EU Commissioner Mairead McGuinness has revealed a personal interest in the Brexit disruption in the all-Ireland dairy industry, but has warned that the rules of origin behind the disruption are not currently a priority for the Commission.
The Commissioner for Financial Stability, Financial Services and the Capital Markets Union said her late father supplied milk that went into the manufacture of Baileys Irish cream liqueur, one of the products now potentially affected by the Brexit rules of origin disruption, in industries such as alcohol and dairy.
Already, this disruption has made the sale of Irish dairy products more difficult in areas such as south-east Asia.
And some drinks companies have stopped sending products across the border to be bottled, thus reducing co-operation between the island’s two main distilleries, one in the north and one in the south.
As an all-island product with milk from farms all over Ireland, and huge export sales worldwide, cream liqueur is one of the foremost products which can be affected by Brexit and rules of origin.
Already, drinks industry representatives say Irish whiskey with Northern Irish inputs, or processing no longer qualifies for zero or reduced tariffs in markets such as South Africa, Switzerland, Serbia, South Korea, Colombia, Vietnam, and Botswana.
Drinks industry representatives have warned that Irish goods may yet have to be labelled “from the State of Ireland”, “from the State of Northern Ireland”, or “produced on an all-island basis”, with the latter product being subject to tariffs in many countries.
Products resulting from cross-border supply chains which have been in place for decades, and which became more important after the Good Friday Agreement, lost their EU originating status due to Brexit on January 1, and therefore lost their access to lower or zero tariffs in certain EU trade agreements.
In addition, mixed origin dairy products, manufactured in Ireland, lost their access to EU market support measures such as intervention and private storage aid.
What most of the affected products have in common is that they are produced primarily in Ireland but contain some level of Northern Irish inputs or processing.
In the case of Irish whiskeys, those which have lost their EU originating status incur an import tariff of 154 cents/litre in South Africa, for example, compared to a zero tariff on Irish whiskey deemed to be of EU origin. In South Korea, it is a 20% tariff, compared to zero.
As a result, a southern distillery that buys malt whiskey from the North is hit by a tariff on exports to South Africa, for example (a major market for Irish whiskey). Or the many whiskeys tankered across the Border, to be matured in the other jurisdiction, are similarly affected.
Up to recently, there have been 23,000 truck movements of alcohol across the border each year (due to, for example, insufficient bottling capacity in the North).
Among the milk companies most affected is Lakeland Dairies, which buys approximately half of the milk produced in Northern Ireland.
Export industries are hardest hit; 96% of whiskey from the island of Ireland is exported, and 90% of dairy products.
Of these, more than 10% is blended Irish whiskey, containing ingredients from distilleries on both sides of the border, and up to 4 billion litres of milk goes into “mixed” products.
Some other beverage, machinery and electrical sectors with significant cross-border input may also be affected.
Ironically, the EU recognises an Irish whiskey geographic indication on an all-island basis. And products produced in Northern Ireland must adhere to EU standards, with free movement facilitated by the Northern Ireland Protocol.
The matter is further complicated by the insufficient milk processing capacity within Northern Ireland for all the milk produced (about one-third of the milk produced in Northern Ireland goes south).
Industry sources say segregation of milk from north and south has never been needed, and would be extremely difficult for dairy and specialised nutrition companies to achieve.
With the European Commission ruling out revisiting rules of origins in more than 70 existing trade agreements, the affected industries have proposed that the Commission consider new rules of origin, but have found Brussels unwilling to address this.
For example, in the current EU-Australia free trade negotiations, the Commission has proposed the same rules of origin of the past 40 years.
In contrast, the UK government has moved to protect their exports with EU inputs, in trade agreements Changing the rules of origin is problematic, said Commissioner McGuinness, when she recently addressed the Seanad Special Select Committee on the Withdrawal of the UK from the EU.
“We will continue to deal with problems arising from Brexit for decades because you cannot have been together for decades, as the UK and the European Union were, and unpick without problems.”
“There is a dairy industry that is all-island and it worked really well. Brexit disrupted that.
"That is a tragedy for the industry, for farmers and their families and workers. Politically, we have to find solutions and ways of engaging.”
She warned changes might have other consequences that might not suit us.
She said the Brexit priority for the EU Commission at the moment is implementing the EU–UK Trade and Cooperation Agreement and the withdrawal agreement. Other issues such as rules of origin “may be dealt with in time”.
The affected industries have warned that failure to update rules of origin undermines the all-island economy by making cross-border supply chains unviable, and have called on the Irish Government to be the champion for reform of rules of origin.