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Post-Brexit trade patterns – an opportunity for Northern Ireland?

Gerhard Schnyder / Sep 2021

Photo: Shutterstock

 

The end of the summer marked a quick return of the Northern Ireland Protocol (NIP), which governs post-Brexit trading relationships between Northern Ireland, Great Britain, and the Republic of Ireland, to the top of the UK’s political agenda and to the centre of media attention.

Since coming into force on January 1st 2021, the NIP has made the headlines mainly for the tensions it created within NI and between the UK and the EU. UK Brexit Minister David Frost recently announced the extension of so-called ‘grace periods’ on border controls for certain goods moving from Great Britain to Northern Ireland. This is the third time the UK Government is extending the grace periods and thereby effectively refusing to fully implement the NIP. The first unilateral extension in March 2021 led the EU Commission to trigger legal action (which have since been put on hold). This time the Commission accepted the move to create space for further discussions around the implementation of the protocol. Meanwhile, the Democratic Unionist Party – the dominant force in the Stormont Assembly and Executive – continue to fiercely oppose the NIP.

Yet, recent trade figures released by the Irish Central Statistics Office (CSO) remind us of an often-neglected fact: That the NIP has the potential to provide Northern Ireland with very considerable economic advantages.

Post-Brexit Trade on the islands of Great Britain and Ireland : lose-lose, win-lose, win-win?

The trade figures released by the CSO show a striking change in post-Brexit trade patterns between the Republic of Ireland on the one hand and Northern Ireland and Great Britain on the other: The value of exports in goods from Ireland to Great Britain increased by 20% during the first six months of 2021 compared to the first six months of 2020, while its exports to Northern Ireland increased even by 43%. Conversely, Great British exports to Ireland decreased by 32% (see table 4).

Looking at the trade figures by product group provides further clues about the impact of Brexit had on East-West and North-South trade on the islands of Great Britain and Ireland. A first category of products shows a lose-lose pattern. Food and live animals fall into that category: Exports from GB to the Republic declined by a staggering 50.42% and exports from Ireland to GB declined too, albeit only by 6.89% compared to the first six months of 2020.

Most sectors, however, show a win-lose pattern, i.e. Irish exports have increased while British exports have decreased. This is the case regarding products such as beverages and tobacco (Irish exports to GB increasing 22.43%, while British exports to the Republic of Ireland decreased by 31.82%). Similar win-lose patterns can be observed for crude materials, chemicals and manufactured goods of all sorts. Across all categories, excluding commodities, Ireland has seen a 19.70% increase in exports to GB, while GB has seen its exports to Ireland plummet by 29.85%.

The only type of product where the picture is rosier from a British perspective concerns mineral fuels and lubricants. Here, British exports have increased 13.82%, although Irish exports to GB have increased by more in percentage terms (19.42%). This is the only win-win product category in bilateral trade, and most likely driven mainly by oil price rather than increased export activity.

What’s in it for NI?

Contrary to Great Britain, Northern Ireland is currently one of the post-Brexit trade winners. The CSO’s figures show that Northern Irish exports to the republic increased by a staggering 78% between January and June 2021, compared to the same period in 2020 (Table 4 here).

It is difficult not to see these shifting trade patterns as a direct effect of the new trade regime that the UK government decided to put in place with Brexit: While GB exports to Ireland are subject to new border checks and controls since January 1st, 2021, the UK government first aimed for a phased introduction between January and July 2021, but then decided to delay the introduction of certain border checks on goods imported from the EU. While this situation persists, the impact of Brexit on UK-EU trade will be to create an asymmetric trade regime, where EU exporters find it easier to sell products in GB than the other way round.

In the middle of this new trade regime, NI seems to be getting the best of both worlds for now. It remains part of the EU single market. NI businesses can therefore export to the Republic like before. At the same time, NI exporters will benefit from a so-called ‘unfettered access’ regime, which most likely will mean that moving goods from NI to GB will remain relatively frictionless and certainly easier than moving goods from GB to NI. So, NI businesses will have a distinct competitive location advantage over UK businesses, but also Irish exporters wanting to export to GB, as unfettered access only applies to goods originating in NI.

Of course, just how advantageous that position is for any given NI business greatly depends on the sector and the company’s supply chain, as imports of intermediary goods from Great Britain will become more difficult and costly once the grace periods have ended. Still, compared to British exporters, under the NIP, Northern Irish ones could very well be in a better strategic position post-Brexit under the NIP.

Levelling up as an unintended side-effect of a botched deal?

‘Levelling up’ the economic inequalities across UK nations and regions has become one of Johnson’s signature policies since his 2019 General Election victory. Many observers have criticised the policy for being a slogan rather than a strategy, and there are signs that ‘levelling up funds’ are being used to further Conservative Party’s electoral interests, while nothing much changes in terms of regional inequalities. The CSO trade figures hint at the possibility that in NI levelling up could happen as an unintended consequence of the trade deal signed by the UK government.

As long as the NIP is in place, NI occupies a unique position in the Single Market with relatively frictionless access to the GB market. What needs to happen in the current negotiations around the implementation of the protocol to keep it that way?

Technically, the solution seems relatively simple – although politically it is not. In terms of quantity, the main source of additional border checks at the Irish Sea border post Brexit are due to Sanitary and Phytosanitary (SPS) rules. The EU Commission has repeatedly hinted at a very simple solution for these issues: Namely a Swiss-style agreement on SPS that would mean the UK commits to dynamically adapt its SPS standards to EU standards. According to the EU Commission, aligning UK SPS rules with EU rules may cut border checks between GB and NI by up to 80%. Pragmatically, such an agreement would make perfect sense also because there currently do not appear to be any compelling reason why the UK would want to deviate from EU SPS standards. The only somewhat plausible argument that is sometimes mentioned is that ‘flexibility’ on SPS standards may be needed to conclude trade agreements with countries outside the EU – most importantly the USA. That argument is doubtful and ignores that the UK population is very much opposed to lowering SPS standards to reach trade agreements. The key sticking point, however, is political. Unilateral alignment seems impossible simply because the UK government considers alignment on EU rules to be contrary to the core goal of the Brexit project – namely ‘taking back control’ over UK borders.

Were the UK government able to overcome its ideological attachment to ‘sovereignty’ and agreed to such an SPS agreement, it may solve other problems too. Movement from the UK side, may lead the EU to show more flexibility on the other key sticking points with the NIP, namely the issue of medicines and the subsidy regime. Were these three issues solved, the NIP could provide a region of the country that much needs it a considerable competitive advantage and perhaps see a degree of ‘levelling up’ materialising. NI might thus become the only UK nation to reap the elusive ‘Brexit dividend.’

In short, with the right agreements and enough flexibility from both sides, the Irish Sea border could be made all but theoretical. It is not clear of course whether the unionist side in NI would ever accept the NIP. De jure the Irish Sea border will remain as long as the NIP exists – however light-touch and theoretical it may be. As such, Brexiters and Unionists would probably oppose it on principle. Indeed, to reach a win-win solution for NI, we would require a level of pragmatism and good faith that we have not often seen in British politics since the 2016 Brexit referendum campaign.

 

Gerhard Schnyder

Gerhard Schnyder

September 2021

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