Belfast must not re­ject EU deal

The so­lu­tion would have boosted North­ern Ire­land’s econ­omy by al­low­ing it to re­main eco­nom­i­cally part of the EU

Gulf News - - Opinion -

o to the le­gions of ex­perts re­quired to make any sense of North­ern Ire­land we may now need to add lex­i­cog­ra­phers or semi­oti­cians. Where does the line, the bor­der as it were, blur be­tween reg­u­la­tory “non-di­ver­gence” and “con­ver­gence” and “align­ment”?

The Euro­pean Union-United King­dom draft agree­ment that was on the ta­ble on Mon­day, sug­gests that, in all but name, North­ern Ire­land would have re­mained a part of the EU. Achiev­ing the UK gov­ern­ment’s agree­ment on this was a truly mo­men­tous achieve­ment for Ir­ish Prime Min­is­ter Leo Varad­ker, de­rided by the Brex­iter ul­tras as be­ing naive and out of his depth. This has been an in­ter­na­tional-re­la­tions bap­tism of fire, it is true, but he has come through un­scathed. That the Bri­tish gov­ern­ment with­drew its own pro­posal was, to bor­row a phrase once used by the for­mer taoiseach Charles Haughey, “grotesque, un­be­liev­able, bizarre, and un­prece­dented”. It is now un­clear that it will be back on the ta­ble, which is a pity as it had the great merit of am­bi­gu­ity. But the pro­posal also throws up as many ques­tions as it an­swers — noth­ing new in the con­text of ei­ther North­ern Ire­land or the EU’s deal­ings with crises.

The rel­a­tive eco­nomic his­tory of the two parts of Ire­land has it­self two parts. In the first, last­ing to the mid-20th cen­tury, in­vest­ment and pro­duc­tiv­ity went north. At par­ti­tion in 1921, the sit­u­a­tion was glar­ing. North­ern Ire­land had the in­dus­try and an out­ward ori­en­ta­tion. Ire­land was pre­dom­i­nantly agri­cul­tural, and sig­nif­i­cantly poorer, with an eco­nomic pol­icy that moved to­wards greater lev­els of au­tarky in the 1920s and 30s. The con­trast since the 1950s is vast. The Ir­ish econ­omy now dwarfs that of the North; it is vastly more ex­port-ori­ented, even al­low­ing for the over-rep­re­sen­ta­tion of multi­na­tional cor­po­ra­tions. In terms of pro­duc­tiv­ity, North­ern Ire­land lags be­hind the UK, which it­self tends to lag be­hind the EU, while Ire­land is sig­nif­i­cantly more pro­duc­tive. Belfast is a pleas­ant, if some­what pro­vin­cial, city while Dublin is a vi­brant, boom­ing Euro­pean cap­i­tal.

A small mar­ket next door

The pro­posed deal has sig­nif­i­cant is­sues, how­ever. There is a gen­eral con­sen­sus in eco­nom­ics that any re­gion trades more with re­gions ge­o­graph­i­cally close than with re­gions afar. A small mar­ket next door is as valu­able or more valu­able than a large one far away. This is the iron law of eco­nomic grav­ity. Note that cul­ture mit­i­gates this — dis­tance is both ge­o­graph­i­cal and psy­chic. The out­come of this is that Ire­land, as a goods ex­port des­ti­na­tion for the UK is as im­por­tant as In­dia and China com­bined.

For North­ern Ire­land this means that it should trade with both Ire­land and with the rest of the UK. And it does. But a re­port from the Eco­nomic and So­cial Re­search In­sti­tute in 2009 com­piled for In­ter­trade Ire­land shows that the ex­is­tence of the bor­der has been mas­sively dam­ag­ing to pos­si­ble trade. Their mod­el­ling sug­gests that north­south trade should be up to 80 per cent higher and south-north trade should be up to 75 per cent greater than cur­rently. In gen­eral bor­ders de­ter trade.

Any move that re­duces the bor­der should then re­sult in in­creased trade flows. This would be a win-win.

A prob­lem, how­ever, emerges when we con­sider where the EU reg­u­la­tory and cus­toms bor­der ex­ists. If it does not ex­ist at the present Ire­land-UK bor­der then it must be at the North­ern Ire­land bor­der with the rest of the UK, the Ir­ish Sea. The only way in which this would not hap­pen is if there was no reg­u­la­tory di­ver­gence be­tween the EU (now in­clud­ing North­ern Ire­land) and the rest of the UK. A core ar­gu­ment for Brexit, how­ever, was to al­low the UK as a whole (or, now, in large part) to make its own rules, to drive its own reg­u­la­tions for good or ill. So we can­not have a sit­u­a­tion where a lower level of reg­u­la­tions on goods or ser­vices in one part is al­lowed to give a com­pet­i­tive ad­van­tage in trade with the other.

Imag­ine those chlo­ri­nated Amer­i­can chick­ens — if the UK al­lows them in and the EU re­fuses, then there must be cus­toms and reg­u­la­tory checks be­tween Bri­tain and North­ern Ire­land to pre­vent these foul fowl seep­ing into the EU sup­ply chain.

But that is both eco­nom­i­cally and con­sti­tu­tion­ally prob­lem­atic. Eco­nom­i­cally, while the North­ern Ire­land traders are re­align­ing south­ward, they will face non­tar­iff bar­ri­ers for their trade with Bri­tain in­creas­ing costs. So there is a short-term hit for North­ern Ire­land busi­ness, whether it’s a hard, soft or scram­bled Brexit. Con­sti­tu­tion­ally, a ma­jor anom­aly is that one part of a sin­gle state is treated in a pref­er­en­tial way. It is un­der­stand­able that the union­ists would balk at these prob­lems. That they would have the best of both worlds — eco­nom­i­cally part of the EU and con­sti­tu­tion­ally part of the UK — may not be enough to over­come these con­cerns. But they should. A hard bor­der would, without doubt, be a calamity for the North­ern Ire­land econ­omy.

That the DUP would wish to foist this on their con­stituents and on the ma­jor­ity of the pop­u­la­tion of North­ern Ire­land who voted to re­main in the EU is, to most peo­ple, quite be­wil­der­ing. A poorer North­ern Ire­land, which will be the case from a hard Brexit, can only bring the day of a con­sti­tu­tion­ally united Ire­land closer. In re­ject­ing this mod­est pro­posal the DUP has sac­ri­ficed longterm con­sti­tu­tional and eco­nomic or­der on the dark al­tar of po­lit­i­cal ex­pe­di­ency, and not for the first time. Brian Lucey is pro­fes­sor of Fi­nance at Trin­ity Col­lege Dublin.

Great ex­pec­ta­tions may weigh on Eng­land ‘Ne­go­ti­a­tion not over’ on Brexit di­vorce bill

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