The EU/UK Trade and Cooperation Agreement and the Northern Ireland Protocol: the new landscape for the movement of goods for NI traders

21 January 2021

Author: Owen Fearon
Practice Area: Corporate - M&A
Sector: Brexit

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You will have seen in the news over the last two weeks that the effects of the Trade and Cooperation Agreement (“TCA”) and the NI Protocol (“Protocol”) in particular, are being felt by businesses on both sides of the Irish Sea as they come to terms with the new “red tape” involved in operating in the post-Brexit landscape. In this article we seek to clarify the new regulatory, customs and logistical landscape for businesses in Northern Ireland (“NI”). We begin by providing some background to the TCA and the Protocol before looking at the practical and logistical implications, together with certain actions that your business may need to take as a result.

Background

The Protocol seeks (amongst other things) to: (i) avoid a hard border on the island of Ireland; (ii) protect the EU single market; (iii) maintain Northern Ireland’s place in the UK internal market; and (iv) protect matters of north/south cooperation, including the Single Electricity Market, now that the UK has left the EU as of 31 December 2020. In order to achieve these aims it was agreed in the Protocol that, amongst other things, NI would continue to apply the EU Customs Code and single market rules on goods entering and leaving NI. It was also agreed that customs duties would be payable on goods coming into NI, unless those goods were not “at risk” of onward movement into the EU.

The New Landscape - at a glance

1. Great Britain to NI - Goods are now subject to new declarations and may be subject to duties if considered ‘at risk’ of moving to the EU (including Ireland). Food and agricultural products (and all goods classified as sanitary and phytosanitary (“SPS”)) will be subject to health certification and specified processes, subject to the grace periods referred to below.

2. NI to Great Britain - Moving goods should take place as it did previously, with no additional process, paperwork, or restrictions – except in extremely limited circumstances to take account of international obligations (e.g. endangered species or rough cut diamonds) or duty suspension. Note that this is in respect of “qualifying goods” only and the definition of what constitutes a qualifying good needs further development to provide clarity.

3. NI to and from Ireland - Trade in goods will continue unaffected, with no change at the border, new paperwork, duties, or regulatory checks. Note that NI businesses must ensure they continue to meet EU regulatory standards – for example, CE Marking.

4. NI to and from the Rest of the World - Trading will continue broadly as it did prior to the end of transition period. NI will benefit from future UK Free Trade Agreements, and the UK tariff regime will apply to imports – unless goods are considered ‘at risk’ of moving to the EU.

5. Transit routes - Goods will be subject to specified processes. Transit can be used to move goods from GB to NI via Ireland. Transit declarations would apply, and some traders would need to use sealed trucks. It should be noted that food, agricultural, and any SPS goods moved on this route will require SPS checks in Ireland before proceeding to Northern Ireland.

Customs Considerations

The TCA and the Protocol throw up an array of customs considerations which many businesses may not be familiar with. Below we provide an overview of the new customs landscape and the various routes and processes to consider when navigating the new customs landscape. The Trader Support Service (outlined below) has been set up to assist businesses with this.

UK Trader Scheme (the “UKTS”)

Goods moving from GB into NI which can be shown to be remaining in NI (and not ‘at risk’ of onward movement in the EU) will not be subject to duties. To facilitate this, an authorised “trusted trader” scheme (the UKTS) has been developed.

What constitutes an “at risk” good?

In determining whether your goods are “at risk” you should consider the following.

Good that are always at risk:

  • Goods subject to commercial processing in NI and the additional processing criteria is not met
  • Goods from outside the UK/EU where the EU duty is more than 3% greater than the UK duty

Goods are not ‘at risk’ of onward movement where either:

  • the applicable UK duty is equal to or higher than the applicable EU duty - for movements into NI from Great Britain, this covers goods where the EU duty is zero,or
  • goods are brought into NI for sale to, or final use by, end consumers located in NI or, for internal UK trade, elsewhere in the UK.

Goods moved for sale to, or final use by, end consumers in NI will be considered not ‘at risk’ when moved by businesses authorised under the UKTS. If goods are ‘at risk’, then the EU duty will apply.

The UKTS will allow businesses to undertake that their goods are either being sold to consumers in NI or that they are destined for final use in NI or in the rest of the UK. Businesses trading in goods subject to processing will also be able to benefit from the scheme in specific sectors including food for sale to consumers, construction and healthcare provision. The UKTS will only be available to businesses established in NI or that meet other specific criteria.

The combined effect of the TCA and the Protocol means that most goods moving from GB to NI – including through the Republic of Ireland – will not be subject to duties. Goods entering NI from the rest of the world using the scheme will be subject to the UK duty where it is less than 3% lower than EU duty. Traders using the UKTS moving goods from GB to NI via the Republic of Ireland (“RoI”) will be able to do so without duties using transit procedures.

