By the beginning of last year the potential economic effects for the Republic (and the UK) of different flavours of Brexit were well understood. By contrast, the uncertainties about Brexit over the past year have been about the politics. Now, as political chaos reigns in the UK, the possibility of a disruptive exit is increasing, with all of its negative economic implications.
The “backstop” provision of the draft agreement which was rejected by the UK parliament this week was always a political measure designed to protect the interests of the British and Irish citizens of Northern Ireland.
It was a UK proposal, not one tabled by Ireland or the EU, and reflected a belated recognition that Northern Ireland remains part of the UK, and that the welfare of its citizens should be a concern for the UK government. It was not in any way designed to protect the Irish economy.
As the end March deadline draws near, in the event of a disorderly exit of the UK from the EU it may be that the critical issues involving customs clearance for goods going to and from the UK would be more easily handled on the Border with Northern Ireland than in Dublin port: there is much more space along the Border for parking lorries that need to be checked, with much less chance of long queues.
However, it is the symbolic and political implications for Northern Ireland of such a border that have always been the problem.
As the vast bulk of Irish trade flows are with Britain rather than with Northern Ireland, moving the customs border to the Irish Sea would actually benefit very little of our trade. Much of the commentary in the UK still fails to understand our motivation in seeking to avoid a hard border on this island – the welfare of those living in the North, and the maintenance of peace on the island.
Disruption
Brexit will have serious repercussions for our exports to the UK, particularly of food. There will also be major disruption to imports both direct and those passing through the UK. These negative effects will be offset to a limited extent by some relocation of business to Ireland from the UK. However, the timing of these different effects will be rather different, and will also depend on the final form that Brexit takes.
With a hard Brexit looking increasingly likely, serious dislocation of trade would take place from the beginning, although some of the dislocation might eventually disappear when the administrative system settles down. Thus the negative effects of Brexit would be front-loaded, and a chaotic exit could affect our economy very seriously in the second quarter of this year.
One of the concerns about a bad-tempered Brexit is that some of the potential ways of smoothing the economic consequences may be ignored. While Ireland has a very strong incentive to put in place efficient customs-clearance procedures wherever the effective border lies with the UK, there may be difficulties persuading the UK to also implement efficient procedures on its east-facing border.
Much of Ireland’s trade with the rest of the EU travels across Britain. An efficient approach to handling this trade would involve sealing the lorries transiting the UK before entry to the UK so that they bypass customs there. This would slightly shorten the border queues for UK-bound lorries arriving on the ferries – a benefit for the UK – while greatly facilitating Irish trade.
However, with UK-bound lorries potentially facing delays of days to clear customs, there could be a very strong negative reaction to letting Irish-bound lorries escape the chaos. This could make a rational and efficient solution very difficult for the UK authorities.
Heavy duties
In the case of a no-deal Brexit, Irish food exports, especially of meat, will be subject to heavy duties. And the full effects will take some time to play out.
Initially, the UK will not be able to source alternative cheap supplies of meat and dairy products and establish new supply chains. So for an initial period Irish food exports could remain substantial.
Market forces will determine who effectively carries the cost of any tariffs. Initially that may largely fall on UK consumers as they pay higher prices for food. However, as alternative supplies are sourced, and the price of UK food falls as a result, Irish farmers would effectively bear the cost of duties in the form of lower prices for their produce.
Brexit is now a big mess. Here’s hoping cooler heads ultimately prevail in Westminster for the sake of both our islands.
