When the UK and EU signed the Windsor Framework earlier this year, Northern Ireland was thrust into the spotlight by claims the post-Brexit trading pact will be a game-changer for its FDI opportunities.

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The agreement, signed on February 27, has been hailed for making Northern Ireland the only location with access to both the UK and the EU single market. UK prime minister Rishi Sunak said it could make Northern Ireland “the world’s most exciting economic zone” while US president Joe Biden expects it to unlock “significant investment” in the region. Sarah Friar, CEO of San Francisco-based Nextdoor and a Northern Ireland native, told fDi it was a “phenomenal” opportunity for US companies wanting to go to the UK and have a “window into Europe as well”.   

But the framework’s significance for FDI is more nuanced than first meets the eye. 

Why does it matter? 

The agreement is preceded by a long history of contention within Northern Ireland over its relationship with its southern and eastern neighbour. Starting in the late 1960s, the region endured three decades of violence between unionists – who wanted to remain part of the UK – and republicans who favoured integration with the Republic of Ireland.

For the most part, this came to an end in 1998 with the signing of the Good Friday peace accord, which, among other things, introduced a new power-sharing framework regulating a local devolved government and gave the region the right to unite with the republic if and when both agreed. It also removed the UK military checkpoints which had divided the two territories. 

However, Brexit, and the possibility that it might lead to the reintroduction of some physical border, stoked new tensions between the two sides, which contributed to the collapse of the devolved government in 2017.  

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Avoiding another border

In the wake of Brexit, the UK and EU signed another agreement – the Northern Ireland Protocol – to stop yet another border running across the island. 

The protocol effectively kept Northern Ireland within the EU’s single market for goods, allowing products to continue flowing between the two neighbours without customs checks or tariffs. Instead, those checks happened at Northern Ireland’s ports on all goods arriving from the mainland, irrespective of their final destination. Tariffs were paid on goods travelling onwards to the Republic of Ireland

While a good solution on paper, for Northern Irish businesses it increased paperwork, delays, costs and confusion about compliance with UK and EU rules.

The Windsor solution 

The Windsor Framework, which owes its name to the fact the agreement was first unveiled by European Commission president Ursula von der Leyen and Mr Sunak at Windsor Castle, seeks to address these problems by cutting red tape regarding the movement of goods involving Northern Ireland. From a trade and investment perspective, the biggest change is the establishment of new ‘green’ and ‘red’ lanes at Northern Ireland’s ports for checking cargo arriving from the mainland. 

The green line is reserved for products staying in Northern Ireland. It will involve minimal paperwork, no routine physical checks and no EU tariffs. Goods travelling on to the Republic of Ireland must go through the red lane, and be subject to EU customs checks and tariffs.

‘So what’ for FDI?

The framework ensures that trade continues across the island of Ireland without tariffs or customs checks, while cutting bureaucracy for shipments between Northern Ireland and the mainland. It is intended to facilitate the EU’s receipt of Northern Irish goods by making sure local rules are workable, and therefore, more likely to be complied with. 

“It’s essentially giving businesses in Northern Ireland the opportunity to avail of [import and export] access to both the UK and EU markets in a way that wasn’t there immediately post-Brexit,” says Lynsey Mallon, a Belfast-based partner at law firm Arthur Cox. It also reaffirms their economic integration with the Republic of Ireland, and their ability to benefit from spillover effects from the economy, which posted 12% growth last year.

However the framework has its limitations. Northern Ireland’s dual-market access only relates to goods, not services. And locally-produced goods are covered by UK trade agreements, not those of the EU. In other words, Northern Irish inputs will not qualify as EU inputs in rules of origin provisions in the EU’s free trade agreements. 

“It’s a mistake to think [the framework] puts Northern Ireland in the EU. It does not do that,” said Iain MacVay, a London-based partner at White & Case. “If [a Northern Irish product is] feeding into a supply chain destined for a third country … the framework does not change the fact that it’s a UK-origin product that may not qualify under EU trade agreements.” 

 

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Will it attract FDI?

In a region that is no stranger to instability, the framework brings much-needed clarity on post-Brexit trading rules which will allow businesses to start planning further into the future. According to the Northern Ireland Business Brexit Working Group, which consists of 14 local trade bodies, a recent survey found that some 60% of respondents believe a UK-EU deal will be a key driver of growth. 

The framework comes at an already pivotal time for the region. Last year it attracted a record high of $2.73bn-worth of FDI pledges, according to fDi Markets, boosted by two offshore wind projects announced by the Republic of Ireland’s Simply Blue Group. Sinn Fein’s showing against the Democratic Unionist Party (DUP) in local elections on May 18 also brings new hope for the end of the year-long stalemate in Northern Ireland’s assembly. Since February 2022, the DUP has boycotted the regional government, known as Stormont, over its objections to the Northern Ireland Protocol. 

For foreign firms taking a fresh look at the region, logistics is tipped to be one of the most interesting sectors under the framework due to its regular cross-border flows. Manufacturers are another key beneficiary. Under the framework, Northern Irish firms benefit from the EU’s tariff rate quota for steel, which means they can use mainland-originated steel without being subject to the EU’s 25% tariff.

However, business groups and lawyers are wary of the framework’s ability to attract FDI in the short to medium term. For example, White & Case partner, Sara Nordin, does not expect foreign logistics firms to try taking advantage until implementing guidelines are available. 

“Based on the situation today, if a company were to set up a logistics hub or warehouse in Northern Ireland, it would be quite a complicated exercise logistically, because products and packages arriving from different directions mean potentially different rules that you need to comply with,” she says.

Mr MacVay, however, is more sanguine. While “it’s a little premature” to say the framework will draw businesses in any sector to Northern Ireland, he says it is “conceivable within a couple of years”.