John Campbell

Columnist

John Campbell

Economics & Business Editor, BBC Northern Ireland

Going For Growth

BBC NI’s Economic & Business Editor, John Campbell, discusses the economic effect of the Northern Ireland Protocol six months down the line.

The Northern Ireland Protocol has been with us for almost a year and we now have six months of solid data showing how it has affected trade across the land border.

The figures from the Republic’s Central Statistics Office (CSO) tell a story which was pretty much predicted by trade economists. Brexit and the Protocol have created new barriers for goods entering the island of Ireland from Great Britain.

Therefore it is economically rational for firms in NI and the Republic to substitute, where they can, those GB goods by buying from a nearby market which has fewer barriers to trade ie. from a supplier across the border.

That is exactly what has happened, with some firms re-orientating supply chains away from GB to buy more within the island of Ireland. It is perhaps only the speed and intensity of the change that has been surprising. The figures from the CSO are breathtaking, showing unprecedented short term changes in trade flows.

The value of goods exported from NI to the Republic has increased 77% year-on-year in the first half of 2021; in cash terms that’s an increase from just under 1bn euro to 1.77bn euro. The value of goods being sold in the other direction has increased by 43% from 1.1bn euro to 1.57bn euro.

At this point it’s important to pause and insert a couple of caveats. Firstly, we know that the pandemic has had significant economic impact with generally reduced levels of trade in 2020 followed by a bounce back in 2021.

Dr Esmond Birnie of Ulster University has looked instead at the 2019 figures in an attempt to smooth out those pandemic swings. They still show big increases though not quite so dramatic: NIRepublic trade is up by more than 50% between 2019 and 2021; Republic-NI is up by almost 19%.

Secondly, understanding trade figures is not always straightforward due to the different ways trade can be measured.

There is, for example, an issue known as trade asymmetry which means the value of measured exports by Country A to Country B don’t match the value of County A imports as measured by Country B.

Dr Birnie has also looked at potential measurement issues in the CSO figures. He points out that since the start of this year the CSO has been collecting trade data relating to Republic-NI on a different basis than that relating to Republic-GB.

As NI remains effectively remains part of the EU Single Market for goods the trade flows between NI and the Republic continue to be measured through Intrastat surveys and VAT returns while RepublicGB trade flows are now measured through customs declarations.

Trading conditions under the Protocol have led to NI firms using their own VAT identifications and in some cases trade which was previously incorrectly recorded by CSO as Republic-GB is now recorded as Republic-NI.

“The value of goods exported from NI to the Republic has increased 77% year-on-year in the first half of 2021; in cash terms that’s an increase from just under 1bn euro to 1.77bn euro.”

The CSO has therefore substantially revised upwards its measures of trade exports between the two parts of this island in both 2019 and 2020, so the baseline was higher than we thought.

But even if measurement issues were to ultimately cut the growth in half that would still mean annual growth of 25% in NIRepublic trade. So even with these caveats we can be pretty sure that the growth is real and significant.

Anecdotal evidence helps bear this out. At the BBC business unit, we have spoken to several businesses over the last few months who have won bigger orders or new customers in the Republic.

These are unsurprisingly concentrated in agri-food, as that is the sector which has seen the most significant GB-Republic barriers with some meat products, for example, now entirely prohibited on that route.

It’s also worth noting that the Protocol has to an extent just turbo-charged what was an existing trend.

If we look at Nisra’s Broad Economy Sales and Exports Statistics (Beses) we can see that in 2019 (the last year for which data is available), NI sales to the Republic were up by 10% year on year to £4.5bn. That outstrips overall external sales growth, which was just over 3%.

Between 2014 and 2019, NI sales to the Republic rose by nearly 30%, which is equivalent to an extra £1bn of trade.

Unfortunately, the Beses figures are only produced annually so it will likely be the end of next year at the earliest before we have the data allowing us to compare the years immediately before and after the implementation of the Protocol.

It means we are also lacking any real up to date numbers about how the implementation of the Protocol is impacting trade between NI and GB, so we have to rely mostly on anecdote, surveys and educated guess work.

Another round of tense Protocol talks lies ahead in the autumn. The UK’s position, as laid out in July’s command paper, is that the Protocol simply cannot work in anything like its current form.

The EU’s view is that it can be made to work and that, if the UK is serious about making that happen, a Swiss-style agri-food deal remains on the table.

The first order of business concerns grace periods which are due to expire at the end of September. It seems very likely they will have to be extended again. Whether that is done unilaterally or by agreement will set the tone for the months ahead.