How Could the Northern Ireland Protocol Affect The Economy

13 June 2022|Related :

As part of the Brexit negotiations, an agreement called the Northern Ireland Protocol was drawn up. But what exactly is this and how might it affect the economy? Allow us to explain.

What is the Northern Ireland Protocol 

When the UK voted for Brexit in 2016, an agreement was drawn up to project the 1998 Northern Ireland peace deal, the Good Friday Agreement. This is because Northern Ireland is the only part of the UK that has a land border with an EU country – the Republic of Ireland. 

Prior to Brexit, the transportation of goods across this border was easy as both sides had the same EU trade rules, meaning no checks for paperwork were required. 

As part of the Brexit negotiations between the EU and the UK, it was agreed that under a Northern Ireland Protocol, there would be no new checks on goods crossing the border between Northern Ireland and the Republic of Ireland.

The aim of this was to avoid a hard border between Northern Ireland and the Republic of Ireland and ensure the integrity of the EU’s single market for goods. It also facilitates unfettered access for Northern Irish goods to the Great British market, and the inclusion of Northern Irish goods in free trade agreements between the UK and third countries. 

How Does the Northern Ireland Protocol Work?

Instead of checking goods at the Irish border, the protocol agreed that any inspections and document checks would be conducted between Northern Ireland and Great Britain (this includes England, Scotland and Wales).

The agreement also ensures that Northern Ireland will keep following EU rules on product standards.

What Do the Checks Involve?

Some goods, such as meat and eggs must be checked when they enter Northern Ireland from Great Britain. To do this, goods are first dispatched from Great Britain. They are then checked at Northern Ireland ports before being allowed to move across the border into the Republic of Ireland.

Why Has There Been Opposition to the Northern Ireland Protocol?

Unionist parties that support Northern Ireland being part of the UK argue that placing an effective border across the Irish Sea undermines Northern Ireland’s place within the UK.

The Democratic Unionists (DUP) are refusing to participate in Northern Ireland’s power-sharing government unless their concerns are resolved.

Sinn Fein, a nationalist party which accepts the protocol, has accused the unionists of thinking that they can ‘hold society to ransom’.

What Solution is the UK Government Proposing?

Foreign Secretary Liz Truss told MPs that the protocol was causing problems which the government had not foreseen, arguing that it undermined the Good Friday Agreement and led to unnecessary bureaucracy for businesses moving goods between Great Britain and Northern Ireland.

Truss said that the urgency of the situation meant that the government must act without reaching agreement with the EU, however, opposition MPs have called this an irresponsible act.

What Has the EU Said About the Northern Ireland Protocol?

Following the Foreign Secretary’s statement, the EU said it would “need to respond with all measures at its disposal”.

It has previously warned that renegotiating the text of the Northern Ireland Protocol is off the table and that any unilateral action by the UK would have repercussions.

In October last year, the EU set out its own proposals for the protocol, which included:

  • An 80% reduction in checks on food products arriving in Northern IReland and halving the amount of paperwork.
  • Passing legislation that allows the trade in medicines between Great Britain and Northern Ireland to continue.
  • Relaxing the rules so that chilled meats could still be sent across the Irish Sea.

In return for these proposals, the EU wanted extra safeguards to prevent products from Great Britain crossing into the Republic of Ireland, however, the UK swiftly rejected the offer, claiming that it would worsen the current trading arrangements.

What Is the Economic Impact of the Northern Ireland Protocol?

An analysis from Northern Ireland economist Esmond Birnie estimates that Northern Irish businesses have faced a 6% increase in the cost of bringing goods into Northern Ireland from Great Britain.

The total flow of goods and materials from Great Britain to Northern Ireland was roughly £10bn a year, meaning the rise in costs is equivalent to a bill of around £600m annually.

Birnie also estimates that an additional £250m a year will be spent by the UK government in order to assist businesses with the impact of the Protocol. He says that this is an opportunity cost, meaning the money isn’t being spent on something more productive such as education.

A forecast from the Fraser of Allander Institute uses an economic model to estimate the medium term impact of the protocol on the Northern Ireland economy.

This compares the impact of the protocol to a scenario in which the UK had remained in the EU but doesn’t consider the impacts of migration, foreign direct investment or economic spillover effects from Great Britain.

It found that in the medium term, the protocol would leave Northern Ireland’s economy 2.6% smaller compared to a scenario in which the UK had voted to remain.

That’s about £900m – £1bn of foregone output. The forecast found that the impact could potentially be halved by firms in Northern Ireland by sourcing goods from the EU rather than Great Britain.

Alternatively, if the checks and controls from Great Britain to Northern Ireland were reduced, the economic impact would fall to 1.5%, a feat which the current negotiations are trying to achieve.

If your business has been affected by the Northern Ireland Protocol, reach out to our team at Ryans today to discuss how you can lessen the impact. 

For more of the latest economic updates, check out our other handy articles on our blog.

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