Official Report: Minutes of Evidence

The Chairperson (Ms Ferguson): I welcome Mark McGregor, head of trade and Windsor framework branch in the Department for the Economy. When you are ready, Mark, I ask you to brief the Committee.

Mr Mark McGregor (Department for the Economy): Thank you, Chair. Good morning, everybody. I will briefly explain what regulation 2026/2108 on the Union Customs Code (UCC) and the European Union Customs Authority (EUCA) does, the main changes from the proposal that the Committee previously considered and the current assessment of its implications for Northern Ireland.

I should be clear at the outset about departmental responsibility. Customs is an excepted matter and is therefore not transferred to the Northern Ireland Executive. HMRC is the lead UK non-ministerial Department for customs policy, technical interpretation and implementation. The Department for the Economy is supporting the Windsor Framework Democratic Scrutiny Committee process by setting out for the Committee the Windsor framework and Northern Ireland context. Our evidence relies substantially on HMRC's final explanatory memorandum (EM) and its technical support. If Committee members raise detailed operational questions not covered by the evidence, I may need to take those back to HMRC rather than speculate.

I will now cover what the regulation does. It repeals and replaces the existing Union Customs Code, which is the core EU framework governing customs rules and procedures. It is a long-term modernisation programme rather than a single change that will take effect on one day. The reform responds to pressures, including the rapid growth of e-commerce, fragmented systems, uneven risk management and the growing range of safety, security and environmental requirements enforced at the border. The regulation is intended to create a simpler, more data-driven and more consistently applied customs framework. Its main elements are that a European Union Customs Authority will be established. It will be a new, Lille-based body that coordinates risk management, data analysis and crisis response. Importantly, national customs authorities will retain normal operational functions. There will also be an EU customs data hub, which is a central digital environment intended to allow information to be submitted once, reused and analysed. There will also be trust-and-check traders, which is a new trusted trader tier offering further simplifications to businesses to meet demanding transparency, compliance and system requirements.

For e-commerce, there will be greater responsibilities for relevant online platforms and sellers, including customs formalities and payments, together with a handling fee for certain e-commerce items. Risk management enforcement will be more consistently targeted EU-wide on higher-risk goods, and there will be a more common framework for customs infringements and non-criminal sanctions. Overall, implementation will be phased. A €2 handling fee is expected to apply from 1 November 2026. The data hub is due to become operational for e-commerce goods on 1 July 2028 and will open to other businesses from 1 March 2031. It will become the mandatory customs entry point for all traders from 1 March 2034.

One of the main changes since the Committee originally scrutinised the proposal is that there will now be, as I said, an EU-wide handling fee for e-commerce items. That is expected to be in place from 1 November 2026. There will be a more detailed enforcement regime for repeated e-commerce infringements, a revised implementation timetable for the data hub and retention of the existing authorised economic operator framework alongside the trust-and-check status for traders. There will be provisions for EU member states to maintain or conclude customs cooperation agreements with third countries, subject to EU safeguards. As I said, Lille has been selected to be the seat of the new customs authority.

I will now turn to what that means for Northern Ireland. The current Union Customs Code applies in Northern Ireland under the Windsor framework. The replacement regulation will apply on the same basis, subject to the democratic scrutiny process. Northern Ireland will remain within the UK customs territory, and HMRC's explanatory memorandum states that the EU reform proposal stated that the regulation:

HMRC's explanatory memorandum also states that bespoke arrangements for qualifying movements within the UK internal market will continue. The UK Government and the European Commission will work jointly on the detailed application of individual members as the reform is implemented.

The first practical issue to note is the e-commerce handling fee. HMRC has confirmed that goods that are considered not to be "at risk" of entering the EU and moving under Windsor framework facilitations are unaffected and therefore not subject to the EU customs duty or the handling fee. That includes movements from business outside the UK and the EU, so those consumers in Northern Ireland who move parcels under the UK carrier scheme. Over the longer term, the data hub and the reusing of information may offer opportunities to simplify processes. Important operational detail remains to be developed through further delegated and implementing measures, however, so it is too early to provide a complete assessment of trader journeys, system interfaces or costs.

Based on the evidence that is currently available, the Department's assessment is that we have not identified evidence that application of the regulation is likely to have a significant impact specific to the everyday life of communities in Northern Ireland in a way that is liable to persist. The main issues to monitor are practical interaction between the data hub and the Northern Ireland customs arrangement; the operation of the handling fee; new trader and platform responsibilities; transition support and guidance; and the further detailed EU measures.

In summary, it is a major but phased programme of customs modernisation; existing Windsor framework facilitations are not intended to be undermined; and detailed technical and operational questions remain for HMRC. The Department will continue to engage with HMRC as arrangements develop. I hope that that overview was helpful, Chair. I am now happy to take questions.

