Context

The Northern Ireland Protocol states that Northern Ireland is to be within the United Kingdom customs territory. However, for most practical purposes it is effectively in the European Union customs territory. This has significance in relation to the movement of goods from Northern Ireland into Great Britain. It may also have implications in terms of customs duties rates and origin issues.

It should be recalled that the Northern Ireland Protocol could take effect either in a hard Brexit where there is no new trade agreement between the EU and UK or in a soft Brexit in which there is a trade agreement between the EU and UK. In the latter circumstances, there are likely to be zero or very low customs duties on all products, including traders’  products even for EU GB trade.

Under the Protocol, goods coming from Great Britain to Northern Ireland have no customs duty unless it is intended that they are sold on into the EU (including the Republic of Ireland or incorporated in a product which is sold onto the EU (including the Republic of Ireland). In this way, Northern Ireland is effectively part of the EU customs territory.

However, it appears clear that the reverse is not intended to apply. This could be very anomalous in circumstances where there are tariffs for EU to UK trade. Equally, where there are no tariffs, there may be certification of origin obligations for EU to UK or GB trade.

Where goods are not of UK or EU origin, there may be a double charge to customs duty, even after an EU UK trade agreement. Normally, there would be one charge on import into the EU and another charge on import into GB where the goods are not of EU or UK origin.NI routing might be sought to be used to avoid this charge.

Avoiding duty

The United Kingdom government has given very strong commitments that there would be no UK customs processes on imports from Northern Ireland to Great Britain. The United Kingdom is free to take this position, but it creates the risk that Great Britain customs rules can be simply avoided by shunting goods through Northern Ireland.

If there is no trade agreement say in the event of a hard Brexit for a period or there is a trade agreement without zero duty, it may be that NI traders have an advantage in selling directly to GB relative to other EU competitors by reason of traders’  UK customers being able to buy from traders free of duty.

In principle, subject to anti-avoidance requirements to the contrary, NI traders could acquire goods in free circulation in the EU free of duty and sell them into the UK which indicates that it will not charge duty on NI to GB sales. NI Traders would also have a significant advantage relative to EU established competitors in that their GB buyers would not have to complete import declarations.

UK buyers would be buying from the home market, and this could be a very considerable advantage. NI Traders’  buyers may have to collect and pay UK VAT immediately, but they may avoid the obligation of having to establish and provide security in the longer term for an import deferment account.

NI Traders would have to ensure that they are not breaching any legislation whereby GB prevented EU established businesses avoiding UK duties by routing transactions through Northern Ireland.

The likely longer-term scenario is that there would be a relatively low or zero duty for EU to GB sales for most  products under a new EU UK trade agreement. NI Traders might still have a significant advantage in being able to export to GB without the GB importers having to complete import declarations and procedures and possibly without having to certify EU origin.

We must emphasise that all of this depends on the goods moving via Northern Ireland. It is not enough that there are transactions only, say A(France)  with  B (NI) and then B(NI) to C (GB)  where the goods move directly from say (A) France to (C) GB.

Import declarations and Procedure Avoidance

It might reasonably be expected that there will eventually be a UK EU trade agreement, at the same time as the NI Protocol becomes effective or later. Even if one does not occur immediately, it is likely to be put in place eventually. A prolonged hard Brexit for EU GB trade is unlikely.

It would be reasonable to expect that ultimately the rate applicable under trade agreements between the EU However, in broad terms, it is likely with a trade agreement that most non-agricultural duties will be zero-rated or very low (and possibly many or most agricultural duties too) with the result that the advantage of moving goods through Northern Ireland would be reduced.

Apart from tariffs, a major cost of customs is the compliance requirements both for export declarations and import declarations on every movement. This is a very significant compliance burden, as will be apparent. GB buyers may not wish to have to engage in customs procedures.

The likely free-trade agreement between the EU and the UK will require customs declarations. This is because anything short of a customs union and a very close single market type relationship would require declarations. The UK seems very determined that GB will not be in a customs union or such a close relationship.

