Brexit

Understanding the Brexit backstop

Peter Legge Peter Legge

With ongoing talk and confusion surrounding the ‘Northern Ireland backstop’ here is a guide to what it is, how it works, and what would it mean for business.

What is the backstop?

Within the Withdrawal Agreement (WA) is a protocol on Ireland/Northern Ireland designed to ensure that no hard border exists between the two – these provisions are known as the ‘backstop’.

As currently drafted, the backstop would create a special status for Northern Ireland. This could make Northern Ireland a favourable location for manufacturing and creates some changes for all UK organisations importing or exporting goods or commodities with the EU.

These provisions would come into force at the end of the proposed transition period (31 December 2020 - unless extended) if no new agreement is made and would last until they were superseded by a new trade deal.

*The backstop will endure indefinitely until it is deemed unnecessary by both the UK and the EU. The UK has no unilateral right to exit the backstop.*

How does it work?

The backstop is focused on trade in goods rather than services.

The ‘backstop’ creates some implications for the whole of the UK:

  • there will be a single EU-UK customs territory - avoiding the need for tariffs, quotas or checks on rules of origin between the EU and the UK. However, this will not prohibit all customs formalities on movements of goods between the UK and the EU. It also means that the UK will be unable to pursue an independent trade policy.
  • a set of measures to ensure that there is a level playing field between the EU and the UK. Across the whole of the UK, the UK will commit to observe a range of regulatory obligations during the backstop relating to environmental standards, workers’ rights, tax avoidance and competition, reflecting varying levels of alignment to EU rules. The UK also agrees to harmonise on an on-going basis with the EU’s state aid rules.

In Northern Ireland:

  • the Union's Customs Code (UCC), which sets out the EU’s customs rules and the provisions for releasing products into free circulation within the EU, will continue to apply.
  • Northern Ireland will remain aligned to a significant number of rules relating to the EU's Single Market for goods and necessary for avoiding a hard border with the Republic of Ireland (over 300 different legal instruments): legislation on goods and product standards, sanitary rules for veterinary controls (“SPS rules”), rules on agricultural production/marketing, and VAT and excise rules in respect of goods. Together, these should ensure that Northern Irish businesses will not face restrictions when placing products on the EU's Single Market.
  • The European Commission and Court of Justice of the European Union (CJEU) will continue to have jurisdiction over the enforcement of these rules.
  • The Common Travel Area (CTA) will continue to apply, allowing free movement of UK citizens to the Republic of Ireland and vice versa, regardless of the UK’s new immigration rules for EU citizens.

In England, Scotland and Wales:

  • there will be some regulatory controls on the movement of goods to and from Northern Ireland as well as the EU.

What does it mean for Northern Ireland businesses?

Under the backstop, Northern Irish businesses that manufacture goods complying with the EU standards applicable in Northern Ireland would be able to sell these products in both the EU and UK with just one set of conformity tests and the same border checks and documentation as at present.

Northern Ireland products sold in the EU would be required to be labelled as UK (NI). This mean that products made in Northern Ireland can be freely sold across the UK and EU. 

Where certification and product approval are required, Northern Irish businesses may require authorisation from a EU27 Member State authority or body. This authorisation will also be recognised in the UK market, meaning that only one approval or certification will be required to sell goods both in the EU and the rest of the UK.

For businesses in England, Scotland and Wales

Manufacturers in England, Scotland and Wales (i.e. Great Britain) will need to secure separate UK and EU approvals for products to sell in both markets (unless the UK continues to recognise EU approvals).

For goods being exported from Great Britain to the EU, exporters will need to have evidence that the product can enter free circulation within the EU (i.e. proof that it meets all EU market requirements).

There will be some compliance checks on products moving from Great Britain to Northern Ireland:

  • for industrial goods, checks are based on risk assessment, and can mostly take place in the market or at traders' premises by the relevant authorities. Such checks will always be carried out by UK authorities.
  • for agricultural products, existing checks at ports and airports will continue, but will be increased in scale.
  • EU VAT and excise rules relating to goods will continue to apply in Northern Ireland, although Northern Ireland remains part of the UK “VAT area”. This means Northern Ireland could have different VAT rules with some VAT consequences of moving goods between Northern Ireland and Great Britain.
  • customs formalities may be needed for the movement of goods from Great Britain to Northern Ireland and vice versa.

Planning ahead

If (and it’s a very big if) the Withdrawal Agreement is passed, the backstop would become the new “worst-case scenario” for EU-UK trade arrangements. It sets the minimum barriers to trade which any future relationship would either adopt or improve upon.

The special status for Northern Ireland, and its continued access to the EU Single Market, could create opportunities for Northern Ireland businesses compared to their GB counterparts.

However, given that the issues/opportunities identified when businesses plan for a No Deal Brexit (especially for service providers) are mostly still applicable in the event the backstop applies – and that we could still end up with No Deal if nothing changes – No Deal remains the best scenario for planning purposes.

We are here to help – please get in touch if you would like to discuss any aspect of your Brexit planning.