Percy Pigs and the Northern Ireland protocol
Top 1000: Post-Brexit trade may be facing challenges, but the region also has opportunities ahead
Jack Hamilton, chief executive of Co Down based vegetable producer Mash Direct, with his mother Tracy, co-founder and director of the company.
Brexit and the operation of the Northern Ireland protocol is so politically divisive that most business leaders in the North don’t want to talk about it.
Supporting it or railing against it, saying your company is doing well or struggling under the new arrangements, enters into the realm of politics at a crucial juncture in the North’s history. And most chief executives don’t want to go there.
“If you’re a consumer-facing brand, it’s not a good move to make a big, strong claim on something as divisive as Brexit,” one prominent company boss said.
Broadly speaking, however, it seems export businesses are benefitting from the new trading arrangements as many predicted they would.
Having unfettered access to the EU’s single market, while simultaneously being inside the UK’s lucrative consumer market, confers a distinct advantage.
Isolating the upswing from this is, however, tricky as it is coinciding with increased demand generally fuelled by the lifting of Covid-related restrictions in Europe and the US. Importers on the other hand appear to be having quite a different experience.
The introduction of controls on goods flowing from Britain into the North has proved a headache. Goods moving in this direction now require a full customs declaration similar to goods moving Britain to the Republic.
The increased paperwork combined with the stringent application of EU “rules of origin” have hampered trade and in some instances alienated firms on the British side from exporting to the North altogether.
Stephen Kelly, the chief executive of Manufacturing NI, which represents 5,500 firms in the North, says exporters are “flat out”.
“Markets have begun to return [with the lifting of restrictions] plus their goods can freely circulate in the EU’s market as well as the UK market,” he says.
He cites recent Central Statistics Office (CSO) data, which show trade from the North to the Republic has effectively doubled since the start of the year - it’s almost the opposite in the case of trade between the Republic and Britain.
“Buyers in the Republic are substituting what they would have got from Great Britain with stuff from Northern Ireland,” he says, noting that food, engineering parts and construction materials are part of the increased north-south flow of goods.
“We have members reporting back strong interest and sales from the Republic in and around those product lines - Irish buyers have substituted a GB supply chain with Northern Ireland products instead,” Kelly says.
However, he cautions that it isn’t all plain sailing for exporters as some EU countries are failing to implement the protocol correctly.
He cites examples of Italian postal authorities sending back packages to Northern Ireland because they don’t have customs forms with them, even though they’re not required.
The protocol means the North, for merchandise trade, is still part of the EU, meaning no tariffs, no quotas and no customs formalities.
“I have examples of scrap metal shipments being left on quaysides in Lisbon for nearly a week because customs authorities there didn’t recognise Northern Ireland being different from the UK,” he says, adding that it’s taking time for customs authorities in other EU member states to recognise the special status of Northern Ireland.
While there appears to a relatively smooth flow of goods from Northern Ireland to Britain, the same cannot be said of goods coming from Britain into the North.
A recent survey by Manufacturing NI found that 50 per cent of manufacturers in the North are reporting that their suppliers in Britain have been or still are “unprepared” for the formalities that are required.
Perhaps more worryingly, 20 per cent are saying British suppliers are now unwilling to send products to Northern Ireland because they don’t want to engage with the new customs formalities.
The full customs declaration required on goods coming into the North from Britain involves the completion of a form with 23 data fields. “These data fields are everything from the commodity code for the item itself is, the weight, the value, the origin of those goods -whether they are of UK origin or internationally sourced,” Kelly says.
The latter, rules of origin, is “the bit that’s hurting the most and unnecessarily so,” he says.
The protocol created a category of “at risk goods”. These are goods which the EU fear could travel from Britain through the North into the Republic and the wider EU without paying the correct EU tariff. The protocol makes a provision for tariffs to be charged on these goods.
