A complex scheme to manage trade and keep the peace in Northern Ireland after Brexit is souring relations between London and Brussels and threatens to disturb the UK shutdown ties to Washington just like President Biden meets British Prime Minister
It is also causing a headache for Ashley Pigott, director of AJ Power Ltd., who says his company, which makes diesel generators in Craigavon, 30 miles from Belfast, is mired in red tape and high new costs due to the so-called Northern Ireland protocol.
“It’s 100% insane,” says Mr. Pigott.
Officials from the European Union and the British government met on Wednesday to discuss the protocol and its implementation. The aim was to agree on the next steps to reduce disruption to Northern Ireland businesses while keeping the deal intact, but the meeting ended without a breakthrough, officials in both camps said.
Brussels has taken legal action against the UK for unilaterally delaying implementation of parts of the protocol until at least October, which the UK believes is a violation of the UK’s international obligations under the Brexit deal. London says the six-month extension is needed to help Northern Irish traders already low from the pandemic adapt to new arrangements.
Mr Biden, who will mr. meet Johnson? on Thursday ahead of a meeting of leaders of the Group of Seven Advanced Economies in the South West of England this weekend, has said Brexit must not undermine peace in Northern Ireland and is expected to spur both sides to reach an agreement.
The Northern Ireland protocol is one of the key components of the UK’s Brexit deal with the EU. Brexit has taken the UK out of the EU’s single market area with common regulations and its customs territory. While those were essential steps if London were to be given a free hand to negotiate trade agreements yourself, they mean that trade between the two territories has become subject to customs and regulatory controls where none previously existed.
Exactly where those checks should be made is at the heart of the protocol, which came into effect in early 2021 after a brief transition period following Britain’s exit from the bloc last year. The aim was to avoid controls at the border between Northern Ireland, part of the UK, and its southern neighbor Ireland, an EU member state, for fear they would spark resentment among the predominantly Catholic Irish nationalists in Northern Ireland and threaten a 1998 peace agreement .
So Mr Johnson agreed to a scheme that would make Northern Ireland, home to 1.9 million of the UK’s 67 million people, more economically linked to the EU than England, Scotland or Wales. The protocol effectively moves the economic boundary to the Irish Sea separating Northern Ireland from the British mainland, rather than placing it on the island of Ireland. Controls and customs procedures apply to goods entering Northern Ireland from the rest of the UK
For some companies, the result is a costly thicket of bureaucracy. AJ Power sells its diesel generators in 80 countries, and Mr. Pigott says it is more difficult to deal with the effects of the agreement at home than to navigate customs procedures in one of those foreign markets.
“This is out of scale,” he says.
AJ Power’s internal systems contain 15,251 components needed to make the generators. About 80% of those components come from suppliers in the rest of the UK, such as engines from Peterborough and alternators from Rutland, both in England. Bringing in a shipment of these essential components, says Mr. Pigott, means piles of customs declarations and administrative costs that were not required before the UK’s exit from the EU.
For example, the company buys cable per kilometre. Before Brexit and protocol, AJ Power got its cable reels from a supplier in the UK, who cut them to length from a manufacturer in France, with no transit charges or customs duties, thanks to the EU’s single market and customs union.
Now, says Mr Pigott, because for practical purposes Northern Ireland is within the customs territory of the EU for many goods, he pays EU duties of 3.7% when he takes those barrels from his UK supplier to Northern Ireland. The UK’s free trade agreement with the EU means that the cable’s first import into the UK is tariff-free, but cutting it to size makes it a new product that attracts an EU tariff when imported into Northern Ireland.
It’s a similar story with lead-acid batteries imported from South Korea or Indonesia, which draw an 80% higher tariff from the EU than from the UK. In fact, if he gets them from his UK distributor, he pays both sets of duties, Mr Pigott says, as he has to bear the cost of importing them into the UK in the first place and then shipping them to Northern Ireland where EU rates apply.
He says he cannot easily buy direct as many international companies tend to conduct all British business through the UK. Mr Pigott says the additional costs – which he estimates will total around 2% of his net profit this year – put his business at a disadvantage for its competitors in both the UK and the EU.
A broader question is the stability of Northern Irish society. The protocol has gone down badly with Northern Ireland’s predominantly Protestant unionist community, who believe it undermines Northern Ireland’s place in the UK. The Democratic Unionist Party, once allies of Johnson and Northern Ireland’s largest trade union party, has called for it to be scrapped.
Irish nationalists, who prefer unity with Ireland, are more supportive, believing the protocol will help maintain ties with Ireland and the wider EU. Reflecting that societal division, voters’ attitudes towards the protocol are divided, with a March poll of 2,100 Northern Ireland residents putting support for the protocol at 43% and opposition at 44%.
recent riots in the pockets of Belfast and other areas has fueled concerns about further unrest this summer, when some union members will celebrate a decisive battle of 1690 that put an end to Catholic King James II’s hopes of regaining the English throne.
Some business leaders expect benefits from the protocol over time as foreign investors realize that Northern Ireland is in a unique position, with an unusually high level of access to both the EU and UK markets.
“There is no better place to have a business on these two islands,” said Richard Kennedy, chief executive of Belfast-based animal nutrition company Devenish Nutrition Ltd.
In an April survey of 190 Northern Ireland manufacturers by law firm Tughans, 31% said after initial disruptions they are now handling it well. However, another 36% said they expect the disruption to continue.
Mr Pigott, whose company employs 130 people and had pre-pandemic annual sales of around £30 million, equivalent to around $45 million, says he sees no long-term reason for making major investments in Northern Ireland. Emotional attachment is one thing, he says, “but then you have the economic sense that says investing in another country in the world.”
While officials in distant capitals squabble over solutions, Mr. Pigott and two other AJ Power executives hold marathon meetings every week to make sure they meet all the right requirements. The mountain of extra work “doesn’t add any value to the business at all,” he says.
Write to Jason Douglas at [email protected]
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