Invoking Article 16 will not address current trade challenges, but almost guarantees heightened instability for Northern Ireland business. That was the reaction by the Institute to signals that the UK might trigger Article 16 of the Protocol. In this week’s bulletin, we look at what Article 16 contains and also share a letter we sent to HMRC requesting that the Trader Support Service is extended beyond 2022. Readers are also reminded that full customs controls will apply from 1 January 2022 for goods moving between the EU and Great Britain.
Article 16 deciphered
Talks continue between the EU and UK to break the deadlock on issues around implementing the Northern Ireland Protocol with some signals that the UK may trigger Article 16 of the Protocol.
This Institute this week said that triggering Article 16 will not address the current trade challenges because it was designed as a last resort clause. If it is executed, it will cause significant upheaval for businesses that are already trying desperately to keep goods moving, particularly in the run up to Christmas. Read our comments.
It is a safeguard clause that either side can execute if they believe the Protocol has caused “serious economic, societal or environmental difficulties” or the “diversion of trade.” What constitutes “serious economic, societal or environmental difficulties” is not defined in the Protocol.
Why has the UK signalled that it may trigger Article 16?
Broadly, the UK says that the current requirement for goods moving from Great Britain to Northern Ireland to follow certain rules of the EU’s Single Market has caused considerable friction both in terms of trade supply and customs administration.
The UK has said that the rules have caused much greater disruption than anticipated at the time the Protocol was agreed.
What parts of the Protocol have the UK signalled that it would like changed?
There are six main areas that the UK would like changed and these were set out in a command paper issued in July.
The UK wants goods from Great Britain that are destined to be consumed in Northern Ireland to be able to move freely without paperwork, tariffs, or checks. For goods that move through Northern Ireland from Great Britain into Ireland (or the rest of the EU), full customs checks, and EU SPS checks, would be conducted by UK authorities.
No certificates or checks for agri-food to be consumed in Northern Ireland would be required. For live animals and certain plants, checks would still be required on entering Northern Ireland from Great Britain; however, the UK is seeking an “appropriately designed SPS agreement… setting out where UK and EU SPS legislation provided for the same high standards.”
An international arbitration system would be put in place to replace the authority of the European Court of Justice in Northern Ireland.
For medicines, the UK argues that the most straightforward solution may be to remove medicines from the scope of the Protocol.
The UK is also seeking more flexibility to set its own VAT and excise rates and rules in Northern Ireland.
For more on our analysis of the command paper read here.
Has the EU responded to these demands?
Yes. In October, the European Commission put forward “bespoke arrangements” in response to the difficulties under the Northern Ireland Protocol. Further flexibilities were proposed in the areas of food, plant, and animal health (SPS checks), customs, medicines, and engagement with stakeholders in Northern Ireland with an 80 percent reduction in SPS checks and a 50 percent reduction in customs paperwork put forward for goods that would be consumed in Northern Ireland.
What would happen if Article 16 is triggered?
While the legalities of what would happen are reportedly being investigated by the EU, Annex 7 of the Protocol sets out that if either side is considering such unilateral action, it must notify the other party as soon as possible through the EU-UK Joint Committee, the body tasked with overseeing the implementation of the Protocol. Both the EU and UK would then immediately enter into formal discussions to find a solution.
Any unilateral or “safeguard measures” cannot come into force for a month except under “exceptional circumstances”. If exceptional circumstances are deemed to exist, “protective measures strictly to remedy the situation” can be introduced immediately.
If negotiations fail and either party adopts unilateral measures, the other may take “proportionate rebalancing measures”. This means the UK, for example, could introduce safeguard measures but must notify the EU which can, if it wishes, respond with balancing measures.
Such safeguard measures will be reviewed by the Joint Committee every three months from the date of their adoption “although either side can request a review at any point”.
It’s a case of wait and see. Talks continue between the EU and UK on working through the issues and for now Article 16 remains untriggered. Brexit minister, David Frost told the House of Lords this week told the EU to “stay calm” and the triggering of Article 16 is “not inevitable”.
