In 1998, the UK and The Republic of Ireland signed the Good Friday Agreement (GFA) bringing to an end 30 years of conflict in N Ireland. The GFA was possible at least in part because both the UK and Ireland were Member States of the EU, meaning there were no external borders to the EU or the UK in Ireland and enabling EU Law to provide a legal framework.
The GFA, strongly supported by the US and the EU, relied at its core, on mutual acceptance – S Ireland and Irish Nationalists accepted that N. Ireland was part of the UK and the UK agreed to remove physical security infrastructure on the N/S Ireland Border.
The issue of borders is at once problematic and emblematic, with the Unionist community feeling strongly that N. Ireland is part of the UK and the Nationalist community objecting to a N/S Ireland border as a physical barrier to their long-terms hopes of Irish reunification. The GFA accordingly struck a careful crafted and very delicate balance between the two communities.
Brexit upset that delicate balance. The Nationalist community largely voted Remain, whilst the Unionist community largely voted Leave. N. Ireland overall voted to remain in the EU. The UK’s departure from the EU meant that the N/S Ireland border became not only the border between Ireland and the UK, but the only land border between the mainland UK and the EU.
To preserve the benefits of the GFA whilst protecting the EU’s Single Market, the UK and the EU agreed the Northern Ireland Protocol (NIP), which preserved the Common Travel Area between the UK and Ireland and left N. Ireland in the UK’s Customs Union, but the EU’s Single Market – effectively placing the UK/EU border for Customs Controls in the N Sea between GB and N. Ireland for goods ‘at risk’ of entering the EU via N. Ireland. This arrangement avoided a ‘hard border’ between N and S Ireland and meant that N. Ireland was the only part of the UK to benefit from being in both Unions at the same time.
What has happened since January 2020?
The immediate consequences both of Brexit itself and the NIP are an increase in trade between N. and S. Ireland and a reduction in trade between Ireland and the UK as EU produce (inbound and outbound) has increasingly been dispatched by sea direct from S. Ireland to the European Mainland, by-passing the UK which had been used as a land-bridge for Irish exports whilst the UK was in the EU.
These two changes have raised concerns amongst the Unionist community that the longer-term impact of Brexit and of the NIP is to increase the chances of a United Ireland (the GFA allowed for the possibility of a Border Poll should communities so wish). This concern, added to the number of checks on GB/N Ireland exports, has led to a deterioration in security in N Ireland. It is against this complicated backdrop that the EU and the UK are seeking to tweak the NIP to facilitate trade between GB and N. Ireland and reduce the number of customs checks carried out on that border.
Buried in the midst of the NIP is the now infamous Article 16 which states at paragraph 1 “If the application of this Protocol leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade… [one side]… may unilaterally take appropriate safeguard measures”. Paragraph 2 notes “If a safeguard measure taken…. in accordance with paragraph 1 creates an imbalance between the rights and obligations under this Protocol, the [other side] may take such proportionate rebalancing measures as are strictly necessary to remedy the imbalance.”
The UK is concerned that the application of the NIP has imposed significant new customs formalities on GB-N. Ireland exporters, resulting in extra costs and discouraging trade. Under the NIP, after a series of grace periods, the UK was supposed to gradually bring in checks on a broadening range of goods and products exported from GB to N. Ireland. However, as the impact of those checks became clear, the UK took the decision to unilaterally suspend them.
Of particular concern to the UK government are:
- Sanitary and phytosanitary (SPS) checks. The UK Government argues that the application of these checks has exacerbated shortages of fresh food in N. Ireland’s supermarkets.
- The UK is concerned that certain types of drugs – including new cancer drugs – cannot be exported to N. Ireland as they must be licensed by the European Medicines Agency before they can be sold in N. Ireland.
- State aid decisions. The protocol requires the U.K. to inform Brussels of any state subsidy decisions benefitting British firms supplying goods to N. Ireland.
- Earth and pets. Under the NIP, GB cannot export earth-based products (including topsoil and plants) to N. Ireland and pets must have an animal health certificate.
- The role of the ECJ. The UK argues that the ECJ being the arbiter of a dispute between the two sides, effectively makes the UK subject to the jurisdiction of the EU institutions. The UK seeks to replace the ECJ with an international arbitration mechanism of the kind that governs the TCA. For its part, with the ECJ already under attack in other EU Member States, the EU is unlikely to accede to any request that risked further weakening its role or status.
Papers & Proposals
The UK Government argues that this list of ‘difficulties’ is sufficient to justify triggering Article 16.1 and to suspend the application of the NIP. In July, the UK published a Command Paper setting out a list of demands/proposals.
