Dr. Martina Lawless:

I thank the Chair. That was a really good range of questions. I will come to the last one first, which was about the type of deal it was. It was very much on the hard-Brexit side. We talked about free trade agreements. There are no off-the-shelf free trade agreements. There is a wide continuum of things that can be included. This agreement was very minimalist. It removed tariffs and quotas, which was very positive, but it did very little on common recognition of standards. The EU has a wide range of agreements on mutual recognition of standards with many of its trading partners. These cover areas such as the recognition of veterinary standards and the avoidance of double checks. There was a wide range of recognition elements that could have been in the deal but were not. That is where a lot of the extra costs are now coming from.

In that sense, it was a relatively disappointing deal.

It was also disappointing in how strictly it defined originating products by not allowing inputs from other countries with free trade deals. Canadian wheat going into flour made in the UK is an example of that. A number of recent broad-ranging free trade deals across the world have included inputs from common free trade agreement countries for the purpose of avoiding tariffs. That could have been done in this deal if there had been a closer set of integrations, but it was not. There are a number of elements not included that would have facilitated a great deal more trade. In that sense, and though obviously not anywhere near the worst-case scenario, it was towards the harder end of the Brexit spectrum by not addressing those tariffs.

The ESRI's estimate of the long-term impact is approximately 2.6%. The big question is how much of this long-term forecast will be felt in the first few months and how much will be spread over time, for example, from extra costs as standards diverge. As part of a research programme with the Department of Finance, we undertook some work late last year on Brexit, Covid and the extent to which they overlapped. Many of the initial estimates of Brexit's impact were done against the background of a much stronger economy. We took data on 57 sectors in the economy and examined the extent to which they were exposed to both Brexit and Covid. We found that the two economic shocks hit quite different sectors. There was limited evidence that Brexit would have an impact on top of that of Covid in a particular sector and make matters much worse for it. However, it would broaden the range of sectors that faced increased costs. The two shocks are hitting different parts of the economy and are not really overlapping for individual sectors.

Regarding our estimates about any cost disproportionately hitting SMEs in the context of business and lower income households in the context of consumers, they remain the reasonable forecasts to make, particularly given how the agreement introduced many extra checks on the food sector because of the absence of any sort of recognition of standards. That is the area in which the greatest costs will hit businesses on the export side and consumers on the import side.

In terms of immediate evidence of consumers shifting behaviour, we have not observed anything specific.

Regarding longer term impacts, one of the issues is how much divergence there will be in goods trade. In services trade, I think there will be continuous negotiations and responses by both sides depending on how the situation evolves for different types of service. In particular, data standards will comprise a major issue. It will also depend on the direction of the EU, which may be slightly different now that the UK is not a member state, as Dr. Barrett mentioned, and how the UK engages with the rest of the world, for example, whether it signs a free trade agreement with the US, China or so on. These factors could have significant impacts on how the UK-EU trade arrangement operates in practice. The more globally active the UK becomes, perhaps the more the EU feels the need to protect the common market, for example, if the UK imports goods on which the EU places restrictions. Much of this situation will evolve.

There are other elements, for example, foreign direct investment and migration on the economic side and the question of how politics could evolve.

If the UK puts very strong restrictions on migration, there could be changes in the flows and Ireland could be quite caught up in that.

Dr. Barrett might wish to speak on the protocol.