For Northern Ireland, Brexit means bureaucracy and subsidies


AMONG LE many claims made for Brexit were that leaving the European Union would allow Britain to cut red tape and free private industry to thrive. Nowhere does this promise ring more hollow than in Northern Ireland. When the UK left the EU, he pledged the province would remain within the trade bloc for all intents and purposes, in order to keep the border with the Republic of Ireland almost invisible. The aim was to avoid disrupting the fragile peace process in Northern Ireland by reinscribing the partition of the island, thereby stoking nationalist sentiment. But the result has been to create a new blizzard of bureaucracy and significant new costs for traders.

Under the Northern Ireland Protocol, goods and services must continue to circulate freely on the island of Ireland. Exports from Northern Ireland to mainland Britain are also straightforward, as Westminster is free to set the rules. But trade in the other direction goes through Great Britain, which is totally outside the EU, to a territory from which it can move freely within the trade bloc, potentially bypassing its standards for everything from animal health to product labeling. Thus, the price of an invisible border on the island of Ireland is that of the Irish Sea, with new and onerous customs and regulatory barriers. At the end of last month, the UK government released a dedicated form to cover the possibility that a hippo might one day cross the Irish Sea.

A predictable result is that an increasing number of mainland companies stop selling in Northern Ireland. Another is the increase in government spending aimed at mitigating the consequences of the protocol. Boris Johnson, the Prime Minister, has authorized a plethora of costly plans aimed, in effect, at maintaining historic business models. Over £ 500million ($ 690million) has already been budgeted until the end of 2022. Many border measures, for example those governing the import of medicines and chilled meats, have been delayed to let time to adapt. When they come into force, they are likely to cause disruption, public anger and clamor for further intervention.

Esmond Birnie, an economist at the University of Ulster, sought to quantify the costs of more expensive imports, new customs controls and additional red tape. The protocol benefits some companies by allowing them to stay in the EUfree trade zone, he says, but not enough to offset such costs. Using the first trade data from this year, he estimates the ‘protocol penalty’ will be around 2% for Northern Ireland GDP.

The UK government is now seeking to renegotiate the protocol to mitigate its impact. But the EU said that maintaining the integrity of the single market leaves room for at most minor changes, creating a dilemma for policymakers in Westminster. Should they withdraw their support and allow trade to adjust, with considerable economic hardship for businesses and consumers in Northern Ireland? Or should taxpayers bear the cost of expensive and ineffective programs in which the government acts as a trade facilitator in perpetuity?

There are few previous directors. Governments often subsidize regional economies, points out Alan Winters of the UK University of Sussex Trade Policy Observatory, for example by building infrastructure or strengthening transport links. They also routinely subsidize international trade, as in previous decades when Northern Ireland and other parts of the UK seen lavish freebies to unprofitable shipyards and automakers. But “paying to cancel your own policies is unusual,” he says, “and the policy is more difficult.”

At some point, the choice could be taken out of the hands of the UK government. Under the protocol, the UK may offer grants to businesses in Northern Ireland, but only if they meet EU law. The trade bloc is generally quite sympathetic to governments looking to support isolated or disadvantaged regions, says George Peretz, lawyer and state aid law expert. But no one knows what is allowed when it comes to thwarting the newly imposed trade barriers, he adds. All the interest of the EU it is that within it, commerce can circulate freely.

This article appeared in the Great Britain section of the print edition under the title “Tied up in knots”


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