If goods are brought into NI for processing by a business whose turnover is below £500,000 in the most recent financial year, that business can apply through the UKTS to be able to declare goods as not ‘at risk’ in line with the treatment of other goods, if those goods satisfy certain criteria (see link below for further details).

The UKTS route could be the best option for traders bringing finished goods into NI for sale (e.g. retailers), or processors who qualify for one of the commercial processing exceptions.

Rules of Origin

Whilst the TCA mitigates some of the “at risk” challenges under the Protocol, Rules of Origin (“RoO”) issues are emerging for suppliers with global supply chains. RoO are used to determine the “economic nationality” of a product and by customs authorities to classify where an export has come from in order to work out tariffs and restrictions. Under a free trade agreement, such as the TCA, exporters must prove that a good is ‘originating’ according to preferential RoO in order to access preferential tariff rates, in order to prevent third countries from accessing, at a preferential rate, the markets of countries with whom they do not have a trade deal. From 1 January 2021, if your goods originate in the EU or UK, you may be able to claim a preferential rate of duty when imported into the respective countries and released to free circulation. This means they will be free of customs duty. You will need to know how to classify your goods when checking the product specific rules. For this you will need your commodity code (see below).

Where GB originating goods enter NI the preferential tariffs available under the TCA can be used to reduce the EU tariff to zero meaning for GB-NI trade goods automatically enter NI tariff free and the business does not need to consider whether the goods are ‘at risk’ and therefore, in this case, an authorisation under the UKTS would not be required to move goods into NI tariff free. This could be the best option for traders with controlled supply chains of UK goods, or traders who cannot use the UKTS because they do not qualify for one of the commercial processing exemptions.

To benefit from preferential duties when importing into the UK from the EU (or importing into the EU from the UK), the importer will be required to declare they hold proof that the goods comply with the rules of origin.

You can claim the preferential rate of duty if you have either:

  • a statement on origin that the product is originating made out by the exporter (there is prescribed text contained at Annex ORIG-4 of the TCA which can be included on commercial invoices),or
  • the importer’s knowledge that the product is “originating” in the relevant country.

If your goods do not meet the rules of origin requirements (or if you cannot prove that the goods meet them) you may need to pay customs duty.

The rules for determining the origin of goods can be very complex and are product specific. Products such as plants or vegetables grown or harvested in the UK; products from live animals, or slaughtered animals, raised in the UK or fish from UK waters, should in many cases be “wholly originating” and eligible for preferential treatment. For manufactured goods the position is more complex. For example, you could use non UK originating materials in your product and the final product could be considered UK originating if the value or weight of applicable non-originating materials used does not exceed 15 per cent of the net weight of the final product of the final product. Advice should be sought from a tax / customs expert in considering the origin of manufactured goods.

Waivers and de minimis aid

Instead of using either the UKTS or the preferential tariffs in the TCA, traders can claim a de minimis tariff waiver meaning that you may be able to claim a waiver for duty on goods you bring into NI from GB which might otherwise incur ‘at risk’ duties, up to a maximum of €200,000 over 3 tax years (on a rolling basis). It should be noted that lower allowances will apply to the road freight transport (€100,000), fisheries and aquaculture (€30,000) and agricultural primary production (€15,000) over the 3 year period. Guidance is yet to be released on how to claim for “at risk” goods entering NI from 3rd countries and for agricultural and aquaculture goods.

This could be the best option for small or infrequent traders, or processors who are bringing non-UK goods into NI and who do not qualify for one of the commercial processing exceptions.

Reimbursement

The UK government has indicated that it could reimburse businesses for any goods that are subject to duties if they later can be proved not to have been “at risk”. HMRC are working to produce guidance on what the procedures will look like for this in the near future.

Review of Tariff Regime

The Protocol and UKTS will be subject to safeguards including various reviews and an emergency brake in 2024 “in the event of significant diversion to trade, fraud or other illegal activities” – article 16. The review process (in which both the UK and the EU) is intended to prevent the tariff regime being abused by businesses based outside NI to avoid EU duties.

Grace Periods

As part of an agreement around the implementation of the Protocol on 10 December 2020 the UK and EU agreed the following “grace periods” to address concerns in the Protocol regarding the requirement for new paperwork and checks for the following products:

  • 3 months for authorised traders (e.g. supermarkets and their trusted suppliers) before official certification for products of animal origin, composite products, food and feed of non-animal origin and plants and plant products is required.
  • 6 months to facilitate authorised movements of restricted products (such as chilled meats) from GB-NI.
  • a 12 month phasing in of regulatory requirements for medicines from GB.

Action List

Below we provide a (non-exhaustive) “road map” of action items which your business might wish to consider. Please also see Annex 1 for a useful “road map” graphic produced by FDF/NIFDA.

