The UK Prime Minister Rishi Sunak said that Northern Ireland would be the “world’s most exciting economy zone” because of its access to the EU single market as part of the latest post-Brexit trading agreement between the EU and the UK.
Politicians and business leaders in the UK esp, especially those from Northern Ireland, are still examining the details of the Windsor Framework.
The agreement, in principle, is meant to fix some of the flaws of the Northern Ireland Protocol. The agreement came into force in January 2021 to allow goods from Northern Ireland to be checked before they enter the Republic of Ireland, an EU member.
The government claims that it was “a source of acute political and economic difficulties, as well as societal problems, in the two-year period since it began operation.” According to the government, it has been an
Windsor aims to reduce trading costs through simplified customs checks on goods entering Northern Ireland. This will be achieved by reducing the paperwork and speeding up customs procedures by relaxing certain rules for UK-wide trade. These improvements will be a result of improved IT systems, data-sharing, and enforcement of market surveillance between the EU and the UK.
In 2021, we published a study on the impact Brexit and protocol would have on Northern Ireland’s economic growth. The research showed that the economy of Northern Ireland could contract by as much as 2.6% over time. The same study shows that the new agreement could lead to a smaller contraction.
The protocol would have the greatest impact on industries that trade primarily in goods, such as agriculture, forestry fis, heroes, or food and beverage. Financial services industries, for example, are less vulnerable but still negatively impacted.
80% of the contraction in the UK economy is due to trade barriers between Great Britain, Northern Ireland, and the EU. Any efforts made to reduce trade barriers within the UK would help the economy.
Our economic model used 2017 data (pre-Brexit) to simulate the changes that might occur in the economy over time. This was based upon differences in trade costs between what Northern Irish companies buy from Great Britain and sales of Northern Irish products and services to other countries, including the EU.
Our simulation treats Northern Ireland as a separate entity. It assumes the input costs are fixed outside of the region, with the exception of tariffs and non-tariff barriers. Also, it takes the pre-Brexit agreements for trade with non-EU nations are still in place. Our results provide some insight into how the new Windsor Framework compares to the old deal.
The Windsor Framework is intended to address criticisms of the Northern Ireland Protocol. This includes the need for goods that are traded in the UK to be checked if they cross the Irish Sea. Jonathan Porter/Alamy Stock Photo
Great Britain is Northern Ireland’s largest trading partner. It provides about 65% of its goods imports. This includes not only goods consumed directly by households but also intermediate goods that are used by Northern Ireland’s industry to produce goods. The region is, therefore, particularly vulnerable to shocks in the UK’s trade.
It is not surprising that any nontariff barrier affecting inputs (other than charges or quotas) will increase production costs and may result in higher prices for consumers.
Northern Ireland households also buy products from industries dependent on trade with Great Britain. In the wholesale and retail sector, for example, 29% is spent on goods produced in Northern Ireland. This industry is a major importer of goods from Great Britain.
Why these results still hold true today
Windsor focuses on reducing the amount of paperwork required to transport and sell agricultural products. According to the European Commission, the new deal simplifies the movement of goods by requiring “only one general certificate” for trucks, reduced inspections, and “simplified processes for plants and agricultural equipment.”
According to our research, the Northern Ireland Protocol has resulted in the most significant nontariff barrier and the greatest reductions in production for the food, beverage, agriculture, and forestry industries. Any simplifications made in this area will reduce the cost of trade with Great Britain, in particular in these sectors.
Special provisions for these sectors will also help reduce nontariff barriers, like the restrictions on certain goods or the higher rate of customs checks in comparison to other products. We expect that the newly streamlined processes and customs checks will help other industries to face lower nontariff obstacles than under the old arrangement.
The new arrangements will benefit agriculture, food, and retail. Northern Ireland’s economy will still suffer as a result of Brexit, but if you were to repeat the simulation today, it would be less drastic than we predicted.
At this stage, it isn’t easy to estimate the actual economic benefits of the framework over the protocol. The framework doesn’t remove all nontariff obstacles because customs will still check goods that are at risk of being exported to the EU when they enter Northern Ireland.
In order to reduce nontariff restrictions, firms will be required to declare the location of goods to be sold. Northern Ireland will continue to face friction in the services trade with the EU. This cost would be 20% of GDP under the protocol.
Even in the best-case scenario, in which non-tariff trade barriers between the two parts are reduced significantly, the Windsor Agreement will not neutralize all the negative economic effects of Brexit on Northern Ireland. The new agreement between the EU, UK, and Ireland is likely to be better for Northern Irish economic growth than the protocol.
