Data access could be breakthrough in NI Protocol talks

Data access could be breakthrough in NI Protocol talks

On 17 December 2020, Maroš Šefčovič and Michael Gove reached an overall agreement on how the Northern Ireland Protocol should be implemented when it came into effect on 1 January, just 15 days later.

The EU and UK negotiators had agreed on how to determine what goods were at risk (or not at risk) of entering the EU’s single market once they had crossed the Irish Sea from Britain into Northern Ireland ports.

There were understandings on arrangements for Northern Ireland-based EU officials monitoring how the Protocol was being implemented, as well as grace periods for the movement of chilled meats and the need for cumbersome export health certificates.

In exchange for these flexibilities, the UK pulled the contentious Internal Market Bill (IMB) which would have breached key parts of the Protocol.

An important demand by Brussels was that the UK give EU officials a real-time, detailed picture of goods movements between Britain and Northern Ireland, as required under Article 12 of the Protocol.

It has been a long and contentious journey, pock-marked with delays and disagreements

Mr Šefčovič said in a statement that “the UK has agreed to provide adequate equipment and facilities, as well as continuous, real-time access to their relevant IT systems and databases, both on the ground and remotely”.

Nearly two years later, that system is close to being realised.

It has been a long and contentious journey, pock-marked with delays and disagreements. But the data-sharing element could unlock some of the most intractable problems around the Protocol.

“It’s hugely important,” says one source close to the resumed negotiations.

“It gives the EU a more robust way of protecting the customs union and, with a few tweaks, the single market. It builds trust, but it also removes another reason for the EU not to move on on things: they’ve been asking [the UK] for this reciprocity and now it’s being delivered.”

Simply put, the clearer the picture EU officials have of everything that is entering Northern Ireland, the easier it will be to identify unusual patterns and the easier it will be to whittle down checks to a bare minimum.

But the mere creation of a data-access system does not in itself remove some of the fundamental disagreements that could yet scupper the talks.

The UK and EU remain at loggerheads over trust and over the verifiability of where goods will end up.

The scrap around that is linked to complex things like “commodity codes” that the data access system will deal with.

In other words, it’s about why traders sending goods from Britain to Northern Ireland need to log the data in the first place.

UK officials say such disagreements caused the talks to break down in February.

The gap was so great, they say, that the then Foreign Secretary Liz Truss was forced to introduce the Northern Ireland Protocol Bill, which would unilaterally revamp the Protocol entirely – although this blog has established that drafting for the Bill had begun last autumn.

Ms Truss’s legislation envisages, among other things, a green and red lanes system.

The mere creation of a data-access system does not in itself remove some of the fundamental disagreements that could yet scupper the talks

Goods that are not at risk of moving south, and which are shipped by officially designated “Trusted Traders”, would be sent through a virtual green lane with no checks or paperwork.

Traders moving goods south would go through a red lane, would require customs declarations and would face checks.

Mr Šefčovič was frequently exasperated by delays

UK officials say the system they have built is compatible with both the existing Protocol and the red and green lanes system which London says should replace the Protocol’s approach.

If the introduction of the Northern Ireland Protocol Bill was, as the EU insists, a gross breach of good faith, the slow delivery of the data access system did not help either.

Mr Šefčovič was frequently exasperated by delays.

“So far, the EU border authorities have received British customs information ex post,” he complained in a speech in October 2021.

“From the beginning of 2022, they should have real-time access to the databases.”

In May this year one EU diplomat said: “The UK has been giving information either late or, when it was given it was provided in a printed spreadsheet format. It means we couldn’t do a risk assessment. We’re one and a half years behind schedule.”

Whatever about the chaos currently engulfing Liz Truss and the British government, the talks face some formidable challenges

EU officials suspected this was foot-dragging, in keeping with other delays on the completion of Border Control Posts (BCPs) for carrying out agrifood controls, and the slow process of recruiting staff to do the checking.

UK officials counter that they had to segregate “hundreds of thousands” Northern Ireland-specific data lines from the UK-wide system in order to be compliant with UK law.

This, they insist, was a technical and time-consuming feat, and they endeavoured to provide the EU with ad hoc arrangements in the meantime.

They insist that what they have finally created is an impressive system which will deliver accurate and transparent data into which EU officials can plug their risk analysis tools in a user-friendly way.

London says the EU access system went live in January 2022 and is now “fully operational”.

Larne harbour

There have since been four demonstrations of the system, including two which were face-to-face in London – the most recent at the end of June.

All that is needed, say officials, are the names of EU officials who can operate the system so that usernames and passwords can be generated.

However, so far it seems the EU is not ready to jump, and it’s clear there have been endless back-and-forth discussions including on data protection obligations.