The EU isn’t interested in the goods that are travelling from Britain into the North to be consumed there or which are processed there and then go back, “but everything at this point in time is being viewed as ‘at risk’ of going into the EU’s market via the Republic,” says Kelly.
There are several firms bringing in components from Britain which are incurring a full frontier customs declaration and in some instances they are being viewed as “at risk” and a tariff is being applied, he says.
Percy Pig jellies illustrate the peculiarity of the situation. They are bought directly by Marks & Spencer from a manufacturer in Germany and exported tariff free to Britain as per the provisions of the Brexit withdrawal agreement.
However, when being moved from a distribution centre in Britain to the North, or the Republic for that matter, the EU no longer recognises the origin of those items and a tariff is applied - in effect the EU is applying a tariff on its own product - “which is a nonsense,” says Kelly.
The stringent application of these rules is putting some NI firms at a disadvantage. It remains to be seen whether this is just a teething problem or something more.
Lakeland Dairies, Ireland’s second largest dairy co-op, operates on both sides of the Irish border. While it exports products to Europe and elsewhere, it also imports animal feed and other raw materials from the UK, placing it on both sides on the new arrangements.
Chief executive Michael Hanley says the co-op has been trading normally since the UK’s exit, albeit there had been delays on inputs and raw materials coming from Britain because of documentation and other controls.
“We wish to see the all-island dairy economy continue, and for the products which are manufactured from cross border supply chains to be facilitated within EU trade policy, and in agreements with third countries and within EU market support measures,” he says.
Bigger businesses such as Lakeland, however, can handle the increased paperwork - can delegate staff to administer it - it’s more exacting on smaller businesses and that remains a big problem as most businesses in the North, similar to the Republic, are small SMEs.
Co Down-based vegetable producer Mash Direct, which recently won a contract to supply M&S stores in the Republic, says preparation has been key. “It was about having a game plan for haulage and paperwork ready to go for whatever Brexit variant emerged,” chief executive Jack Hamilton says.
DUP opposition to the protocol and EU allegations that UK prime minister Boris Johnson wants to rewrite it makes the situation somewhat fluid.
UK Brexit minister David Frost has accused Brussels of adopting a “purist” approach to implementing the protocol, which he claimed, was threatening the “political, social, or economic fabric of life in Northern Ireland”.
The UK wants a phased approach to the introduction of additional border checks on food products, which have yet to be implemented and looms as another potential stumbling block.
Despite the diplomatic friction, there seems to be intense talks behind the scenes and zero appetite on either side to revisit the protocol, suggesting the new arrangements are here to stay and will need to be made work.
The advantage of being simultaneously inside the EU and outside it – the “having your cake and eating it” option as it was dubbed at the start of the Brexit negotiations - is being championed, but quietly, because of the fractious politics involved.
Almac, the Craigavon-headquartered pharmaceutical group, declined to comment on the new arrangements but its website contains a document entitled “Post-Brexit: the Almac advantage”, which says the company now has “unique, unfettered and flexible access to the UK, Europe and beyond”.
Invest NI, the North’s development agency, has been quietly marketing the opportunity to investors.
“This dual market access position means that Northern Ireland can become a gateway for the sale of goods to two of the world’s largest markets and the only place where businesses can operate free from customs declarations, rules of origin certificates and non-tariff barriers on the sale of goods to both GB and the EU,” the agency says on its website.
A spokeswoman confirms it has been receiving enquiries from companies interested in investing in Northern Ireland and to take advantage of its unique trading status.
“Following the EU exit, market access to both GB and the EU from a Northern Ireland base may present additional benefits to potential investors,” the spokeswoman said.
“Northern Ireland is already an attractive investment location, with a strong pool of talent, good infrastructure, the competitive cost of doing business and a high quality standard of living,” she says.
For now, Brexit and Northern Ireland’s new trading arrangements remain highly controversial and their impact on the North’s economy difficult to gauge at this early stage.
The Top 1000 magazine and listings is published on Friday 11th with The Irish Times.