the EU has responded by stating that any unilateral action by the UK would breach international law and warned it could retaliate with a trade war. Brussels insists that the UK must stick to the Brexit deal agreed in 2019.

Ireland’s Taoiseach (Irish prime minister), Micheál Martin, warned that a move to rip up the Protocol would be a “new low point” for UK-EU and UK-RoI relations stating “The natural expectation of democratic countries like ourselves, the UK and all across Europe, is that we honour international agreements that we enter into. This agreement was ratified by British parliament, it was approved by the British prime minister.”

The Irish Minister for Foreign Affairs, Simon Coveney, added that “The UK’s unilateral approach is not in the best interest of Northern Ireland and does not have the consent or support of the majority of people or business in Northern Ireland”. (You may recall that the majority of NI citizens voted to remain in the EU in the Brexit Referendum). He added “Far from fixing problems, this legislation will create a whole new set of uncertainties and damage relationships.”

On 15 June the European Commission (EC) took legal action against the UK for not keeping to the Protocol and called on the UK Government to return to negotiations. The EC said it is not prepared to renegotiate the Protocol, but has offered to work on how the rules apply and set out its own suggestions for improvements, including reducing customs and checks on goods and paperwork and relaxing rules so chilled meats can be moved across the Irish Sea.

No doubt spurred by the passing of the Bill last week, the EC turned up the heat further and issued four new infringement procedures against the UK for not complying with parts of the agreement concerning the Northern Ireland Protocol.

The EU group said “Despite repeated calls by the European Parliament, the 27 EU Member States and the European Commission to implement the Protocol, the UK government has failed to do so.”

"In a spirit of constructive cooperation, the Commission refrained from launching certain infringement procedures for over a year to create the space to look for joint solutions with the UK. However, the UK's unwillingness to engage in meaningful discussion since last February and the continued passage of the Northern Ireland Protocol Bill through the UK Parliament go directly against this spirit.”

It added that "The aim of these infringement procedures is to secure compliance with the Protocol in a number of key areas. This compliance is essential for Northern Ireland to continue to benefit from its privileged access to the European Single Market, and is necessary to protect the health, security and safety of EU citizens as well as the integrity of the Single Market.”

Is the Bill legal?

Critics of the Bill (including former PM, Theresa May) warn that breaching the Brexit agreement – a legal treaty signed with the EU – would be a breach of international law.

The UK Government has rejected this interpretation, arguing that the “doctrine of necessity” provides “a clear basis in international law” for the move. The UK Government says it is allowed to “safeguard an essential interest” (the Good Friday Agreement), which is being put at risk by “the non-performance of another international obligation”. As a NI citizen from a border town, I am not sensing any “grave and imminent” peril to our peace process.

Both arguments may now be tested in the courts as EC legal proceedings progress.

Next steps

Despite those opposing the Bill hoping that the current Conservative party leadership contest would slow down the Bill’s progress and create the opportunity for further negotiation with the EU, on 20 July the Bill passed its third reading (the final stage in the Commons) by 267 votes to 195. Amendments from the SDLP, Alliance and Labour MPs to water down the Bill were unsuccessful.

Cabinet Office minister Michael Ellis said he hopes supporters of the proposals in NI "may not have to wait too long" for them to become law and confirmed that the Bill is the UK Government’s "top legislative priority".

However, the Bill is far from home and dry and is expected to face fierce opposition in the Lords when they consider it in the autumn. The DUP leader, Jeffrey Donaldson, has ominously warned the Lords to be "wise" when considering changes to the Bill.

The UK Government maintains its preference is still to find a negotiated settlement with the EU but this is looking increasingly unlikely, unless the new prime minister seeks to reset strained relations with the EU by giving negotiations another go (but there is currently no indication that this will happen with both Liz Truss and Rishi Sunak currently holding the line set by Boris).

What do UK businesses need to do?

UK businesses should continue to follow the status quo. The UK Government has confirmed the concessions in the standstill period will continue to operate, despite the EU not supporting them and has assured businesses that the UK Government will bear the risk of legal proceedings arising from this approach.

However, the concessions do not currently apply to the issue of product standards, so there is a risk to businesses if they fail to adapt standards to meet changes in EU requirements. The UK Government has stated that it will examine divergence issues on a case by case basis and where there could be an impact on NI consumers, they will disapply the need to follow EU regulations.

It is feared that the EU’s recent legal actions could escalate to more general action within the overall UK-EU trade deal, including the imposition of tariffs. However, such measures would take time to implement so there is no immediate threat to the current tariff free deal.

Watch this space for further updates on the Bill and related issues.