Trade Diversion and Windsor Framework

Jim Shannon Excerpts

Tuesday 4th March 2025 Commons Chamber

[Jim Allister (North Antrim) (TUV)]

The issue of diversion of trade is becoming an increasing problem of manifold proportions for Northern Ireland. Before the protocol, goods could be moved from Birmingham to Belfast as easily as they could be moved from Gloucester to Glasgow, but no more. The resulting Irish sea border, and all that comes with it, has caused a huge and increasing diversion of trade.

We can get an insight into how things naturally should be and how business wishes them to be by looking at the Northern Ireland Statistics and Research Agency figures of recent years. If we look at the pre-protocol days, we see that in 2018, for example, the volume of goods purchased from the Irish Republic was £2.8 billion, but the amount purchased from GB was five times that—£13.4 billion. There we have a snapshot of the natural inclination of trade in Northern Ireland, particularly for our raw materials.

Before Brexit, there was a similar situation. Indeed, we could say—and some may say—that that is a better reflection of whether there has been trade diversion. Before Brexit, we could as readily buy our goods from the Republic as we could from GB, because we were all in the EU single market. Even then, the predominant trading of choice was from GB. That is no surprise because for decades Northern Ireland has been a particularly integrated part of the UK economy.

However, along came the protocol, which requires Northern Ireland to be subject to a foreign customs code—that of the EU—which of course treats GB as if it is a foreign country. Therefore, when goods come from outside the EU into the EU, and we in Northern Ireland are regarded as being in the EU for these purposes, those goods have to be checked, with customs declarations, documentary checks and physical checks on, for example, all our raw materials. So it is no surprise that that is inevitably bound to cause diversion of trade.

We were told, as part of the spin of selling the protocol, “Oh, there are protections against the diversion of trade, and it wouldn’t be allowed to happen”. Article 16 of the protocol, we were told, was our safety net:

“If the application of this Protocol leads to…diversion of trade…the United Kingdom may unilaterally take appropriate safeguard measures.”

It has led to the diversion of trade, but the United Kingdom Government have not taken unilateral action in that regard.

The fact of the diversion of trade is a challenge to the protocol’s proponents. It is a challenge to those who put this upon us, and it is one that they have to meet, but which I fear they will not meet. Where is the proof, some may ask, of the diversion of trade? Again, it is in the NISRA statistics. Dr Esmond Birnie, a renowned economist in Northern Ireland, has done a succession of studies of the NISRA statistics. He wrote back on 11 December 2024 that the data

“provides further evidence that the NI economy is becoming more trade integrated with the Republic”,

and of

“North-South trade growing at very rapid rates at the expense of what previously was an inflow of goods from GB.”

[Jim Shannon (Strangford) (DUP)]

Will the hon. Member give way?

[Jim Allister]

Perhaps in a moment.

We also see that in the purchase of goods figures that NISRA reports. It has given us figures from 2020, contrasting them in a table with those for 2023. The year 2023 was only the beginning of things getting difficult, as the Irish sea border did not in effect come into place until October 2023 because of the grace periods. However, those NISRA figures show that Northern Ireland’s purchases of goods increased from 2020 to 2023—of course, it was a period of inflation—by 24% from GB, but by 50% from the Republic of Ireland, meaning twice the growth rate in the buying of goods into Northern Ireland that would previously have come from our integrated United Kingdom economy.

The Office for National Statistics business insights and conditions survey states that 13.1% of currently trading manufacturers based in GB had sent goods to Northern Ireland in the past 12 months. That was at the end of 2024. But in January 2021, 20% of manufacturers in GB were sending goods to Northern Ireland. So, in just those four years there has been a dramatic fall in the number of manufacturers supplying goods to Northern Ireland. It has nearly halved in four years. The ONS data for 2024 tells us more: 11.7% of companies tell us they have stopped trading with Northern Ireland. Why? Because of the bureaucracy, because they have to make customs declarations, because they have to have them checked, and because they have to employ extra staff to do all that. Many companies, particularly in smaller sectors, have simply said that they are not going to do it.

