New trading status may be third time lucky for North’s economy

Dec 20, 2020


Originally posted on Business Post 20 December 2020.

Twice in the past decade, Northern Ireland business has missed out on opportunities for preferential trading arrangements,

The first missed opportunity had to do with a reduced rate of corporation tax. After years of political and technical manoeuvring, London consented to the application of a 12.5 per cent rate of corporation tax for companies based in the North, on condition that the Northern Ireland Executive could formulate a balanced budget.

The three-year suspension of the executive over the renewable heat incentive scandal, which only ended at the start of this year, put paid to that prospect.

Over that same period, international moves to curtail multinational tax planning resulted in a corporation tax and investment bonus for legitimate low-rate regimes. Ireland benefited. Northern Ireland could have, but did not.

Then there was Theresa May‘s ill-fated Brexit withdrawal agreement, which contained the so-called backstop provision. The irony here was that the flimsier the ultimate trade deal between Britain and the EU, the greater the backstop advantages would have been for the North in terms of EU single market access.

Under Boris Johnson’s leadership, the post-Brexit backstop was replaced by the Northern Ireland protocol. Was opposition to the original backstop arrangements such a good idea, at least from a business perspective?

Johnson’s agreement could still offer advantages to businesses based in the North. One of the certainties now surrounding the whole Brexit process is that the protocol will in fact come into operation on January 1. In crude summary, the protocol positions Northern Ireland as a de facto member of both the UK and EU customs territories, and as a member of the EU Vat regime as it applies to goods.

This sleight of legislative hand will result in there being no need for controls and checks along the land border on the island of Ireland. In so doing, it achieves its primary objective, thankfully. It also means that Northern businesses will have unique ease of access for goods to both the EU and UK markets.

Given that Britain and the EU are going to be separate territories for all trade rules, there will have to be checks and controls on goods somewhere as they move from one territory to another. How these will operate next year became clearer in recent days.

The UK tax authorities have published details of how customs requirements on goods travelling between non-EU member Britain and non-EU member Northern Ireland will operate in practice. The new system is based on the notion of some goods transiting between Great Britain and Northern Ireland being “at risk”.

British goods or British foreign imports going into Northern Ireland are “at risk” if they end up being consumed somewhere in the EU without EU customs duties being paid. Northern Ireland importers will have to decide whether a product being imported is “at risk” in this sense or not.

This judgment call will not be available to all. It can only be made by Northern Ireland businesses which have registered with the British tax authorities under a special scheme to be known as the UK Trader Scheme. That registration must be made before the end of this year, which is a tall order for any business operating in a Covid-blighted environment over the Christmas period.

By delegating the primary policing of customs administration to local traders, introducing other rules such as an exemption for smaller industry from some customs requirements, and allowing initial periods of leniency for compliance with new procedures, both the British and the EU authorities are closing one eye to the normal conventions and rules which apply to customs enforcement.

In the long term, this attitude can only be sustained if a no tariff trade deal is in place. If things go well on the negotiation front and principles can be surrendered without white flags becoming too obvious, the challenge next week will be the ratification of an agreement text by the British and European parliaments.

On the EU front, any trade deal agreed by Michel Barnier, the EU’s chief negotiator, and David Frost, his British counterpart, must be agreed by the heads of state of the 27 member countries and then voted on by the European parliament.

This process took place in microcosm last week with the ratification of emergency Brexit land and air transport measures to apply from January 1, but a Brexit trade deal is of a totally different order of magnitude.

Elected politicians, with some justification, don’t like being taken for granted or bounced into tight timescales by officials. There are signals that MEPs may become mutinous, and they are already saying that they will not vote on a Brexit deal before the end of the year unless an agreement is struck by this evening.

Next week, the preferential trading status for Northern Ireland which the protocol delivers will not be in the hands of politicians there, but in the gift of MPs in Westminster and MEPs in Brussels.

After the missed opportunities of a low corporation tax rate and single market access under May’s backstop, it may be third time lucky for Northern Ireland business.

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland