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Tensions over the Northern Ireland Protocol (NIP) have intensified as the UK Government (henceforth HMG) announced plans to introduce legislation that would enable it to disapply parts of the Protocol. The UK has often demanded the re-negotiation of the NIP due to its economic costs, and a too strict application by the EU. Recently, Assembly elections in Northern Ireland escalated the urgency of resolving the issue, as the Democratic Unionist Party (DUP) is currently refusing, as part of its protest against the NIP, to participate in the power-sharing executive.
Given the foregoing, we have examined trade data to shed light on three key issues:
We conclude that with 60% of Northern Ireland’s (NI) imports coming from Great Britain (GB), the importance of East-West trade is undisputable. The barriers created by the NIP that affect trade from GB into NI were always bound to result in shipping delays and higher costs to trade. In this context, the increase in NI imports from the Republic of Ireland (RoI) in 2021 could suggest that some firms in NI have started to find alternative suppliers. However, whether the NIP creates ‘serious economic difficulties’ that are ‘likely to persist’, or a ‘diversion of trade’ (the grounds to invoke Art. 16 of the NIP) is yet to be determined.
The policy context
To avoid a border on the island of Ireland whilst at the same time protecting the integrity of the EU Single Market, the NIP placed a custom and regulatory border between NI and GB. Products moving from GB to NI must be shown to comply with EU standards which, especially in the agri-food sector, implies a list of documentary, identity, and physical checks. These new procedures have resulted in increased paperwork for firms, likely higher costs to move products into NI (due to agents’ and hauliers’ fees, and increased staff time), and longer shipping times.
In response, HMG has recently proposed legislation that would allow the unilateral suspension of parts of the NIP, to eliminate all checks for goods shipped from GB intended for exclusive sale within NI and allow producers of such goods to adhere to UK standards only. Checks on goods destined for the RoI would be retained, with the identification of such products the responsibility of traders operating under a ‘trusted trader scheme’. In addition, the UK wants to allow NI businesses to choose between UK or EU standards, regain the power to apply UK VAT rates in NI, and reduce the role of the European Court of Justice in overseeing the NIP. In sum, the UK believes that a light-touch approach to the border issue is enough to protect the EU Single Market.
The EU’s response will most likely depend on the extent to which the UK deviates from the current arrangements (i.e., if some checks are to be maintained), and the modalities in which the suspension of the NIP will occur (i.e., either through the legal framework provided by Art. 16 of the NIP or by internal law acts that bypass the obligations in the NIP). We refrain from analysing the legality of the actions currently considered by HMG and the possible responses of the EU. Instead, we examine trade patterns to help situate the dispute over the NIP into an economic context.
Where do Northern Ireland’s imports come from?
The NIP only affects trade flowing from GB to NI, as in the opposite direction HMG has promised the absence of barriers to GB for NI exporters.[1] Hence, we will focus our analysis on NI goods imports.
In Figure 1, we use Broad Economy Sales and Exports Statistics (BESES) data available up to 2020 to depict NI imports from GB, the RoI, the Rest of the EU (REU), and the Rest of the World (RoW), both in values and as shares of the total. GB is by far the NI’s largest goods supplier, with over 60% of NI’s imports sourced from the rest of the UK. This is salient if compared to the RoI (10-15%), and denotes the predominance of the East-West trade direction over the North-South one. However, GB’s share in NI imports has contracted compared to the pre-2016 referendum years, while that of the RoI and the REU has correspondingly increased. Overall, the relevance of NI inward trade from GB helps to understand why HMG is resolved to make trade between the two regions as frictionless as possible.
FIGURE 1: NI EXTERNAL PURCHASES BY ORIGINS