The authoritative source for independent research on UK-EU relations

04 Feb 2022

Union

The Northern Ireland Protocol came into operation on 1 January 2021 at the end of the UK’s transition period as part of its exit from the European Union.

Whilst GB traders were permitted an additional one year, or in some cases 18 months, to prepare for import controls, NI traders and those sending goods from GB to NI had only a matter of days. For NI traders, much of 2021 was therefore taken up with trying to understand the new processes, and educating GB (and EU) suppliers and customers whilst continuing to run their operations. This caused significant disruption which, as 2021 continued, eased somewhat as firms became familiar with their new responsibilities.

Throughout 2021, Manufacturing NI has been surveying the sector to assess and understand their issues and put these to the UK Government and the EU to resolve.

Almost 60% of manufacturers reported that access to labour is their biggest issue with fewer than one in seven saying it was their biggest challenge.

By contrast, fewer than one in four (23.9%), continue to struggle with the new requirements in the Irish Sea – significantly down from 41.3% when surveyed in July. The rest, more than two thirds, experienced no impact, are on top of the issues or see them resolving soon.

However, more than half of firms (57.7%) were affected by the lack of preparedness and willingness of GB suppliers to the Northern Ireland market. Whilst there was an increase in firms reporting business as usual (up to 29% from 23%), one in five report that their GB suppliers are still unwilling to engage with the new formalities in the Irish Sea.

While significantly down on July (70.2%), this speaks to the continuing impact of the lack of preparedness at both a government and business level for the changes introduced in January 2021.

Almost 17% of firms experienced a positive benefit in 2021 which is reported as increased sales to both GB and to the EU and a more secure EU supply chain to NI when compared to GB firms.

The Protocol also provides for EU goods to freely circulate to NI. There was a significant increase in manufacturers reporting business as usual with two thirds (65.6%) reporting that relationships with EU suppliers have settled (up from 45% in April).

However, many firms report that EU origin goods distributed to NI via GB are not circulating freely as promised.

There has been a significant increase in firms reporting sales to GB to be at expected levels. Almost 60% report a settled position which is up from under half in July. Around one in five firms report sales had been impacted, but there is a noticeable drop from 29.5% to 21.8% in those who report a negative impact.

However, there is a significant rise (from 6.4% to 20.4%) in the number of businesses reporting increased business with GB as a result of the Protocol.

This tells us that the confusion around the status of NI goods and unfettered access in early 2021 has reduced, and that GB customers are increasingly looking at NI to supply them as supply chains in GB become strained under the new Brexit import requirements.

Around half of businesses reported sales to the EU to be as expected. However, whilst there was a continuation of the decline in firms reporting a marginal negative impact, there was a rise from 2.8% to 9.3% of those who say they’ve had a significant drop. The cause is unclear.

Many more manufacturers report an increase in business. Now almost 29% have increased trade compared to 5% in April and 11% in July.

There is a large increase in those who say the Protocol has no impact or that it is now business as usual (40% versus 23% in July). There is also a marked decrease, from 41% to 34%, in firms which say that disruption persists. It is important that the UK and EU find simplifications to ease the burden on these businesses.

One in four manufacturers see the Protocol as providing them an opportunity now and in the future which, when combined with those reporting business as usual, places two thirds of manufacturers in a positive place.

The one figure that has remained constant is the one in five manufacturers that would prefer the Protocol to be replaced (with what has not been suggested). It appears that most of these businesses trade exclusively in Northern Ireland or process goods and return to GB so they face disruption and costs and don’t have a recognisably significant EU supply chain.

However there has been a very large rise, now up to 65%, of those who accept that the Protocol is with us and wish it to work better through mitigation and simplification.

Finally, there is strong demand for the NI Executive to secure new opportunities to trade and for inward investment from the unique status we’re now presented with.

2021 was a very difficult year for all traders in Northern Ireland. A lack of time, detail, knowledge and experience exacerbated what was always going to be a hugely difficult adjustment, particular in the middle of a pandemic. This resulted in costs and supply chain disruption which harmed performance throughout 2021.

Whilst businesses are ‘Protocol pragmatists’ the results confirm that there are problems within the new arrangements which need resolved.

Two thirds want the Protocol fixed, one fifth want it ditched.

One reflection on the findings may be that things are moving in a more positive direction. However, whilst the Brexit vote has been taken by the UK government as an instruction to fundamentally shift the UK’s economic model, the commitment from both the UK and the EU in the Protocol preamble was that the application of the Protocol should impact as little as possible on the everyday life of communities in … Northern Ireland’. The survey confirms that this is not yet the experience for many firms. So, more work is required.

By Stephen Kelly, Chief Executive of ManufacturingNI.

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