The Chairperson (Ms Ferguson): Thank you, Mark.

Dr Aiken: Hi, Mark. Thank you very much indeed for your presentation. I have a couple of questions. I do not, by any stretch of the imagination, agree with the assessment that the regulation will not make substantial changes. We can already see, from evidence from the port authorities, the logistics industry and the rest of it, that it will have a significant impact.

I will concentrate on the first impact, which will be on 1 November. The UK Government's EM states:

What does the 99% refer to? Is it sales by value, by volume or by numbers? Which is it?

Mr McGregor: I do not have that information with me today. I will have to take your question back to HMRC for it to clarify to what the 99% refers. The original information stated that it was goods that were "not at risk" of entering the EU market and were moving under one of the current schemes, such as the UK carrier scheme. I will have the detail of that confirmed in writing and returned to you via the Committee Clerk.

Dr Aiken: We have been looking at the Government's EM, and its wording is hardly taut. It states:

That does not necessarily mean that they have agreed. It also states:

Again, there is no definition of "at risk". Is it correct that the UCC will probably take primacy over UK customs?

Mr McGregor: In which area?

Dr Aiken: The regulation and the proposals state that, if any measures have to be taken or there are issues, the Union Customs Code has primacy over the UK Customs Code. Does that mean that, despite what has been said, the evidence that we have been given and what you have told us today, if the UCC says that it is different, that is what it is, rather than there being an opportunity to have that as a discussion point?

Mr McGregor: There has been a commitment to ensuring that the current facilitations are not undermined. The way in which that previously panned out for the €3 charge for parcels was that a Joint Committee declaration was to be published. One is currently working its way through the EU.

Dr Aiken: Yes, but we are a month out from 1 November.

Mr McGregor: That commitment from the EU and the UK would be to have the discussions in the Joint Committee and then to agree a Joint Committee declaration to clarify the situation.

Dr Aiken: The other comment that we hear a lot is that the European customs code has primacy over third-country issues. Am I correct in saying that the United Kingdom is deemed to be a third country? From Northern Ireland's perspective, EU law therefore has primacy over our own country's, even though we are in the United Kingdom Customs Code. The Union Customs Code has primacy over it.

Mr McGregor: On the operation of the Windsor framework, if an EU act has been added to it, it will be applicable legislation in Northern Ireland, with which we have to comply. The intention, however, is not to undermine the facilitations that we currently have for GB-NI movements.

Dr Aiken: Is there a definition available of what that means and how that is to be done?

Mr McGregor: No.

Dr Aiken: I cannot see anywhere where it states that.

Mr McGregor: No, but I can seek clarification from HMRC to find out whether it has agreed one.

Dr Aiken: That would be particularly useful. I could go through the regulation line by line and bring up issues, but I do not think that that would be helpful. On the question of what decision the Committee makes, I think that I have already made mine.

Mr Brooks: I will first place on the record, as members would expect, that I and the DUP continue to oppose the imposition of foreign rules undemocratically on trade movement in our own UK market. We are dealing with the practicalities here, however. I will unpack some of what Steve has said about the more than 99% of sales that will be unaffected. Does that include small packages? We understand that the UK will look to bring in its own regime, but will SHEIN, Temu and DHgate, whose packages go directly to the consumer from China and elsewhere, be expected not to be subject to EU tariffs?

Mr McGregor: Distance sales will affect companies such as SHEIN and Temu. The proposals are aimed at such companies. There are concerns about interaction with GB-NI movements.

Mr Brooks: From what you are saying, my understanding is that Northern Ireland would not come under the EU regime, because those are presumably small packages that are clearly intended for the end consumer. They are not being bought in bulk and are not likely to be "at risk" of entering the EU, so can we read from the EM that those companies are not likely to be affected?

Mr McGregor: Yes. The €2 handling fee and the €3 charge on small packages fall under the same broad facilitations, so —.

Mr Brooks: They are likely to come under the UK regime.

Mr McGregor: They will fall under the UK regime. If, later, there were to be UK measures to apply similar charges, those would potentially apply in Northern Ireland.

Mr Brooks: Thank you for that clarity, which will be useful for consumers. There are wider issues with distance sales to look at locally, but it is important that we know where that sits. Nevertheless, the UK is focusing on the "at risk" test, as though that solves everything, rather than on seeking to exempt us entirely from the regulation.

The UK Government continue to talk about facilitations as though they are a silver bullet for the situation in which we find ourselves, but we still hear businesses complain that they are subject to considerable and unnecessary bureaucracy. Do you agree that it is important that the UK Government engage with our businesses and your Department to find a more suitable, permanent mechanism?

Mr McGregor: That area, through being an excepted matter, does not fall within the Department's competence, but we are aware that HMRC's Northern Ireland stakeholder team and its Northern Ireland policy team are engaging with businesses about the ongoing impact of the regulation's implementation.

