The creation of a dual regulatory system in Northern Ireland would create a series of reputational, legal and commercial risks for local businesses, the Government has been warned.

The proposal is part of the Government’s unilateral plan to replace the contentious Northern Ireland Protocol – the trading arrangements that govern Irish Sea trade post-Brexit.

A group representing key sectors of the region’s economy has expressed concerns about the introduction of a system that would allow businesses selling in Northern Ireland to choose whether they comply with EU standards, UK standards or both.

The Northern Ireland Business Brexit Working Group urged the Government against the plan, insisting ministers in London should instead refocus on finding compromise with the EU to resolve issues with the protocol.

The UK and EU agreed to the protocol in 2019 as a way to avoid a hard border on the island of Ireland following Brexit. The arrangements have instead shifted customs and regulatory checks to trade moving from Great Britain to Northern Ireland across the Irish Sea.

The protocol is vociferously opposed by many unionists in Northern Ireland and the DUP is currently blocking the formation of a powersharing administration at Stormont in protest.

Acting without the agreement of the EU, the Government is progressing controversial domestic legislation at Westminster that would empower ministers to scrap the protocol.

The Government wants to replace it with a new system that would create green and red channels that would differentiate between GB goods destined for use in Northern Ireland and shipments bound for onward transportation across the Irish border.

Goods arriving through the green channel would be freed of red tape, while the red channel would retain the checks and inspections required by the protocol.

The plan also envisages the introduction of the dual regulatory system.

The business working group said the cost-of-living crisis intensified the need to find an agreed solution with the EU.

“With inflation rising to a 40-year high, the Northern Ireland Business Brexit Working Group call on the EU and the UK to redouble their efforts to resolve their differences on the Ireland/Northern Ireland Protocol and find an agreement based on compromise,” the group said in a statement.

“For too long this issue has been dominated by inflexibility and intransigence but Northern Ireland is now facing into the most difficult of winters. It is our view that the scale of the current economic challenge is such that it demands a swift resolution to the impasse.

“Our communities are amongst the least well-placed to manage the cost-of-living crisis, with households seeing the largest fall in discretionary spend of any UK region this year.

“As a priority, any agreed outcome must protect GB-NI consumer-facing supply chains, and tackle the disproportionate burden placed on goods that are not at any material risk of entering the EU single market.

“This will require much more ambition than we have seen to date from the EU on the issues of SPS (sanitary and phytosanitary) and parcels in particular.

“We have also been clear with the UK government that if it proceeds unilaterally with the Northern Ireland Protocol Bill, particularly with the creation of an all-encompassing dual regulatory regime, it will create myriad reputational, legal and commercial risks for many of our businesses.

“Northern Ireland has been a top-performing region in exporting goods since EU Exit, but that is now being put at risk.

“The need for an urgent resolution is readily apparent, but it will become much more acute as we move through the second half of this year.

“It remains our firm belief that through agreement, with ambition, flexibility and compromise from both sides, a balance between upholding much-needed access to the GB market and protecting the EU single market is achievable.

“The EU and the UK, acting together, have a responsibility to deliver this.”

The members of the Northern Ireland Business Brexit Working Group are: the Dairy Council, Federation of Small Businesses, Hospitality Ulster, Institute of Directors, CBI NI, Logistics UK, Manufacturing NI, Mineral Products Association Northern Ireland, NI Grain Trade Association, NI Meat Exporters Association, Northern Ireland Food and Drink Association, Northern Ireland Chamber of Commerce and Industry, Northern Ireland Retail Consortium and Ulster Farmers Union.