At one point, EU officials complained that the reporting tool which came with the UK creation was part of a closed system due to the UK’s own internal security and data protection rules, so that when the data was being analysed it had to stay within the same system.

EU officials said they needed to be able to extract the data and use it in their systems and to “plug” it into other risk analysis tools.

UK officials say they responded by enabling a “downloading functionality” which they thought would have done the trick.

What data are we talking about?

Under the Protocol, there are two data requirements.

First, EU officials based in Northern Ireland can request ad hoc customs information on a specific consignment moving through a Northern Ireland port.

Secondly, in the December 2020 deal, Michael Gove agreed that EU officials could access five named UK databases which would be available on a continuous, real-time and remote basis.

What the UK customs authorities (HMRC) say they have delivered is a system which channels those five databases into one bespoke “EU Access System.”

The five systems that feed into the new system are:

  1. The customs declaration service (CDS), HMRC’s main customs system used for declaring goods moving in and out of Northern Ireland. It can identify goods that require checks, and can collect the relevant duties
  2. The import control system for Northern Ireland (ICS), which is used to submit “safety and security” declarations if there are hazardous materials. The ICS can risk assess declarations ahead of arrival and is distinct from CDS customs declarations because it is looking for safety and security, and not fiscal, risks
  3. The goods vehicle movement service (GVMS), the system which matches the electronic movement of the goods to the physical movement of a consignment through a port, ie. it matches a CDS declaration with a particular lorry using identifiers such as the vehicle registration number; if you have a declaration and want to find the lorry, or have a lorry and want to find a declaration, GVMS provides the link
  4. The new computerised transit system for Northern Ireland (NCTS). This covers “transit”, whereby traders can move goods through a particular territory without stopping (so they don’t pay duty twice) or where traders use transit to carry out formalities away from the port
  5. The freight targeting system (FTS) collates ferry manifest data which is captured for commercial purposes. Ferry operators share this data with the UK authorities, contributing to their overall intelligence and helping them decide if a particular movement of goods is of interest

EU officials will be able to look at individual consignments, patterns, rhythms and anomalies using a drag and drop function.

On a given day, for example, an EU official could select a data set from the customs declaration service (CDS) and by dragging and dropping it into a particular field they can get real-time information on the goods, their description, where they’ve come from, the number of items and packages.

HM Revenue and Customs in London

They can drill down further to understand what is happening with a specific declaration, or movement of goods, checking what other declarations the trader had made to see if there are any suspicious movements.

If the official believes there is an issue, then the lorry can be stopped once it comes off the ferry and before it leaves the port.

Likewise, using the same drag and drop function, officials can take a broader look at trade flows in the previous weeks, filtering by time period, or by trader, or by category of goods and so on. UK officials say this will allow the official to detect any strange longer-term fluctuations or anomalies.

Such anomalies can show up according to a green, amber and red flag system.

Officials can identify if the anomaly is a routine error, perhaps one being made on a regular basis, or whether it is something more serious.

HMRC believes that identifying something sinister is better done by building up an intelligence picture and assessing the risk, rather than having random spot checks at the port.

As it’s also the tax authority, HMRC believes it can have a clear picture of who the traders are, and whether the trader is liable to abuse the system by moving goods they are not supposed to be moving.

If the trader was non-compliant in the past, then they will attract more heat in the future.

This is where the friction in the resumed negotiations will lie.

If the official believes there is an issue, then the lorry can be stopped once it comes off the ferry and before it leaves the port

The EU’s customs union and single market function because 27 sovereign states sign up to the same rules, with a monitoring and enforcement regime that allows them to “trust and verify”.

In other words, HMRC’s risk assessment criteria is not quite how the EU looks at risk.

“The level of trust is not the same,” says one industry source.

“The EU is risk-averse and one of the issues may be that they are not comfortable with that level of trust without the ability to verify. It’s not just the companies that are planning to abuse the system that end up being non-compliant. What about all the companies that declare goods incorrectly out of a lack of knowledge and awareness?”

The other fundamental issue here is the gap between what a customs declaration is for, and what the EU is trying to maintain via the Protocol, which is to stop unregulated or unchecked goods from entering the single market.

Customs declarations tell you a whole load of information about what the consignment is, where it is from, and whether or not duty is liable to be paid.

However, customs declarations don’t tell you where goods will end up, and the EU wants to make sure the goods end up where they’re supposed to – ie. staying in Northern Ireland and not crossing into the single market if they are not supposed to.

The more the UK diverges from the EU’s regulatory sphere, the more there will be friction on the Irish Sea

The way both sides dealt with this through the Joint Committee decision of December 2020 was to establish a Trusted Trader Scheme (TSS). Once a trader was in the scheme it would be assumed their goods were “not at risk” of entering the single market.