1. Register for the Trader Support Service (“TSS”)

The TSS provides free training, support and facilitation for businesses for customs processes that will arise for goods moving between GB and NI. The TSS can provide further support on the items touched upon in this article (including registering for an EORI number, understanding Incoterms® and in making declarations for goods moving from GB to NI). Even if you are not sure whether you will buy from/sell to GB in the next year, it is worth registering just in case. You can find more information and register for the TSS here.

2. Get an EORI number

An EORI number – which stands for an Economic Operator Registration and Identification number – is a unique ID code used to track and register customs information in the EU.

You will need both a “GB” EORI number and an “XI” EORI number if you buy from GB or you could face increased costs and delays. If you already have an EORI number, check if it begins with “GB” – if it does not then you will need to apply for a new one as you will need a “GB” EORI in order to apply for an “XI” EORI number. You need an “XI” EORI if you:

  • move goods between NI and non-EU countries (including Great Britain);
  • make a declaration in Northern Ireland; or
  • get a customs decision in Northern Ireland

If your business will be making customs declarations or getting a customs decision in the EU then you would also need an “EU” EORI number.

If you do not already have a “GB” EORI number, you can apply for both a “GB” EORI number and an “XI” number at the same time.

You should not need an EORI number if you only:

  • provide services; or
  • move goods between NI and the Republic of Ireland.

However, there is no risk to having an EORI number if you do not use it.

You can apply for an EORI number here.

3. Find out your commodity codes

You will need to know the commodity codes for the goods you buy and sell, if you buy from/sell to GB. You should speak to your supplier, they may be able to tell you the code but you can also check the code using the trade tariff look up service here. You should also check the tariffs applicable under the EU Common External Tariffs and UK Global Tariff.

4. Register for the UK Trader Scheme

If you move goods from GB to NI, you will now need to consider whether a duty could apply to those goods. As mentioned above, there will be two categories of goods in terms of duties: a) those 'at risk' of entering the EU to which a duty might apply and b) those not 'at risk' of entering the EU to which duties would not apply. You can find further information about the UKTS and register here.

5. Communicate with your supply chain and your hauliers

An important action will be communication with your supply chain in order to determine who is responsible for what parts of the new processes. It will also be important in determining the “origin” of your goods by ascertaining their composition, which, as outlined above, might now be important in determining whether any duties might be payable. You should also consider encouraging your suppliers to sign up to the TSS if they have not already done so.

Incoterms®

Incoterms® stands for International Commercial Terms. Incoterms® are internationally recognised standardised arrangements for trade transactions that are contained in your sales contract and commercial invoice to ensure that all parties are on the same page when it comes to who is responsible for which element of any trade transaction. You will find a further note on the considerations for commercial contracts on the Brexit section of our website and a link here.

Hauliers

You should speak to your hauliers who service your trade routes to and from GB to ascertain:

  • if they need any further information from you. You should encourage your hauliers to register for the TSS if they haven’t already done so because they will need to complete Entry Summary Declarations to the TSS prior to leaving the GB factory and being allowed onto the ferry. So it is crucial that they are prepared so that you can receive your goods with the least possible delay; and
  • what routes your goods routinely travel into NI. Do they come through Dublin port – if so there may be transit procedure which will apply?
6. Check that the goods meet the required standard

For as long as the Protocol is in force, NI will align with relevant EU rules relating to the placing on the market of manufactured goods and food and drink, such as EU labelling and health marking regulations. GB businesses will need to ensure their products comply with EU regulations and authorisations to be able to send their goods to NI and they could be forced to operate a “dual standard” regime in order to service both GB and NI.

7. Get to grips with the following documents

a) Customs Declarations

b) Commercial invoice (including the prescribed statement of origin text which is important for origin purposes as outlined above).

c) Transit documents (TSS can support you with this).

d) Packaging list

e) Export Health Certificates – SPS

DEFRA has established the Movement Assistance Scheme to help agri-food traders with these movements. Find out more here.

Certificates will come at a cost (estimated at £200 - £800 per consignment) and will be subject to physical inspections.

It is important to note that some animal and plant products will need pre-notification of many hours before arriving at customs points to allow certification and risks to be assessed. You may need to use customs and border IT systems including CDS and S&SGB via the TSS (HMRC), IPAFFS (Defra/Daera), ECMS (HMRC) and GVMS (DfT).

The Movement Assistance Scheme can offer support.

Conclusion

As you can see, there is a large and complex body of new legal, regulatory, logistical and compliance “red tape” that your business may now need to navigate. It is clear (and understandable) that many businesses have so far struggled to get to grips with operating in the new landscape. The situation will, by its nature, evolve over the coming weeks, months and years. The above is by no means exhaustive but we hope it will aid in sign posting your business through the early days of the Protocol.

If you have any queries the Corporate team at Carson McDowell would be happy to help.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

Annex 1 - Source: FDF/NIFDA

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