Reorienting Northern Ireland’s economy towards the EU will be costly, warn economists
The disruption to Northern Ireland buying GB goods will have a far greater economic impact than continued unfettered trade with the Republic, two economists have said.
An academic article which analyses how the trade in goods is impacted by the new internal UK trade frontier shows that Northern Ireland buys more goods from the UK than from Republic of Ireland, the EU and the rest of the world combined.
The trade in services – such as legal work and accountancy – is not covered by the Northern Ireland Protocol but is a smaller percentage of the economy.
The article, by Ulster University’s senior economist Edmond Birnie and Queen’s University senior lecturer in economics Graham Brownlow, said that economically Northern Ireland is now “a hybrid combining GB as well as EU features”.
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Yesterday Cabinet Office minister Michael Gove admitted that the NI Protocol which his government negotiated with Brussels is “not working at the moment” with the result being “disruptions and difficulties faced by Northern Ireland citizens in their daily lives”.
However, Mr Gove did nothing to suggest that he is even considering – as many unionists hope – to scrap the entirety of the protocol, instead saying that problems “can be resolved within the context of the protocol, we don’t need to ditch it in order to resolve those issues”.
Dr Birnie and Dr Brownlow’s article for the Economics Observatory said: “Optimists argue that the NI economy will eventually be buoyed up by having the best of both worlds: ‘unfettered access’ to the GB market while still being part of the EU’s single market.
“This becomes less likely to the extent that persistent frictions GB-to-NI lead to higher costs associated with the new regulatory environment.”
The sets out how Northern Ireland sells £10.6 billion in goods each year to GB while buying £13.4 billion from GB. That means that the fettering of trade into Northern Ireland is more significant in economic terms than the continued free flow of goods in the opposite direction.
The authors said: “Northern Ireland’s most important trading partner is Great Britain. As we consider any frictions for those trading between NI and GB – the so-called ‘border in the Irish Sea’ – it is notable that in 2018, NI sales to GB were about two and half times greater than those to Ireland.
“In terms of purchases and imports, the flow from GB to NI was more than four times greater than the flow between Ireland and Northern Ireland.”
They accepted that “in the long term, some cost disadvantages could be mitigated through shifting supply chains from GB to Ireland or the rest of the EU (although such shifts could be costly)”, but added that there are other difficulties from the protocol: “The region has become a rule-taker: it must apply EU rules but has minimal input into the formation of such regulations.”
The government has claimed that Northern Ireland would benefit from trade deals with non-EU countries, but the authors questioned if that was realistic, saying: “If the UK government does succeed in striking a series of post-Brexit free trade agreements, will NI be able to enjoy the benefits?
“It seems likely that the United States, for example, will make any deal conditional on very strong rights of access for US food products. Such access would fly in the face of NI’s application of EU SPS standards.
“The United States may end up making a free trade agreement with GB rather than the entire UK.”
Last week the SDLP’s Matthew O’Toole said it was wrong to refer to the protocol creating an ‘economic United Ireland’.
He said that “Brexit means that in all areas not in the Protocol – and that includes fundamental areas – the north/south economies will diverge”.
Mr O’Toole, a former civil servant in the Treasury and Downing Street before entering politics as MLA for South Belfast, said there is “a huge list of areas” which the protocol does not cover and on which the UK-EU trade deal is either silent or will lead to “a huge retrenchment”, including in services.
That meant that in areas such as banking all-island banks are diverging, reversing some of the simplifications to cross-border trade which have been possible over recent years.
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