To qualify, those companies would have to show they had confidence about the end destination and point of consumption of their goods, either through excellent inventory control, clear contracts showing where the goods were being sold, or through the fact that they may be a single physical retail outlet and all of their goods are by default sold in Northern Ireland.

In June, the European Commission proposed an expanded Trusted Traders Scheme to embrace companies from Britain as well as Northern Ireland and to allow more SMEs to qualify.

EU law would be changed to accommodate the more flexible approach.

The Commission also announced a “Super Reduced Data Set” so that the number of entries on a customs declaration for Trusted Traders would be reduced from more than 80 to 21 key data elements.

This would include a simplified commodity code (CN-code) which would be reduced from 10 to eight digits.

Commodity codes are where it gets very technical, and very sensitive – we’ll get to that in a minute.

One point of contention between Brussels and London in the talks is the EU’s offer of a 50% reduction in the number of data lines in a customs declaration, if you are a Trusted Trader.

The UK counters that such a reduction in data lines is not the same as a 50% reduction in the burden.

Officials say the continued requirement of a commodity code is what really gets traders.

A commodity code defines what a product is and it’s a more subjective description than a regular numerical code.

Under the EU customs union system, there are some 27,000 different commodity codes.

They can be used to determine what duty is applicable, but also determine what form of control or regulation is required, say, for example if it is an animal-derived product which needs a sanitary or phytosanitary (SPS) control.

What the 10-digit code, referenced in the EU’s offer in June, does is that it breaks the product down into ever more granular detail: with each pair of digits added, it reveals if the carrots, for example, are orange, or purple, or organic and so on.

A 10-digit code can be used to differentiate between different types of goods

UK officials argue that while these are perfectly rational if duty is to be collected, they make no sense if it has already been decided that the trader is trusted, ie. that the goods are only going to be consumed in Northern Ireland and that they therefore do not incur any duty.

In other words, the commodity code is irrelevant if you’re trying to determine where the goods end up, and it is the one thing which traders find most difficult.

“From a business perspective,” says Stuart Anderson, head of public affairs at Northern Ireland Chamber, “the more digits that are required [in the commodity code] the bigger the fishing expedition. The longer it is, the harder that is. A lot of businesses, particularly SMEs, are really struggling. We were getting lots of emails about commodity codes: ‘What is it exactly we should be looking for here?’”

Getting agreement on this kind of granular problem is going to be key in the negotiations.

On one level, both sides are not that far apart.

Under the UK’s green and red lanes proposal, Trusted Traders would not have to provide customs declarations and would be cleared electronically in advance through a virtual “green lane”.

They could still be subject to checks, depending on what the data shows, and Trusted Traders who abuse the system would be fined and then relegated to the red lane.

Under the EU’s proposal, there would be an “express lane” for Trusted Traders but one with more safeguards, pre-conditions and random checks.

Again, it’s the “trust but verify” dogma. Not only has trust been lacking, say EU officials; the UK is now outside the legal framework of the single market.

A European Commission official would not be drawn on some of the critiques UK officials have made when explaining their new system and why it has taken the EU so long to access it.

The official said that some of the complaints were now outdated and that these are the very issues that are being dealt with in great detail in the resumed negotiations.

“Both sides are in intense talks now about this, and there’s a huge openness to address it,” said the official.

A sign for an abandoned customs office

The official said that the UK’s EU data access system helps but it is not necessarily the magic key that some have portrayed it.

Whatever about the chaos currently engulfing Liz Truss and the British government, the talks face some formidable challenges.

The EU data-access system is about customs, not agrifood checks, and that is a whole other order of complexity.

The role of the European Court of Justice (ECJ) is going to be very difficult, as is the question of when, or if, the UK might agree to pull the Northern Ireland Protocol Bill if a deal is within touching distance.

Furthermore, the more the UK diverges from the EU’s regulatory sphere (a stated aim of this Government), the more there will be friction on the Irish Sea.

As the UK in a Changing Europe think tank said in an influential report this week: “While the actual risks to the Single Market [of goods moving GB-NI] are currently low, the approach of dismissing the risks as trivial ignores the firm and clear position taken by the EU from 2016 onwards and the fact that the risks would increase over time as UK and EU standards diverge.”

However, officials have suggested the lanes approach, either “green” or “express”, does provide hope for early agreement on one of the key problems, one that could create momentum in the talks.

“The most important commodity at the moment is trust,” says one source close to the negotiations.

“The delivery of a system that provides protections for the customs union, while facilitating movement of goods GB-NI, is progress and should be seen as something that can build trust.

“Is it practical and is it applicable? Will it work without being too burdensome for people who are transporting stuff, and is it politically acceptable to member states?”

We will find out in the coming weeks.

#Data #access #breakthrough #Protocol #talks

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