The UK government has decided to pick a fight with Brussels over Northern Ireland. In theory, the messy politics of Northern Ireland can be kept separate from the broader mission of “Global Britain,” as the post-Brexit mantra has it. In reality, spillover from a trade war would be hard to avoid. Indeed, the arrival this week of a US Congressional delegation concerned over the UK’s threat is a reminder of how closely President Biden follows the issue.
The purpose of the Northern Ireland Protocol, recall, was to keep the border between Northern Ireland and the Republic of Ireland open and free after the UK leftthe EU’s single market and customs union. That meant creating a border in the Irish Sea so that goods passing from Britain into Northern Ireland and then on to the EU could be checked.
Johnson had promised that the protocol would not change seamless trade between Britain and Northern Ireland; nobody would feel a thing. That was never realistic; barriers to trade increase costs. The UK position now is that it’s the EU’s maximalist insistence on the protocol that is hurting the Northern Irish economy and undermining stability brought by the 1998 Good Friday Agreement. That narrative doesn’t quite match the reality on the ground.
The precise impact of the protocol so far is difficult to gauge with certainty given currently available data, but there’s no question it has imposed costs. Esmond Birnie, a senior economist at Ulster University business school and a former unionist lawmaker himself, has written a paper summarizing available statistics, including the post-Brexit accounts of four businesses and a trade association. Based on that limited sampling, the protocol has added costs of around 6% in bringing goods into Northern Ireland from Britain. On a flow of £11 billion a year, even if the amount is smaller, that’s still hundreds of millions of pounds of extra cost.
The UK unilaterally suspended some aspects of it; the EU has made various concessions already and estimated that only about 30% of the required checks are being performed. So the full-fat version of the protocol hasn’t arrived yet. But modeling by two economists at the Fraser of Allander Institute at the University of Strathclyde in Scotland suggests it would leave Northern Ireland’s economy 2.6% smaller over time.
Larger companies can absorb some of these costs better than smaller enterprises. Belfast restaurateur Bob McCoubrey tells me Brexit has led to increased costs and hassles for his businesses. While 90% of the seafood he buys is sourced locally, he imports a small quantity of frozen squid and prawn each year. Before Brexit, he could order a pallet via London and it would arrive in four days; now an order he placed in February was to arrive only last week, after a more circuitous route and an extra £400 of costs attached.
Uncertainty is the real drag on Northern Ireland’s economy
and future; shifting blame
and threatening unilateral action will only prolong it
It’s also much harder to find labor after free movement for EU citizens ended. But he’s not alone in noting the bigger picture. If the Northern Ireland economy can get some certainty and stability, he believes having access to both EU and UK markets will ultimately attract investment. “I’m happy to soak up my pain if we’re operating in a stronger economy overall,” he says.
So far, investors seem to be biding their time. It’s not the protocol per se that’s the deterrent, say McCoubrey and others, but the implementation chaos and uncertainty around the border requirements, which many put down to the chaos around the UK’s systems.
Meanwhile, in a reminder of why countries don’t normally rip up free trade deals, trade with Ireland has been increasing. Irish government statistics showed exports from Northern Ireland to the Republic grew by 65% and 54% the other way in 2021 compared to the year earlier. Birnie cautions that that probably overstates the change in north-south trade. He points to a 12% increase observed in the number of goods vehicles crossing major border points (a rough approximation of the volume of trading activity).
Whatever the actual numbers, it’s clear that trade in one direction is growing while that in the other has suffered. At least 200 British companies have stopped sending products to Northern Ireland, and British exports to Ireland were down 13% in 2021 from the year before.
While the EU has made concessions on agriculture and food checks, governance and other issues, it can no doubt do more. Some have suggested allowing a trial system whereby traders certified compliance with EU standards in some sectors with spot checks. Trade expert Sam Lowe notes in a blog that some of the UK’s asks aimed at easing transaction costs should be feasible. But Brussels has no incentive to keep chipping away at the policies it put in place to protect the single market unless there is a reasonable assurance that will settle the issue.
It’s not clear it would. The Democratic Unionist Party – the government’s ideological allies on Brexit in Northern Ireland, which has just lost its majority to Sinn Fein — are refusing to take up their seats in the nation’s assembly until the protocol is renegotiated. By collapsing power-sharing, the DUP also risks that funds earmarked for renewable heat and health could go wasted, increasing economic hardship and the tensions that inevitably follow. The DUP have been egged on by Brexiteers who loathe the protocol and consider its demise a matter of unfinished Brexit business.
Brexit got Johnson to where he is; he can’t afford to be seen as a sellout. Hence the cycle where threats are followed by negotiations and then the sound of a can getting kicked down the road. In a column in the Belfast Telegraph, Johnson (scheduled to be in Belfast on Monday) lays out his case for a new approach but stops short of wanting to rip up the protocol. Such efforts deserve a hearing. But de-escalation from the side that has escalated is not enough. Uncertainty is the real drag on Northern Ireland’s economy and future; shifting blame and threatening unilateral action will only prolong it.
Therese Raphael is a Bloomberg Opinion Columnist.
Source: Bloomberg
