9 December 2019
L. Alan Winters CB is Professor of Economics and Director of the Observatory.
Our analysis finds that under the UK-EU Protocol on Northern Ireland, about 75% of Northern Ireland’s imports of goods from other locations, including Great Britain, would be subject to EU tariffs on their arrival in Northern Ireland. This is not easily reconciled with the government’s assertion that Northern Ireland remains within the UK customs territory.
Under the Brexit Withdrawal Agreement’s Protocol on Ireland/Northern Ireland, Northern Ireland’s imports from the EU, including the Republic of Ireland, would face no tariffs. Among imports from elsewhere, the Protocol requires that any goods deemed at risk of moving to the European Union should be subject to the tariffs of the EU rather than those of the UK.
Relying on a a range of statistical data and informed assumptions, the analysis breaks Northern Ireland’s imports down according to the risk criteria in the Protocol and finds that about 82% of Northern Ireland’s imports from non-EU countries and approximately 64% of imports from Great Britain would face EU tariffs. Summing the contributions to Northern Ireland’s imports from the EU (25% of the total), the rest of the world (12%) and Great Britain (63%) suggests that, overall, around 75% of all Northern Irish imports will pay the EU tariff on entering the province.
While goods that are proved to have been sold to final buyers in Northern Ireland can have any EU tariff they have paid rebated, those rebates are likely to be difficult for the private sector to claim and are therefore unlikely to refund much tariff revenue.
Further, since Northern Ireland’s imports from the EU would not face any change under the Protocol but a large share of imports from Great Britain may newly face tariffs, it seems likely that, over time, Great Britain may lose market share in Northern Ireland, both to domestic supply and to increasing imports from the EU.
Further, a Free Trade Agreement between the UK and the EU would not completely avoid the problem. While goods produced in Great Britain exported to Northern Ireland and transiting on to the Republic of Ireland would face no tariffs, they would still need to satisfy rules of origin to prove that they had been produced in Great Britain. Hence there would still be administrative hurdles for such exports to jump.
The analysis was commissioned by the Good Law Project, who explain its context and also provide a link to the evidence.
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So there will be duty payable to the UK government of the day (using Liam Fox’s cut-down version of the European Common Tariff) then?
Don’t see anyone being keen on that idea if it gets out before the election…
“could” is such a broad word, it does make for a catchy 75% headline which after all is the purpose of the commission work
From what I understand vast majority of these items are zero to low tariff (for UK/EU trade it’s around 90% are zero to below 10%).
The Withdrawal Agreement is inferior to leaving on WTO terms but it is what it is.
The 75% comprises 25% from the EU that is guaranteed zero tariffs (i.e. the EU internal rate) plus another 50% that COULD proceed to the RoI – i.e. is at risk of doing so in the words of the Agreement. The 50% is counted because either it is subject to further processing (which is a more or less non-negotiable criterion for ‘at risk’) or because the differential between the UK and EU tariff rates and/or the value to weight ratio is high thus encouraging smuggling.
There’s also a rather important issue that seems to have ben completely overlooked in the coverage, which is how any refunds may be administered and *who* will be responsible for paying for them.
The tariffs will be due to the EU —the form part of the Traditional Own Resources (TOR)— and are collected by Member States on behalf of the EU under the control and supervision of the Commission, which monitors closely in order to ensure that collection of TOR is carried out in accordance with EU customs legislation and that the financial rules are respected (and how is this going to work?/what legally enforceable obligations will the UK be prepared to accept in this respect?), albeit each Member State is allowed to retain a lavish 20% in order to cover the costs of collection. *Member States are financially responsible for any losses of TOR owing to their administrative errors (another commitment required).
Any refunds in NI, however, would have to come from the UK government, who might then choose to try to reclaim the relevant amounts from the EU. The problem is that the EU would be extremely unwilling to allow refunds unless the documentation of final destination can be provided to standards acceptable to EU auditors. This issue should raise an immediate red alert for anybody familiar with the UK’s track record on such issues!
The UK is increasingly mistrusted, and is considered, entirely contrary to its own self-image and the impression created in the British press, to be one of the worst of all the Member States at implementing such rules, and with considerable justification:
• in 2017 the country was ‘fined’ over €2bn for failing to collect billions in duty on imports of Chinese shoes and textiles;
• the UK proved to be exceptionally vulnerable to VAT scams affecting revenue such as “carousel fraud”;
• EU audits reveal that the UK has one of the worst records on adequately documenting CAP expenditure: one year it was so bad that all farm payments were suspended for many months;
• the concurrent assessment of UK’s own audit procedures classed many in the lowest category of “Not Effective” (auditor-speak for chocolate teapot!): in some cases, claims from the samples assessed were falsified by EU auditors in minutes by simple inspection of Google Maps!
It is very difficult, therefore, to see how, politically speaking, the UK will accept the level of oversight likely to be demanded by the EU, and it will also face a major struggle to provide documentation and audit procedures acceptable to the EU, or be trusted to do so. Without resolving these issues, the EU won’t be releasing any refunds, and the stock of political generosity and goodwill is already heavily overdrawn. In addition, this is an area heavy with rich pickings for fraudsters.
How then, in practice, will the UK manage to provide refunds even for qualifying cases, without effectively paying much of the duties out of its own pocket effectively as a subsidy?
(And this is before we even consider the vanishingly small capacity to implement the necessary infrastructure and IT systems in a timely fashion!)
Maybe it’s because I need a bit of sleep, but the percentages aren’t making sense to me.
25% of all NI imports are from the EU. 63% are from Great Britain. 12% are from the rest of the world. Okay fine. But if 82% of imports from non-EU countries (i.e. the rest of the world) would face tariffs and 64% of imports from Great Britain would face tariffs, then wouldn’t this mean that:
(0.82 x 12)+(0.64 x 63) = 9.84 + 40.32 = 50.16% of all NI imports would be subject to the EU tariffs rather than 75% (which seems to refer to all the non-EU trade whether facing the tariff or not)?