Mr Brooks: Thanks very much. As Steve said, we could go through the regulation in detail, but, as with a number of issues, we see that the UK Government are happy to continue to have us rely on the supposed benevolence and good faith of the EU rather than sort out a problem for Northern Ireland by creating a permanent mechanism on which our businesses can rely with some degree of certainty. The response to the regulation is typified by the British International Freight Association, which stated in its consultation response:

Again, as Steve said, we could go through the regulation and pick holes in it, but there is enough in that quotation to concern us all. I have probably made up my mind as well, Steve.

The Chairperson (Ms Ferguson): Before I bring in Peter, I have a couple of questions, Mark. What impact would there be on businesses and consumers if the EU act were not applied?

Mr McGregor: That hypothetical situation would be inordinately complex. We would then be trying to comply with a customs regime that no longer existed and one that would be much more e-based and centralised. We would be trying to comply with customs rules that were previously in force in the EU, and the EU would not be able to facilitate us in doing that, because it would have moved on. It would therefore be inordinately complex to unpick the implications.

The Chairperson (Ms Ferguson): In your answer to David's question, you said that consultation, including that undertaken by HMRC, was ongoing. Have you had any feedback from that ongoing consultation, in particular from those who responded to the Committee's Citizen Space survey?

Mr McGregor: I am waiting for updated information to come through from HMRC, so, when I get it, I will reply to the Committee in writing with the full detail. When it comes to stakeholder engagement overall, because DFE does not hold specialist customs expertise, our ability to undertake meaningful consultation on the reform was limited. We raised the proposed reform with our dual market access forum in September 2025. Negotiations continued thereafter, however, and the regulation was agreed and published at pace, so we could not return to that body to take additional soundings.

The tight publication and democratic scrutiny timetables meant that we had limited opportunity to seek views on the final adopted text. There were seven responses from UK businesses to the European Commission's Have Your say consultation process, however, and a further three responses were received followed publication. We have asked HMRC to review those responses, along with the responses that were provided to the Committee, and to give a view. I will send that information to the Committee via the Committee Clerk after the meeting.

The Chairperson (Ms Ferguson): Thank you, Mark.

Mr Martin: Thank you, Mark. I am disappointed not to see the incredibly colourful cardy that you had on outside. Perhaps it is just too bright for the cameras in here.

My understanding is that the UK and the EU have agreed, in principle at least, to introduce a joint declaration. Can you comment on the timescale for that or say where it is at?

Mr McGregor: No, I cannot comment. I can speak only from my experience with the previous EU-UK Joint Committee declaration on the €2 fee for parcels. There is delay on the EU side, as it has to go through seeking a series of approval measures from the Commission and the Parliament. Helpfully, the EU publishes its position as it is being established, so we can see what is liable to be presented. It seems to take a number of months for those approval processes to be worked through. I can try to get a general indication of how long that will take, but it relies on getting approvals from the EU that are then brought in discussion format to the Joint Committee.

Mr Martin: I understand that the EU's processes can be a bit tardy. Will it take a month, six months or two years, however? From your experience, what is the closest timescale that you could put on it, if I can draw you as far as to make a generic comment?

Mr McGregor: I cannot speculate, because I am not confident that I would be correct.

Mr Martin: Well done. [Laughter.]

I did my best.

My colleague mentioned the 99%. I suspect that that percentage came from HMRC. It is quite an unusual percentage. What is the 1%?

Mr McGregor: I will need to confirm that with HMRC. As you know, I was happy to see a commitment to a figure being provided in the EM. That was very useful. Instead of its stating "The vast majority", it states "More than 99%". I will go back to HMRC and ask about the potential fallout under the 1%.

Mr Martin: It would be interesting to know, given that extraordinarily high percentage. HMRC seems to be robust in stating that, but I am interested to know what the 1% looks like. Thank you.

The Chairperson (Ms Ferguson): Steve wants back in.

Dr Aiken: I have a quick question. Who gets the money from the administration fee?

Mr McGregor: I will have to look.

Dr Aiken: It may be only 1%, but who gets the money?

Mr McGregor: I will check. I assume that the fees will go to the European Union Customs Authority, because it will be supporting a data hub and centralised procedures, but I will confirm that with HMRC and include the answer in the update that I will sent to the Committee via the Committee Clerk after the meeting.

Dr Aiken: Yes. Mark, after HMRC establishes whether it is 1% or 10%, it would be useful to hear from you roughly how much revenue is expected to be brought in and how much we will be charged to pay the EU for adding bureaucracy on to ourselves.

The Chairperson (Ms Ferguson): No other members have indicated to ask a question. On behalf of the Committee, Mark, I thank you for your evidence this morning.

Mr McGregor: Thank you.