Institute requests that Trader Support Service is extended beyond 2022
Following a recent survey of members who use the Trader Support Service (TSS), there was overwhelming support for the service to be extended beyond the current two-year operational timeframe.
This week, we wrote to HMRC to tell them that 79% of respondents to our survey want the service to be extended beyond December 2022 in order to support them in completing the required customs declarations. In the absence of this support, only 10% of those surveyed are confident that they will have the required expertise to complete customs and safety and security declarations.
The TSS is primarily used to move goods in or out of Northern Ireland and to date has facilitated the movement of just under 1.4 million consignments of goods into Northern Ireland.
We highlighted to HMRC that should the TSS cease at the end of 2022, there is a significant risk that traders will not be in a position to file the necessary declarations either by using internal expertise or via third party intermediaries due to capacity constraints, and this will have serious implications for the flow of goods into Northern Ireland.
Read our letter.
Thank you to members who participated in the survey.
EU extends equivalence for UK clearinghouses
The EU’s Financial Services Commissioner Mairead McGuinness announced this week that following industry warnings over potential market disruption, the EU will extend equivalence for UK clearinghouses beyond June 2022 but stopped short of announcing how long the extension would run for.
This means that EU banks and investors would be able to continue using UK financial institutions as intermediaries between buyers and sellers of financial instruments, despite the European Commission’s hopes that euro clearing would move to the EU after the UK departed the EU.
“Before Brexit, the City of London became the main financial hub for the trading and clearing of derivatives in the European Union. The departure of the United Kingdom from the European Union was a fragmenting event, with consequences in terms of financial stability. UK-based CCPs now operate outside of the Single Market and the EU's regulatory framework and over-reliance on these CCPs implies financial stability risks, notably in the event of stress. Accordingly, the EU's own clearing capacity must be expanded.
Clearinghouses are the only remaining area of UK financial services that benefit from post-Brexit equivalence due to fears of disruption to the economically critical area of euro interest rate swaps. However, Commissioner McGuinness said that she would like to introduce measures to make EU-based clearinghouses more attractive.
UK: Full customs controls from 1 January 2022
HMRC has issued a reminder by email that full customs controls from 1 January 2022 will apply for goods moving between GB and the EU. However, safety and security declarations will now not be required until 1 July 2022.
Under the revised timetable:
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The requirements for pre-notification of Sanitary and Phytosanitary (SPS) goods, which were due to be introduced on 1 October 2021, will now be introduced on 1 January 2022.
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The new requirements for Export Health Certificates, which were due to be introduced on 1 October 2021, will now be introduced on 1 July 2022.
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Phytosanitary Certificates and physical checks on SPS goods at Border Control Posts, due to be introduced on 1 January 2022, will now be introduced on 1 July 2022.
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Safety and Security declarations on imports will be required as of 1 July 2022 as opposed to 1 January 2022. Full customs declarations and controls will be introduced on 1 January 2022 as previously announced.
Different rules apply in Northern Ireland under the Protocol.
Webinars and support for trade with the EU
A calendar of upcoming webinars for organisations that trade with the EU is available. BEIS has also launched a series of on demand videos, to help businesses familiarise themselves with the new rules. Topics include importing and exporting, trade, Rules of Origin, tariffs, data, and audit and accounting. The Cabinet Office has published recordings and videos that outline in more technical detail the new rules for moving goods to and from the EU.
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watch HMRC videos on HMRC's YouTube channel to familiarise yourself with the new customs processes and what you need to do before trading goods with the EU;
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use the trader checklist to make sure you’re familiar with the new rules;
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use HMRC’s updated guides to understand the new customs and VAT requirements when a business is moving goods between the UK and EU countries;
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sign up to the Trader Support Service if your business is moving goods between GB and NI and use their suite of educational products, including online training modules and webinars, for support with the Protocol;
Miscellaneous updated guidance
The following documents/guidance relevant to EU exit have been updated/published recently:
Read more updates at www.charteredaccountants.ie/brexit
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