Skip to Content
Skip to Main Menu

Post-Brexit trading deal unblocks goods trade for Northern Ireland

Shutterstock244188643

The UK government struck a breakthrough deal with the European Commission on new post-Brexit trading arrangements for Northern Ireland (NI), repairing trade flows between Great Britain (GB), NI and the EU, the UK’s largest trading partner.

The new agreement, dubbed the ‘Windsor Framework’, marks an improved deal that could ease how the protocol operates for businesses. There are three main pillars of the new agreement:

  •  the movement of goods from GB to NI;
  • value-added tax (VAT) and state aid in NI; and
  • governance of the revised protocol.

In this article, we will examine how the key protocols of the Windsor Framework compare to the now scrapped 2019 Northern Ireland Protocol. The deal is designed to strengthen the integrity of the UK's union and its internal markets, according to the UK government’s full document.

Movement of goods

The Northern Ireland Protocol was considered divisive because it imposed customs checks on goods moving between GB and NI equivalent to rules for goods bound for the EU, subjecting NI trade to specific EU laws.

Previously, goods moving across the Irish Sea required customs declarations, certificates, and labels, including export-health certificates for animal products. These onerous customs rules stifled trade for retailers, supermarkets and hospitality businesses. Back in mid-2021, a consortium of supermarkets warned the Boris Johnson government that Northern Ireland Protocol costs could “force” retailers to switch from British suppliers to EU suppliers. Successive grace periods, however, meant the original protocol rules were never fully implemented, but uncertainty still impacted trade.

Under the new agreement, goods coming from GB to NI will be funnelled through by destination: those bound for NI will be processed through a green lane and those heading on to Ireland and the EU single market through a red lane.

Green lanes aim to reduce burdensome bureaucracy on trade between Northern Ireland and Great Britain, including the requirement for export declarations, sanitary and phytosanitary (SPS) checks and costly paperwork. A “trusted trader scheme” will allow exporters and importers to benefit from a significant reduction in customs paperwork and costs for green lane products, while red lane goods will be subject to full EU customs, food and animal health checks. The UK and EU have also agreed to commercial data sharing to increase efficiencies and help detect fraud. In addition, the UK will set rules on VAT and excise duty, while pets crossing the Irish Sea will not need passports, parcels will not require paperwork and steel will not be subject to tariffs. Certification requirements and physical checks will remain for some products, like agri-foods, while medicines will be subject to dual UK and EU regulations.

“On an initial analysis, this new agreement represents welcome progress towards providing the stability and certainty that our retail, wholesale and supplier members are seeking,” says Glyn Roberts, Chief Executive of Retail NI, the trade association for Northern Ireland independent retailers. “Ongoing engagement between the business community and the EU and UK government will be critical as the implementation process of this deal begins.”

VAT and state aid

The new agreement scraps the previous arrangement where EU VAT and state aid requirements applied to NI. The UK had been constrained in what VAT charges could apply in NI as the previous agreement required alignment with the EU VAT rate structures. The UK could also not apply changes to excise duties that deviated from the EU.

The new framework amends the protocol to exempt NI from certain VAT provisions. The UK will be able to apply reduced VAT rates on goods installed in immovable property and alcoholic drinks, and the EU’s new VAT scheme for small enterprises will not apply in NI. In addition, NI is no longer part of the EU VAT margin scheme. Sales of second-hand goods in NI sourced from GB may have to pay more VAT, which could increase prices, according to the Institute for Government (IfG), an independent think tank. This issue has affected NI’s second-hand car market, which relies heavily on vehicles sourced from GB. A committee will be established to review the application in NI of new EU VAT and excise laws.

EU state-aid rules will continue to apply to NI, but the reliance on EU subsidy rules has been loosened.

Protocol governance

The original protocol subjected the application of EU law in NI to EU oversight, diminishing sovereignty and creating political distance with GB. Moreover, the European Commission was able to take the UK government to the European Court of Justice (ECJ) for non-compliance, according to a summary analysis by IfG.

The UK government argued that the ECJ’s role in resolving disputes under the protocol was inappropriate. The new framework suggests establishing a new specialised committee for goods, and a commitment to involve NI stakeholders more in the Joint Consultative Working Group (JCWG). There is no change to the role of the ECJ. However, the UK and EU have committed to resolving protocol disputes through dialogue.

On EU goods laws affecting NI, the new agreement provides NI’s elected representatives with greater governance powers. At the centre of the new agreement, is a mechanism called the ‘Stormont Brake’, which empowers the Northern Ireland Assembly to veto new EU goods rules that are not in the interests of Northern Ireland. The Brake is designed to restore sovereignty to the Northern Ireland Assembly to safeguard businesses operating in the country.

Implementing the mechanism requires the support of 30 members (from a total of 90 members) from at least two parties. If it is triggered, the EU would be empowered to take unspecified measures to protect its internal market, Bloomberg reported. Brussels would also be consulted on UK laws which could impact the EU’s single market.

Reaction

The mood among Tory MPs in Westminster appears overwhelmingly in favour of supporting the new Brexit agreement, which US President Joe Biden has also endorsed. Biden is expected to visit the UK for the 25th anniversary of the Good Friday Agreement in April. Implementation of the agreement will be phased in over this year and next.

“There is now the potential to move to a new phase of cooperation on trade, regulation, climate, migration and supply chain issues,” said William Bain, Head of Trade Policy at the British Chambers of Commerce (BCC). “With the UK economy teetering on the cusp of a recession, this could help drive growth for Northern Ireland and the UK more widely.”

Brexit impact on UK trade

It is now three years since the UK left the EU, a little over two years since the transition period ended, and six and a half years since the Brexit referendum. Over time, the effects of Brexit on UK trade volumes are becoming clearer. An analysis by the Economic and Social Research Institute (ESRI), which analysed EU–UK trade flows using both UK and EU data, estimated that Brexit reduced UK to EU trade by 16% and EU to UK trade by 20%, relative to a “no-Brexit” counterfactual benchmark.

In the final quarter of 2022, UK exports fell by £6.1 billion (2.9%) to £201 billion in 2022, indicative of the fall in the value of energy prices over the period and the impact of increased costs to trade in the direction of the EU. Of the annual £6.1 billion decline in UK exports, the goods and services split were £4.5 billion and £1.6 billion respectively. It shows UK goods exporters (which historically deliver lower volumes than service exports) suffered far more as the weaker component of UK goods exports weakened further. The EU is the UK’s largest trading relationship, accounting for 42% of all UK exports of goods and services (2022 data not yet published).

UK goods imports from the EU continue to fall by more than UK goods exports to the EU. In 2022, UK goods exports to the EU were down £3.2 billion, while goods exports to non-EU countries were down by £1.4 billion. According to the ONS, this was driven by a £2.6 billion fall in exports of fuels and a £0.6 billion decrease in chemical exports. However, the longer-term downward trend is likely to be due to Brexit-related effects. For many EU countries, the UK is a relatively small market for individual EU exporters and it may no longer be worth the additional paperwork to continue exporting to the UK.

In 2022, inflation-adjusted total annual UK exports increased by £41.7 billion (6.7%) to £664.8 billion, although this was still £21.5 billion (3.1%) lower than in 2018, according to Office for National Statistics (ONS) data.

 If your company is impacted by the issues discussed in this article and you would like some advice on how your business can adapt your business model and navigate current trade barriers, do not hesitate to get in touch with our team today.

Close Menu