John Campbell

Columnist

John Campbell

BBC NI’s Economic & Business Editor

Protocol Pros and Cons

There are two big economic facts about the Northern Ireland Protocol. Firstly it makes it more expensive and time consuming for businesses to move products from Great Britain to Northern Ireland. Secondly it means Northern Ireland manufacturers have better access to the EU’s single market than manufacturers elsewhere in the UK, presenting a potential competitive advantage.

What economists have not been able to do so far is accurately quantify those costs and potential benefits or explain precisely how they are diffusing through our economy. The reason for our relative ignorance is that these are still comparatively new arrangements and we don’t yet have all the relevant data. But what we now have are two serious pieces of economic modelling which attempt to quantify the longer-term impacts of the protocol. There are the usual caveats about economic modelling: models represent an abstract, simplified version of the world and they rely on making assumptions which can sometimes be faulty. Nonetheless, the work on the protocol represents a serious attempt to grapple with what it will mean for our economy. The first piece of work has been carried out by Gioele Figus and Geoffroy Duparc-Portier, economists at the Fraser of Allander Institute (FAI) at Strathclyde University. The FAI is considered to be Scotland’s leading economics research institute.

Its model does not consider the impacts of migration, foreign direct investment or economic spill-over effects from GB. It does include the impact of new postBrexit barriers to services trade between Northern Ireland and the EU.

It’s also important to understand that the FAI is comparing the protocol to a no-Brexit scenario – there is no attempt to assess the impacts compared to no deal, a no-protocol Brexit or any other alternative scenario.

The FAI finds that, unsurprisingly, the biggest negative impact on the NI economy comes from non-tariff barriers. In other words the new checks and controls on goods coming from GB. Its central finding is that the protocol will leave our economy 2.6% smaller compared with a scenario in which the UK had stayed in the EU. These are mainly sectors that rely on imports of intermediate inputs from GB. In a pessimistic scenario where there is major divergence between the EU and UK, and therefore between NI and GB, the hit could be 3.5%. Its optimistic scenario is a 1.5% hit which would have to involve a major switch from GB to EU suppliers and a minimisation of GB to NI checks and controls.

The conclusion is: “Whilst this is no evidence that the protocol allows NI to enjoy the best of both worlds, as the region is still worse-off than preBrexit, it demonstrates how NI can take advantage of the new trading regulations to mitigate the negative impacts of Brexit.” One of the limitations of the FAI work is that it looks only at Northern Ireland so there’s no judgement on whether the protocol leaves us in a better or worse position than other parts of the UK. That is where the second piece of modelling comes in. The Resolution Foundation think-tank and the LSE’s Centre for Economic Performance (CEP) have carried out a major piece of work which attempts to assess the likely impacts of Brexit on each of the UK’s regions. It uses an existing CEP trade model and adds regionalised inputs along with adjustments based on official employment data and regional trade data. scenario. It estimates that the largest fall in regional output, relative to no Brexit, is in the North East of England with a hit of almost 2%.

The average hit is 1.3% of output with Northern Ireland suffering the least with a hit of 0.7%.

The researchers conclude that Northern Ireland “looks set to fare less badly than most, driven by the NI Protocol with total output declining by just 0.7% relative to the baseline”.

However, they also modelled a noprotocol scenario under which Northern Ireland falls to the fourth least affected region, with an output shock of 1.1% which is still better than the UK average of 1.3%.

As ever with economic modelling, it’s important to look at the inputs. The Resolution Foundation/CEP are clear that their model involves trade frictions “in line with the current implementation of the Protocol”. As we know, the protocol we are living with now is a heavily mitigated version of the protocol compared to the one which was originally negotiated. So if the protocol was implemented in full it may produce a less favourable impact, potentially closer to the FAI outcome.

“Its central finding is that the protocol will leave our economy 2.6% smaller compared with a scenario in which the UK had stayed in the EU.”