--- Later in debate ---

[Jim Allister]

That is the absurdity of where we have got to, and it has been accentuated by our subjection to the EU’s general product safety regulations. Those regulations provide that if a company is supplying into Northern Ireland from outside the EU—in other words, from GB—it must have an agent resident within the EU. The company must complete the paperwork on the origin of its goods and on the customs declarations, and it cannot do so without employing an agent within the EU. Anyone who knows anything about business will know that that is added cost that will cause many businesses to say, “Northern Ireland is not a huge market to start with, so I shall just not bother with it.” That is what all our businesses in Northern Ireland are suffering from.

[Jim Shannon]

I congratulate the hon. and learned Member on securing this debate. Small businesses in my constituency have told me that they are now having to pay His Majesty’s Revenue and Customs a duty for buying goods from English suppliers and then selling the same goods in Northern Ireland to the Northern Ireland consumer, remaining within the internal market. Last Friday, one trader told me that he is now having to pay more in duties to HMRC than the invoice was for the goods. That is because HMRC does not trust that the goods will remain, but assumes that they will be sold into the EU. Does the hon. and learned Member not agree that the same HMRC displays greater trust and acceptance of VAT declarations, on the premise that they will be checked at random, than it does for internal trade within the United Kingdom? What a backward step that is.

[Jim Allister]

I agree. Let us just think about the Irish sea border. Given the infinitesimal amount of goods and trade that cross that border—infinitesimal when compared with the proportion of EU trade—it is incredible that it has 20% of all the checks across the whole of the EU. That infinitesimal amount when set against the totality of EU trade warrants 20% of all the checks in the EU. It would be easier to bring in goods from Belarus into the EU than it is to bring goods from GB into Northern Ireland.

--- Later in debate ---

[Hilary Benn]

If I heard the hon. and learned Gentleman correctly, from a sedentary position he said, “punishment”. I could not disagree more. I would encourage him to reflect on what he has said, because I do not think that he acknowledges that there was an issue there that had to be addressed, and wishing it away was never going to work.

[Jim Shannon]

I am reminded of the wee song we used to sing in Sunday school many years ago:

“So high, you can’t get over it,

So low, you can’t get under it”.

The Stormont brake does not work because it is too high and too low; it is just not functional. In my intervention on the hon. and learned Member for North Antrim (Jim Allister), I referred to the HMRC cost. To give the Secretary of State an example, last week a business said that the HMRC charges have got to the stage where they are even more expensive than the goods the business is bringing in. There has to be something wrong when it gets to the stage where it is not the issue of getting the product across but the cost factor. Could the Secretary of State look at that, because there is something wrong with a system that ends up costing us more, when it did not cost that amount before the Brexit system came in?

[Hilary Benn]

If the hon. Gentleman wishes to provide me with further information about the particular example he has raised, I will of course look at it.

On trade, I have a slightly different set of figures from those that the hon. and learned Gentleman used. From 2020 to 2023, purchases in Northern Ireland from GB went from £13.4 billion to £16.2 billion—an increase of 20.7%. Sales to the year ending December 2023 from Northern Ireland to GB rose by 12.4%, to £17.1 billion. He used a phrase at the beginning of his speech—I hope I wrote it down correctly—the “natural inclination of trade”. I would simply observe that the inclination of trade is a consequence of decisions that individuals and firms make, and those patterns change over time depending on what they want to buy or sell and what the market itself looks like.

The point I was making, without seeking gratitude, is that in every one of the examples I have just given, the Government worked to resolve the challenges we faced, working with stakeholders in Northern Ireland and with the EU, in what I think is a constructive and mutually beneficial way. That is what a responsible Government do, including abiding by commitments in international law on the world stage. The hon. and learned Gentleman advocates triggering article 16. That measure refers both to trade and to instances where serious economic, societal or environmental difficulties are liable to persist. Given that most goods are flowing relatively smoothly between Great Britain and Northern Ireland, how can it be argued that we are facing those difficulties?

I would just make the point that if one goes to the port, the lorries come off and most of them go on their way—the goods are moving. That is in contrast to the argument that the hon. and learned Gentleman put towards the end of his speech, when he used the phrase “cripple” in relation to the Northern Ireland economy. I have seen no evidence that the Northern Ireland economy, which, by the way, has the lowest unemployment in the whole of the United Kingdom, is being crippled by the matters that we are discussing.