Certificate of Origin Avoidance

In a zero rate or very low rate tariff environment, one of the principal focuses of customs controls is origin. Where there is a trade agreement, only goods that have been manufactured or substantially transformed in one of the party countries qualify for the low or zero rates. The net result is that third country goods, very commonly the case with consumer imports from China and the Far East are subject to double customs duties unless there are subject to certain customs suspensive procedures which can be awkward and expensive.

For example in the case of goods imported from the Far East Northern Ireland traders may have a significant advantage relative to  Republic of Ireland traders as there would be potentially a double charge to duty (which can often be high in the case of far east products) one on import into the Republic of Ireland/the EU and the second upon  subsequent import into the UK. In this case, a trade agreement between the EU and UK would not reduce the double duty as the goods are not of EU UK origin.

Under the EU UK trade agreement, there would be provisions as to what origin proof or certification is required to qualify for the zero rate. In the case of direct Republic of Ireland to GB sale of traders’  products, proof of origin may be required. Certification or proof of origin can sometimes be onerous.

The system of certifying origin has modernised and may not in fact be as burdensome in traders’  case as is often the case otherwise. It may be that traders’  manufacturer can furnish evidence which HMRC from a risk perspective, is prepared to accept an ongoing basis. Traders may self certify under the REX system.

It seems clear that the certification of origin would not be required on sales from the EU to NI under the NI Protocol, as it is effectively in the EU customs territory. It is not clear whether certification of origin would be required on sales from NI to GB. In the leaked Treasury document the issue appears as “?”.

Traders may have export declaration obligations as referred to in a separate chapter on the NI to GB sales, but   these are easier than import obligations and it is likely that an attempt will be made to reduce and simplify them. Furthermore, it appears that a GB purchaser will not have import obligations in buying from Northern Ireland. Such a sale might well save the cost of customs formalities and requirements which can be significant especially for small consignments to multiple customers or from multiple suppliers.

The avoidance of customs formalities and requirements and origin requirements might be a more significant possibility in traders’  case by sales and goods moving through businesses  in Northern Ireland as part of the supply chain. This would be less likely to be deemed illegitimate under anti-avoidance rules. where traders have an established group or business relationship than cases, for example, where goods are physically moved with reference to a brass plate presence.

Possible Anti Avoidance Rule

It is distinctly possible that some rules will be put in place to avoid the scenario described above. When prior to the Northern Ireland Protocol the United Kingdom had proposed that there would simply be no customs duties or processes on the Republic of Ireland to Northern Ireland trade, the UK Government added that this could not be used to sell or channel EU goods through Northern Ireland to Great Britain.

It is  not yet clear what anti-avoidance provisions might be / will be put in place where goods would be subject to customs duty if imported directly from the Republic of Ireland (or elsewhere in the EU) to Great Britain, but which are exported through a Northern Ireland seller such as the company.

Of course, it may be that anti-avoidance rules are satisfied here because the trade does not involve simply shunting or crudely moving the goods through Northern Ireland to Great Britain.

Summary

The Protocol may give some businesses in Northern Ireland an advantage at least in respect of selling into GB as there are no checks for goods coming into Northern Ireland that are to be sold onto GB.GB customs duties that would apply in the absence of a free-trade agreement or free-trade agreement which did not make all of the traders’  products zero, would not apply to direct NI to GB sales. Equally, traders may have an advantage in that traders’  GB buyer would not have to complete import declarations or so it appears likely.

In the longer-term, there is likely to be an EU UK trade agreement but with requirements for export declarations from the EU certification of origin by the EU supplier and import declaration requirements by the UK buyer. It may be that an NI business has an advantage relative to such EU competitors in being able to avoid the UK buyer having to undertake import declarations and avoid the possibly the requirement for origin certification. This may give considerable economic advantage relative to such competitors.