Brexit Uncertainty and the Northern Ireland Protocol: The consequences for Northern Ireland firms and their trade within the UK's Internal Market

Lead Research Organisation: University of Sussex
Department Name: University of Sussex Business School

Abstract

Following the decision of the UK to leave the European Union, UK firms and workers have faced a period of economic uncertainty. Even though the UK departed at the end of January 2020, uncertainty remains, and this is particularly so for businesses in Northern Ireland (NI). Our research is aimed at studying two particular aspects of Brexit uncertainty and their impact on Northern Ireland.

Firms' production and exporting decisions might have been discouraged by the absence of clear information about future trading relations within the UK, between NI and Great Britain (GB), and externally with the EU and third countries. For businesses in NI a particular and additional form of uncertainty concerned the resolution of the Irish border issue - how to ensure that NI is included in the UK custom territory while avoiding a hard border between Northern Ireland and the Republic of Ireland. This almost intractable issue finally led to the inclusion of the Northern Ireland Protocol in the Withdrawal Agreement, which de facto moved the border between the EU and the UK to the Irish Sea. The uncertainty in the negotiations, the uncertainty about how the Protocol will be operationalised, means that trade relations between NI and GB will have been affected and will continue to be affected. There will be direct effects from customs checks and possibly tariffs imposed on some goods transiting from GB to NI, and indirect effects from the uncertainty.

In the first part of our research we will examine how the uncertainty about the Irish border, in terms of the potential changes to the costs of trade with Great Britain from tariff and regulatory misalignment between the EU (and therefore NI) and GB, affected trade relations for firms based in Northern Ireland with Great Britain. In turn, we will examine how these changes varied depending on underlying firm characteristics such as productivity and foreign ownership. This will be undertaken in two phases - first focusing on the impact of uncertainty following the 2016 referendum up to the Brexit date (January 2020), and second, the impact following the UK's departure from the EU. We will also explore the extent of any trade by third countries to the UK, which may be diverted via NI, in order to avoid higher UK tariffs.

In the second part of our research we will examine how Brexit uncertainty might have affected NI and UK firms through changes in the availability of workers, in particular EU nationals, in the local labour market where firms operate. The potential post-Brexit working and residence restrictions for non-UK citizens, as well as the sterling depreciation and other negative macroeconomic consequences of Brexit, might have affected the decision of EU migrants to remain in the UK, or to relocate to other EU countries in search of a more secure living and job environment. EU migrants might be particularly sensitive to Brexit uncertainty, as they are, on average, more educated, younger and located in the UK primarily for work related reasons (as opposed to family reasons).

The changing composition of the UK labour force could impact negatively on firms, as drawing workers from a wider pool provides diverse skills and can offer resilience against negative economic shocks. There may be differential effects in NI relative to GB, partly because the Withdrawal Agreement establishes a different economic relationship between the EU and NI, and between GB and NI, and also because the share of EU migrants in NI is larger than the corresponding share in GB. In this second part, therefore, we will study how Brexit uncertainty has affected firms through migration. We will begin by examining how Brexit uncertainty affected firms' ability in filling vacancies. We will then examine how Brexit has affected the composition of the labour market in which firms operate, and finally, evaluate the impact of changes in such workforce composition on firms with a primary focus on their productivity.

Publications

10 25 50
 
Description Centre for Inclusive Trade Policy
Amount £8,200,000 (GBP)
Funding ID ES/W002434/1 
Organisation Economic and Social Research Council 
Sector Public
Country United Kingdom
Start 03/2022 
End 04/2027
 
Description Monitoring and Evaluation of Northern Ireland Protocol and Rules of Origin
Amount £9,999 (GBP)
Funding ID 5585/12/2021 
Organisation Department for Business, Energy & Industrial Strategy 
Sector Public
Country United Kingdom
Start 01/2021 
End 03/2021
 
Description Review of evidence on the impacts on businesses of introducing new barriers to trade and Government responses9999
Amount £9,999 (GBP)
Organisation Department for Business, Energy & Industrial Strategy 
Sector Public
Country United Kingdom
Start 03/2021 
End 04/2021
 
Description Collaboration with the Department of the Economy, NI 
Organisation Department for the Economy, Northern Ireland
Country United Kingdom 
Sector Public 
PI Contribution Liaison with the DofE over access to more data for this award, but also further work in part arising from this award Consultations with the DoE to include them as a non-academic partner in a successful bid the UKTPO submitted for a new research centre, the Centre for Inclusive Trade Policy.
Collaborator Contribution Support / sponsorship for access to data Participation in the UKTPO's bid for the CITP research centre.
Impact na
Start Year 2021
 
Description Meeting 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Study participants or study members
Results and Impact This was a meeting with other Governance after Brexit projects to share our research and provide a basis for mutual exchange of information to strengthen and deepen the research, and to ensure wider knowledge of the work being undertaken.
Year(s) Of Engagement Activity 2021
 
Description Not just sausages: Brexit, trade and the Northern Ireland protocol 
Form Of Engagement Activity A broadcast e.g. TV/radio/film/podcast (other than news/press)
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact This podcasts revisits a part of the world that lies at the fulcrum of post-Brexit arguments over trade and national identity. Part of the United Kingdom, but effectively within the EU single market, but still part of the UK's customs territory - you'd be forgiven for feeling a little confused about just how Northern Ireland fits into things these days. The problem is that if Northern Ireland remains part of the EU single market, then the EU wants to make sure that anything that enters that single market is compliant with its own rules - even if that stuff comes from Great Britain, which is part of the same country as Northern Ireland. So what are the next steps in the evolving saga? How did we get into this situation, and, more relevantly, how do we find solutions to the current problems?
Year(s) Of Engagement Activity 2021
URL https://soundcloud.com/uktpo-tradebites/not-just-sausages-brexit-trade-and-the-northern-ireland-prot...
 
Description Webinar 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Policymakers/politicians
Results and Impact UK in a Changing Europe (UKICE), Research Insights Event designed to promote knowledge of the research and the issues being addressed to a much wider audience than other academics. This was a live streamed event, but also recorded and made available on YouTube. The event also included a Q&A session. Since the event (which was only yesterday there have been over 300 views).
Year(s) Of Engagement Activity 2021
URL https://www.youtube.com/watch?v=lrHQLqinmDk&t=3s