The EU responded in October with its own paper which proposed:
- Removing customs duties and reducing the customs paperwork required for goods moving from GB to N. Ireland, by broadening the list of ‘at risk’ goods (the NIP did not define clearly which goods are considered to be ‘at risk’ of entering the EU through N. Ireland).
- Reducing SPS controls on up to 80% of retail food entering N. Ireland from GB.
- Modifying EU law to allow GB to continue acting as a hub for the supply of generic medicines to N. Ireland, removing the need to relocate infrastructure to N. Ireland.
- Introducing a series of structural safeguards review clauses to permit an increase in the level of checks in the event that goods were ‘escaping’ N. Ireland into the EU.
The EU also demanded that the UK deliver on its NIP commitments to grant the EU access to the UK’s live databases tracking the movement of goods, and to build border control posts at N. Irish ports.
What would happen if the UK did trigger Article 16?
Assuming that the UK Government could overcome any internal legislative obstacles to invoking Article 16, the UK Government would be likely to target specific areas:
- Articles 5 & 7 on customs duties, certification and standards and goods entering N. Ireland from GB.
- Article 8, dealing with VAT.
- Article 10, governing state subsidy decisions benefitting British firms supplying goods to N. Ireland.
In response the EU has a range of possible measures at its disposal – in ascending order of seriousness:
- The EU could decide to freeze the UK out of Horizon (the EU’s research and innovation program).
- The EU could launch an infringement or arbitration procedure.
- The EU could (temporarily) revoke its June EU-UK data-flow deal agreement.
- The EU could cancel the EU-UK future relations agreement.
- The EU could rely on Article 16.2 of the NIP as justification to invoke Article 773 of the TCA, which allows the imposition of “appropriate” tariffs in the case of “serious economic, societal or environmental difficulties”.
- The EU could invoke Article 779 of the wider EU-UK Trade & Cooperation Agreement (TCA), which suspends the application of the entire Agreement.
[NB: Although apparently a nuclear option, it has certain advantages – Article 779 requires the triggering side to give the other nine-months’ notice – that period would serve to increase pressure on both sides to reach an agreement and the trigger could be withdrawn at any point during those nine months, should subsequent negotiations prove successful.]
This range of options demonstrates clearly that the EU would view any UK attempt to resile from the NIP as a major breach of EU-UK relations.
What happens next?
Since early November, both sides have been involved in detailed negotiations, focusing initially on the issue of medicines, as the most urgent topic. The negotiations have taken some of the heat out of the public exchanges and there has been some progress.
But the mistrust between the two sides remains strong, with the EU publicly expressing its concerns that London may be making demands it knows the EU cannot meet (specifically on the ECJ) to give it an excuse to collapse negotiations and try and force the EU to rewrite the NIP.
The EU’s concerns run deeper than just the negotiations with the UK over the NIP. Acceding to UK demands risks setting a dangerous international precedent that more potentially hostile countries might notice and seek to take advantage of.
So, Will the UK Trigger Article 16?
The UK’s more conciliatory language may, in part, be due to the recognition that the UK is already facing economic headwinds, with rising inflation, sluggish growth and significant supply-side restrictions. Current projections have the UK economy only returning to its pre-pandemic level next year – a pace which is slower than many of its international competitors (and that was before Omicron made its appearance!).
Given these concerns and the unanimity of the fierce EU retaliatory response to the UK threat to trigger Article 16, the UK may have decided that now is not the right time to trigger a trade war with the EU – not least with memories still fresh of last year’s pre-Christmas scenes of thousands of lorries queueing in a park in Dover after France shut Calais port for 48 hours.
However, the UK’s fundamental view is that the NIP was imposed by the EU from a position of strength, whilst the UK was in a weakened political condition and accordingly, the whole Protocol should be re-worked. But whatever its form, the NIP will remain problematic. N. Ireland is at once part of the UK and the EU. Finding a modus operandi which respects that specific and unusual status, whilst also respecting the GFA, is going to be difficult. It is this very difficulty that leads many observers to conclude that the UK will eventually trigger Article 16.
Impact on Companies
As noted above, if the UK invokes Article 16 and the EU responds, there is an escalating series of measures the EU could take. All of them will have potential impacts on companies trading across the N/S Ireland border or across the broader EU/UK border. It will be important for those companies to consider what contingency provisions they should make and what the effect on business will be.
With our team of public policy, regulatory and legal experts, Covington is ideally-placed to help companies think through the implications of this set of circumstances and we would welcome the opportunity to discuss further with you.