Gary Simpson (Queen’s University Belfast)*

Everyone seems to be talking about the prospect of a deeper UK/EU trading relationship. It is evident the Labour Party is keen to re-establish EU links, in what the shadow foreign secretary has described as a ‘rebuilding’ of the UK’s relationship with the EU. Even Rishi Sunak’s Government appear anxious to repair some of the damaged trust between the two sides. Having found resolution to the Northern Ireland Protocol dispute, known as the Windsor Framework Agreement, both the UK and EU are agreed that the relationship between the two side has been placed on a more ‘positive trajectory.’ In June of this year the UK Government also reached agreement on a memorandum of understanding on financial services cooperation and an agreement in principle for the UK to join Horizon Europe. This has been described by allies of the PM as part of the post-Windsor Framework ‘reset’ of improved relations.

Whilst this would certainly seem to suggest a slow piecemeal direction of travel toward a closer UK-EU relationship, Sunak will still have to navigate cautiously around the more Eurosceptic wing of the Conservative Party. Euroscepticism is less of a factor that a future Labour government would have to take into consideration when calculating how best to repair ties with the EU. Interestingly some of the UK’s most Eurosceptic politicians may, behind closed doors, support any Labour attempt to realign with the EU. It is not too much of a stretch to imagine the more pragmatic supporters of the DUP privately relishing the prospect of a Labour Government and what any closer relationship between the UK and the EU might mean for those remaining trade restrictions in the Irish Sea.

In 2025, the free trade deal signed between the UK and the EU (the TCA) is up for review. Although the EU has played this review down as a mere ‘technical exercise’ to review the implementation of the TCA, as opposed to a review of the deal itself, others have viewed this as an opportunity for the UK to achieve a better deal than that which was originally secured. Indeed, a revisit of certain issues within the TCA such as SPS checks and rules of origin, could go a long way to reducing further those checks carried out on goods traded from GB to NI, in turn removing some of the obstacles preventing the DUP returning to Stormont. There is however just one problem confronting Northern Ireland… Northern Ireland.

The current rules governing trade in NI sees it in the unique position of having access to both markets and with this an increased appeal for foreign firms to invest and do business. This dual market access gives NI a competitive advantage over other jurisdictions because it enjoys ‘the best of both worlds’.

Economic evidence shows the introduction of the TCA saw UK goods traded with the EU ‘drop significantly’. In contrast,  NI’s GDP has at times seen the highest growth in the UK, which has been credited to its continued ‘barrier-free trade’ with the EU. It stands to reason that the greater the disparity in the UK-EU trading relationship, the greater the advantage enjoyed in NI from its dual market access. The other side of this coin means that were the UK and EU to deepen their relationship, further eliminating tariff differentials and more closely aligning on areas such as SPS checks and rules of origin, then the more Northern Ireland’s dual market access advantage would be depleted. The paradigm here is that as the benefits created by the Windsor Framework dwindle, so too do the problems it creates in the Irish Sea. In other words, the more that barriers to trade affecting goods travelling from GB to NI are removed, the more NI loses its status as the world’s most ‘exciting economic zone’.

Both sides of the argument over the implementation of the Windsor Framework in Northern Ireland may well find themselves in somewhat of a dilemma. On the one hand, we have the DUP, ardent supporters of Brexit and the associated opportunities for the UK to diverge from overly burdensome EU standards and regulations. One suspects however if a deal could be struck that would see the UK realign with EU standards, thus removing not only those trade barriers in the Irish Sea but so too their path back to Stormont, they would grab it with both hands. On the other hand, there are those parties in favour of the Windsor Framework and the unquestionable economic advantage of dual market access it provides. The caveat here is that these parties tend to be pro-European, eager to remain as close to the EU and any path that would bring rejoining the bloc nearer their grasp.

One might argue that closer alignment between the UK and the EU is a positive for NI. Undoubtedly a deeper arrangement between the UK and the EU would reduce trade frictions on goods imports from GB. This would represent a further removal of barriers to trade and certainly serve NI’s prospects as an intermediary between GB and the EU whilst no doubt being viewed positively from the perspective of NI business. From another perspective, if GB is soon set to deepen its relationship once more with the European Union, then the differentiation between GB-EU trade and NI-EU trade becomes harder to distinguish. In this scenario firms may well be more likely to simply set up shop in GB. With this the supposed benefits of the Windsor Framework potentially  resigned to a Pre-TCA review  honeymoon period.  The problem here is that as the purported advantages of the Windsor Framework are diminished, so too is the scope with which to persuade the DUP of returning to Stormont to embrace the economic advantages of Northern Ireland’s special status as a hub for foreign direct investment.

If the choice is one between a closer relationship with the EU at the expense of the advantages of dual market access for NI, or a continuation of divergent regulatory regimes where NI maintains its competitive advantage, what is the most desirable outcome for NI?

A continuation of a fractured regulatory relationship between the UK and the EU providing Northern Ireland with its dual market access advantage may well be beneficial economically. Perhaps it is even enough to justify a continuation of the trade border between NI and its largest trading partner (GB). Politically however, at least a partial removal of those trading barriers between GB and NI may well prove the most promising outcome for any prospect of restoring power sharing and the institutions of the Good Friday Agreement. Regardless, Northern Ireland won’t have much of a say in either eventuality or any bilateral UK/EU negotiations. Its interests are now divided between what proves advantageous economically, that being any competitive advantage which makes it a more desirable place for firms to invest and do business, and what it needs politically, that being stable governance and its politicians returning to Stormont to work through the countless problems facing the country.

 

*Gary Simpson is a final year PhD Candidate at the Queen’s University Belfast School of Law. His research focuses on the impact of the UK’s post-Brexit regulatory framework for market integration in services trade on devolved autonomy.

 

Photo credits: European Union, 2023

The views expressed in this blog reflect the position of the author and not necessarily that of the Brexit Institute Blog.