Business

Brexit: What would no deal mean for Ireland?

Cows near a disused border post in Ireland Image copyright Getty Images

The Irish government has been clear that a no-deal Brexit would cause significant damage.

The first major study, commissioned early in 2018, estimated that no deal would reduce growth by 7% over the next 10 years, compared with a scenario where the UK stayed in the EU.

In June, Finance Minister Paschal Donohoe said a "disorderly Brexit" could cost 55,000 Irish jobs within two years and a further 30,000 over the longer term.

His summer economic statement assessed that no deal would cause "severe disruption to Irish-UK bilateral trade", presenting a "clear and present danger to domestic living standards".

He did not forecast a recession but suggested that growth would be close to zero in 2020 if there were no deal.

The Irish Fiscal Advisory Council (similar to the UK's Office for Budget Responsibility) was perhaps even gloomier in its most recent report.

It concluded that no deal "poses profound risks" to Ireland's public finances and that the government had limited scope to respond.

The council warned that the capacity to spend more to mitigate the impact of no deal was "limited by the fact that the government debt burden remains high".

Why would Ireland be damaged?

The UK and Ireland are major trading partners and a no-deal Brexit would disrupt that trade through the imposition of tariffs (taxes on imports) and other barriers.

It is important to keep this trade relationship in perspective.

The UK is not Ireland's biggest export market and has not been for years.

The US is actually the largest external market, taking 27% of all goods exported in 2017.

But the UK is number two - in 2017 12% of Ireland's goods exports, worth 16.5bn euros (£14.8bn), were sold to the UK.

Those exports are concentrated in particular sectors - about a fifth of Irish food and agriculture exports go to the UK.

Red-meat producers are particularly exposed -about 50% of Ireland's beef exports by value are sold in the UK.

These food exports would face tariffs and increased competition in the UK market in the event of no deal.

Image copyright Getty Images

The former chief economist of the Irish Farmers Association, Con Lucey, says it would mean a major reduction in Ireland's role in the UK beef market as "prices would be too low and too volatile".

Damage to the UK trading relationship would also be concentrated among smaller firms.

Research by Ireland's Central Statistics Office (CSO) suggests that among large businesses that export, only 1% are solely dependent on the UK market, but for small businesses it is 26%, and among micro-business exporters it is 68%.

So in a no-deal Brexit it is likely that most of the damage would be to Irish-owned small- and medium-sized exporters, particularly in rural areas.

Imports also matter: Ireland imported 21bn euros of goods from the UK in 2017, more than from any other country.

In a no-deal scenario, some of these goods would also face tariffs that could increase prices for Irish consumers.

Martina Lawless, a trade economist at the Economic and Social Research Institute in Dublin, says there's "a serious risk of an immediate impact".

"Trade barriers could pretty much immediately result in increased consumer prices of 2%-to-3%."

What about the "land bridge"?

Exports don't tell the whole story of the UK's importance to Irish trade.

Every year around 18bn euros-worth of Irish goods pass through the UK on the way to other EU markets.

This route, via the UK road and ports network, is known as the land bridge.

It's particularly important for high-value or time-sensitive goods because it offers significantly faster transit times than alternative sea routes

A study by the Irish Maritime Development Office suggests the land-bridge route from Dublin to Calais takes approximately 20 hours, while direct ferry services from Ireland to the continental EU can take twice as long.

In recent weeks the UK's Brexit Secretary, Stephen Barclay, has been making the point that if no deal causes disruption at English Channel ports, that will have an impact on Irish traders who also use that route.

Ireland will be seeking priority for its lorries as they arrive in the EU but it's difficult to see how they would avoid delays on the English side.

More direct ferry capacity between Ireland and the EU has been developed, but that may not be much help to traders shipping the most time-sensitive goods.

Image copyright Getty Images
Image caption German Chancellor Angela Merkel welcomed Ireland's president to Berlin this month

What are Ireland's contingency plans?

The Irish government has been preparing for a long time.

It has been running information roadshows for businesses, often led by cabinet ministers, since September 2018.

Grants of up to 5,000 euros have been made available for businesses to pay for professional advice and a 300m-euro Brexit loan scheme has been created.

There is also the prospect of substantial EU support for Ireland to mitigate no-deal impacts: the Times has suggested a "multibillion-euro" aid package could be made available.

The Irish government has set up a 100m-euro fund to help beef farmers who experience difficulties as a result of Brexit.

No-deal Brexit legislation was passed in February, creating continuity in areas such as pensions and benefits, cross-border rail services and the all-island single electricity market.

An additional 400 customs officers were due to be trained and in place by the end of March, with a further 200 in place by the end of this year.

But in one key regard the Irish government has not been clear about its preparations.

In its latest contingency plan it has warned that no deal would mean cross-border trade with Northern Ireland could not be as frictionless as it is today.

It concedes that new checks will be "necessary to preserve Ireland's full participation in the Single Market and Customs Union".

But it does not elaborate on where and how such checks would take place.

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