Brexit deal: What could it mean for the Northern Irish and British economies?

The deal is done. The UK and EU have agreed the terms of a new Withdrawal Agreement paving the way for Brexit. Although politics may yet block it, the deal could transform the economic arrangements of Northern Ireland.

And so, to paraphrase Winston Churchill, that great hero of Boris Johnson’s, is this really the end or maybe still just the end of the beginning?

Around midday on Thursday, news broke that white smoke had wafted from the negotiating HQ in Brussels. EU and UK negotiators have, apparently against all odds, agreed a new Brexit deal. 

Whether or not this new deal is ratified by the British Parliament remains anyone’s guess, but what is clear is that consensus has been reached by the UK and EU sides on the issue that has dominated the recent flurry of negotiations — Northern Ireland and the question of the British border on the island of Ireland.

So what’s new economically speaking?

It is critical to point out at this juncture that everything which follows only applies if the UK and the EU fail to strike a trade agreement which preserves current arrangements in Ireland before the end of the transition period, which will begin immediately after Brexit. The new deal says that the transition period could last up until the end of 2022, if both sides agree.

That means that the UK and EU would have as many as three years to agree a deal after Brexit which could make all of the following irrelevant.Until such time, nothing will change in terms of the current UK-EU trading arrangements.

Irland, Dublin: 'Getting Ireland Brexit Ready' Workshop

The Irish elements of the Withdrawal Agreement will only apply if the EU and UK fail to agree a future trading relationship

The matter which proved most vexatious in the Brexit negotiating process since March 2017 had been the so-called “Irish backstop,” a mechanism placed in the original Withdrawal Agreement, negotiated by Theresa May’s government to avoid the re-imposition of a “hard” border in Ireland in the event that the UK and EU fail to agree a deal which preserves the current situation before the end of the aforementioned transition period.

The new deal can be seen as a return to a “Northern Ireland only backstop” in that its provisions for keeping the six counties of that region aligned with EU rules apply to that region alone and not the island of Britain as well, as the previous deal, rejected several times in the UK Parliament, did.

The new agreement proposes that once Brexit happens on October 31, Northern Ireland will apply the EU’s customs and tariffs rules. They will be overseen by the European Court of Justice. That means there would be no need for any customs checks for goods crossing the border between Northern Ireland and Ireland. Any customs checks that would be needed for EU-UK goods would happen in Britain.

However, although Northern Ireland would de facto remain within the EU’s Customs Union, it wouldde jure remain within the UK’s customs realm, meaning the region would still benefit from any post-Brexit trade agreements the UK strikes with other countries.

The lack of need for customs checks in Ireland will be complemented by the fact that Northern Ireland will also remain in the EU’s Single Market for agrifoods and manufactured goods, meaning no regulatory checks will be necessary on animals or goods crossing the winding, mazy 499-kilometer (310-mile) frontier.

DUP Leader Arlene Foster and deputy leader Nigel Dodds

The DUP (pictured) are unlikely to go along with anything that is favorable to the Irish government and vice versa.

A border in the Irish Sea?

Northern Irish unionism is a political ideology which prizes union between Northern Ireland and Britain above all else. The Democratic Unionist Party, the most hard-line major unionist party currently operating in Northern Ireland, has propped up the Conservative government since the last election and its votes are important to the passage of bills.

The DUP has consistently opposed the various EU-UK agreements due to what it believes will amount to “a border in the Irish Sea.” It is almost certain that they will reject this latest agreement too on that basis.

But does the new deal mean a border in the Irish Sea?

The short answer is yes. As Britain will be out of both the Customs Union and Single Market after Brexit, regulatory and customs checks and controls will be needed for goods going from Britain to Northern Ireland. However, it is hoped that the extent of the checks will be reduced thanks to a series of tariffs exemptions.

Personal goods will be exempt, while goods that are seen to pose no risk of crossing into Ireland from Northern Ireland will also potentially be exempt. This category will be decided on in the future jointly by EU and UK officials in the so-called Joint Committee, a group established to manage the new arrangements.

The EU will ultimately have a veto over which kind of goods are exempted from checks in the Irish Sea, though.

A lorry passes a sign on a main road outside Newry, Northern Ireland

Depending on the terms of the future EU-UK relationship, Northern Ireland could become a special economic zone of sorts

A special economic zone?

While the new agreement does mean some Irish Sea checks will be needed, the text spells out repeatedly that Northern Ireland will remain within the UK’s internal market, while also effectively benefiting from de facto membership of the EU’s Single Market and Customs Union.

While the price for such an arrangement appears to be the limited checks that will be needed on goods passing from Britain to Northern Ireland, the potential benefits of what would effectively be dual membership of two distinct economic unions could offer the six counties of Northern Ireland the status of a special economic zone.

What about VAT?

In recent days, UK-EU negotiations over Northern Ireland came down to customs, the question of consent within Northern Ireland and also the tricky subject of VAT.

This is probably the part of the new agreement which is least clear, and was the final piece to be agreed.

The revised Withdrawal Agreement, published earlier on Thursday, says that EU law will apply to VAT in Northern Ireland, although it also leaves a provision for the UK to apply VAT exemptions and reduced rates.

Again, much leeway is given to the Joint Committee on the question of VAT. It states “the Joint Committee may review the application of this Article, taking into account Northern Ireland’s integral place in the United Kingdom’s internal market, and may adopt appropriate measures as necessary.”

If this new deal is agreed, and if no UK-EU deal is struck before the end of the transition period, then the island of Britain will be outside of the EU Customs Union and Single Market and WTO rules will apply thereafter.

What happens if this new deal is agreed by British and EU lawmakers?

Effectively nothing will happen in the short term in terms of changes to trading arrangements. If the deal is agreed and Brexit happens, the transition period will begin and could last until December 2022.

During that time, the UK and the EU will negotiate their future trading relationship. During that time, the status quo will continue to apply. The provisions of the agreement will only apply if no trade agreement is struck which preserves the status quo on the island of Ireland.


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