Written by: Rebecca Pehlivan, Deloitte

The Northern Ireland Protocol and negotiations to improve it 

In order to avoid a hard border on the island of Ireland, the European Union (EU) and the United Kingdom (UK) negotiated Protocol on Ireland/Northern Ireland (Protocol) as part of the Withdrawal Agreement (WA). One of the solutions agreed in the Protocol envisages the continued application of certain provisions of EU law in Northern Ireland, in order to ensure that Northern Ireland can de facto remain part of the EU’s single market for goods after Brexit. The provisions of EU law that continue to apply in Northern Ireland include, among other things, those pertaining to customs, VAT, excise, state aid etc. This solution also means, in particular, that goods arriving into Northern Ireland from the other parts of the UK are subject to customs checks and formalities, once they have crossed the Irish Sea.

The arrangements in the Protocol can be loosely compared to a ‘gated community’ surrounded by a wall in a rural village of the UK. The gated community, which would of course be the customs union of the EU, the village community and the rest of the UK all accept that there should be an opening in the wall of the gated community. In order to maintain the character of gated community, parties agree that the gated community can apply its regulations over the area of the village and that any checks are performed on entry of that village. As having an otherwise unguarded opening in the wall is an absolute priority for all parties involved, this solution is what probably be best can described as ‘a solution that nobody wants, but everybody needs’.

So far and for different reasons, the Protocol has failed to operate to the satisfaction of all parties involved. Therefore, the EU and the UK are negotiating on the measures to improve it. In October 2021, the EU proposed to the UK Government its latest package of ‘bespoke arrangements’ . In the above example, these measures aim to address the number and intensity of the checks on entry of the cricket ground. The UK Government, however, considers the EU proposals insufficient and wants to abolish the checks altogether. In addition, it also proposes that the regulations of both the EU and the UK must apply simultaneously on the cricket ground. Since the opening in the wall remains unguarded and no checks can be performed on anything that crosses that opening, the changes proposed by the UK Government will affect the character of the ‘gated community’ in its core. In what appears to be an effort to put pressure on the EU, the UK has now indicated that it may trigger Article 16 of the Protocol (Article 16), if no agreement is reached during negotiations.

What is Article 16? 

Article 16 is a special “safeguard” mechanism included in the Protocol. Under this mechanism, the EU or the UK may unilaterally take appropriate safeguard measures if the application of the Protocol leads to “serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade”. Safeguard measures under Article 16 must be temporary and not go beyond what is strictly necessary to address the situation that triggered their application.

What action can the UK take under Article 16? 

Article 16 refers to “appropriate safeguard measures” without prescribing or limiting the form of such measures. The UK has so far not indicated what kind of safeguard measures it would take, should it decide to formally trigger Article 16. The Command Paper, published by the UK Government in July 2021, reflects the possibility that the suspension of some parts of the Protocol (such as those pertaining to customs border formalities) may be considered. At the same time in par. 27 of the Command Paper it is noted that “the way the Protocol is working, needs to change. That requires us to address the significant issues that the Protocol has caused, and to do so in a fundamental way.” Such fundamental changes, however, are not what Article 16 aims to achieve, since a permanent suspension of the parts of the Protocol would not be covered by Article 16, as its terms clearly require that any safeguard measures taken on its basis must be temporary.

What action can the EU take in response?

Article 16 allows the party affected by a safeguard measure of the other party to take “proportionate rebalancing measures” if the safeguard measure creates “an imbalance between the rights and obligations” under the Protocol. This means that, in case the UK takes safeguard measures in accordance with Article 16, the EU may be entitled take rebalancing measures.

As is the case with safeguard measures, Article 16 does not prescribe or limit the form of rebalancing measures. However, given that such measures must be proportionate, the EU’s response, if taken on the basis of Article 16, would largely depend on the safeguard measures applied by the UK. As any rebalancing measures will only address the application of the Protocol and not the fundamentals of the Protocol itself, it is difficult to see how such tit-for-tat measures could constructively contribute to the intensive discussions between the EU and the UK government to reach a jointly agreed permanent solution.

What happens in case of disagreements?

Article 16 is ambiguous on a number of issues related to the practical application of both safeguard measures and rebalancing measures. The ambiguities inherent in this provision may lead to disagreements between the parties, should the UK formally invoke it. Two sets of legal procedures would, in principle, be available under the Protocol and the WA for resolving such disagreements.

First, any disagreement between the parties with respect to Article 16 would be subject to the general dispute settlement procedures of the WA. Under these multi-layered procedures, the dispute is resolved by a specially established arbitration panel, which will issue a ruling. At the end of the process, there is a possibility to impose a temporary lump sum or penalty payment on a party that does not comply with the ruling of the arbitration panel. As a final remedy, in case of persistent non-compliance, the other party could have recourse to countermeasures, which could include reinstating some of the tariffs abolished by the EU-UK Trade and Cooperation Agreement.

Second, with respect to measures affecting certain specific provisions of the Protocol, a disagreement between the parties may also fall within the jurisdiction of the Court of Justice of the EU (CJEU). This procedure may be relevant, for example, if the UK unilaterally suspends the operation of customs formalities for goods arriving from Great Britain in Northern Ireland. In such a case, the EU could start the so-called “infringement proceedings” against the UK before the CJEU, arguing that the UK failed to enforce the provisions of EU law applicable in Northern Ireland under the Protocol. Persistent non-compliance with the CJEU rulings could also lead to the imposition of fines.

Considering that the UK Government is looking for fundamental changes that appear unacceptable to the EU, it is, as mentioned above, difficult to see how addressing the concerns of the UK Government via the dispute settlement procedures of the WA could lead to an outcome that is acceptable for all parties. If the UK Government would indeed trigger Article 16, then the fundamental nature of the underlying concerns seems to warrant that the issue is brought before the CJEU as soon as possible in order to have this issue resolved at the highest instance.

Implications for businesses

By now we may all be used to the antagonistic tone of the EU-UK negotiations related to Brexit. However, the UK Government’s rhetoric regarding the potential invocation of Article 16 could cause additional anxiety in the business community. While any threat of tit-for-tat tariffs is not imminent, and in any event, is likely to be minimal, Article 16 presents a number of uncertain scenarios. What measures could the UK take? How could the EU respond? Will there be additional tariffs? Who will be affected? And so forth. In all probability, uncertainty is unfortunately here to stay, at least for as long as the negotiation process on the Northern Ireland Protocol continues. Remember the Brexit negotiations? Nothing is agreed until everything is agreed.