New Brexit deal to help North secure investments

The revised Brexit deal may have been signed off at the summit of the EU leaders last week, but getting it through the UK parliament is proving to be quite a challenge.

New Brexit deal to help North secure investments

The revised Brexit deal may have been signed off at the summit of the EU leaders last week, but getting it through the UK parliament is proving to be quite a challenge. Indeed, the British government was forced at the weekend to seek an extension to Article 50 which could delay the UK’s departure from the EU beyond October 31.

While the worst-case scenario of a disorderly no-deal hard Brexit looks like it will be avoided, the revised Withdrawal Agreement still poses plenty of future challenges for the Irish and UK economies. It does provide for a transition period during which time the current trading arrangements with the UK will stay in place.

The transition period is due to expire at the end of 2020 and be replaced with a free trade agreement, although this time frame could be extended for up to another two years. The deal is not a soft Brexit. Once the transition period ends, new trading rules will kick in.

Those trading with the UK will need to lodge customs declarations forms to have clearance to move their goods. This will result in new administrative costs and likely delays in trade. Furthermore, any new UK-EU trade deal will be much inferior to the single market, especially if it is done by a Conservative government that wants to go down the route of regulatory divergence and the UK being able to set its own customs duties.

Thus, while a hard land border has been avoided on the island of Ireland, within the next couple of years a hard border could appear in the Irish Sea between Britain and the Republic and in the English Channel between the UK and EU.

The limited analysis done to date on the effects of a Brexit deal based around a free trade agreement shows a significant negative impact on the Irish economy. Trade will suffer after the transition period ends as the fall-out from the UK leaving the EU customs union and single market starts to bite.

The more the UK wants to “take back control” and have its own different regulatory and customs regime, the more limited will be the free trade deal it can conclude with the EU. The revised Brexit deal, though, should prove beneficial for the Northern Ireland (NI) economy as it is the one part of the UK that will retain free access to the EU single market for goods.

Meanwhile, NI exports to Britain are not impacted in any way by this deal. It is important to note that any checks on trade with Britain only relate to goods moving from there to NI. Even then, it is clear from the text of the revised Withdrawal Agreement that the focus of the proposed new customs arrangements is on goods being brought into NI from another part of the UK that are “at risk of subsequently being moved into the union”.

There has been much talk about divergence between NI and the rest of the UK. However, there are already many examples of such divergence, such as the planned adoption by NI of the same corporation tax rate as the Republic.

NI will be in a strong position to capture a growing share of foreign direct investment if the current Brexit deal is ratified, given that it will retain free access for goods to the single market, while continuing to have unfettered access to UK markets.

Indeed, the deal places NI in a uniquely advantageous position. No wonder, a senior UK cabinet minister has called it a “cracking deal” for NI.

Oliver Mangan is chief economist at AIB

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