Dublin has raised the issue in high-level meetings with the European Commission and the British Government in the hope of convincing a compromise. Under the Northern Ireland border fix, any goods produced in Northern Ireland can circulate freely throughout the EU. But those goods will not be recognised as EU products if they are exported as part of the bloc’s existing free-trade agreements.
This is because as part of last year’s Withdrawal Agreement, Northern Ireland is legally part of the UK’s customs territory.
Northern Ireland, alongside the rest of the UK, will leave the EU’s 60 free-trade agreements on December 1 after the end of the post-Brexit transition period.
Businesses on the island of Ireland have raised concerns that products made with components or ingredients from the North but manufactured in the South could suddenly face new trade tariffs next year.
And an EU source said Northern Ireland should be allowed to benefit from EU trade deals because the province is forced to comply with many single market regulations.
The insider said: “It’s seen as an unfair situation developing in which the North has to take on board all the customs procedures and a lot of the regulatory issues associated with the single market but can’t then benefit from the trade agreements the EU has.”
Under most trade agreements, exported goods can only be classed as domestic if they respect the limits of foreign components or ingredients – known as rules of origin.
The diary industry was said to be expecting grave implications without an agreement that would let Northern Ireland be included in EU trade pacts.
Currently millions of litres of milk are produced in the North but processed in the Republic before being exported around the world as EU milk.
Mike Johnstone, chief executive of the Dairy Council for Northern Ireland, told RTE: “Any diary product manufactured in Northern Ireland is exported under EU free-trade agreements.
“We also have a third of our raw milk moved from the North to the Republic for further processing.
“Some of that is manufactured, goes on to the EU, some comes back to Northern Ireland and onto Great Britain. But a significant proportion goes on to third countries and is exported under EU FTAs.
“We’re highly exposed if we cannot continue the trade flows we have at the minute. We do not have the processing capacity in Northern Ireland to handle all the milk that is produced in Northern Ireland. So we have to be able to take that raw milk south of the border to get it processed. If we cannot do that and cannot add the value the loser will be dairy farmers on the island of Ireland.”
And manufacturers in Northern Ireland have also voiced concerns, and have called for an agreement to be reached to enable the province to benefit from EU trade deals.
Stephen Kelly, chief executive of Manufacturing NI, said: “This is important for Northern Ireland because 70 percent of what we make is intermediate goods, components and ingredients that go into other things in the UK, but particularly a lot of things that go into Irish goods.”
The issue has been raised during discussions in the Brexit Joint Committee, which is in charge of implementing the Withdrawal Agreement.
The European Commission was said to be concerned that any changes would require minor changes to each of their free-trade agreement, which could prompt fresh demands from their global partners.
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A source said: “There’s a fair degree of sympathy for it in the Commission, but also they are wondering how would you deal with this. It may take some time.”
Insiders have claimed any agreement will not be in place in time for the end of the transition period at the end of the year.
The UK has insisted Northern Ireland will be able to benefit from its future free-trade agreements, but is yet to comment on whether the province could also be included in EU pacts.