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09 June 2016

Brexit – Customs, Border Controls and Irish Exporters

Posted By: AIB Business
brexit-customs-borders-245x245

A leave vote in the UK referendum would affect Irish exporters more than anyone else across the EU, writes Simon McKeever, Chief Executive of Irish Exporters Association.

Since the 1920s, Ireland and the UK have enjoyed a common travel area. The land border between the Republic and Northern Ireland is estimated to be crossed 30,000 times a day. Both countries are also part of the EU Customs Union, meaning there are no customs controls on the movement of goods.

Fifteen per cent of all Irish goods are exported to the UK, and it is a key export market for our indigenous companies, in particular for our food and drinks industry, which accounted for 41% of all Irish Agri-food and drink exports in 2015.

If the UK votes to leave, the main impact on indigenous Irish exporters in the medium- to long-term, could be the potential re-introduction of customs procedures, borders and tariffs. The extent of these cannot be reliably predicted as they will ultimately be decided after the UK negotiates its trade deal with the EU. The reality is that for the first two years there would be no changes at all to the status quo.

One possible outcome would be that the UK negotiates a deal whereby it maintains its access to the Single Market through the European Economic Area (EEA), like Norway, or through European Free Trade Association (EFTA), like Switzerland. Both of these trade deals would provide access to free movement of manufactured goods but tariffs may apply to certain agricultural or fisheries products (being outside the Common Agricultural Policy). Extra controls and administrative overheads may exist as various rules apply given they are both outside of the EU Customs Union. As an EEA member, however, the free movement of people is applicable and EFTA allows for the free movement of workers. Both agreements also require contribution to the EU budget and the need to abide by certain EU legislation, all of which would go against the main issues for Brexit campaigners –migration and sovereignty.

Worst case scenario, if a final trade agreement is not settled upon, the UK would have to trade with the EU on Most Favoured Nation (MFN) World Trade Organisation (WTO) terms. This would involve tariffs in both directions. Under the WTO’s General Agreement on Tariffs and Trade, the maximum tariff the EU can impose on goods imported into the EU from a WTO member will be its MFN rate. The UK could impose equivalent tariffs on imports from the EU. The WTO provides estimated average tariff rates and, according to World Tariff Profiles 2015, the MFN product group averages range from 42.1% on dairy products to 0% on Cotton. A 42.1% tariff on dairy products would be devastating to Ireland’s Agri sector.

Given our physical location, Ireland would be the country that would be most exposed to the negative implications of a Brexit. The UK is not only a key market for Irish exports but it is a thoroughfare for Irish goods exports to get to mainland Europe. CSO figures show that Irish exports totalled €111 billion in 2015; 53% (€59 billion) of this was to the EU. 40% of total exports are headed to mainland Europe, much of which are being transported via the UK, and a Brexit could result in disruption, delays and increased transport costs for Irish exporters. If physical borders are imposed, they would slow down the flow of goods between Ireland and mainland Europe. This could seriously impact the food and drinks industry, particularly dairy, meat and prepared foods, which need to get to market under strict timelines. Furthermore, it is not just the market for finished goods that could be disrupted; a potential Brexit could play havoc with our international supply chain, with the UK and Ireland heavily linked in both directions in this regard. 

The IEA recently conducted a survey with its members, the Quarterly Export Eye Q1 2016, to identify the key trends that affect the Irish export industry. It found that the impending referendum in the UK is having a serious impact on exporters and companies that provide services to them, such as transport logistics. 73% of our members are exporting to Great Britain and 35% to Northern Ireland. 63% of respondents are transacting in Sterling and 50% have said that the drop in the Pound’s value since December has negatively impacted their financial performance in the first quarter of 2016; and yet only 27% said that they had plans to hedge this currency risk.

Ireland is currently the fastest growing economy in the EU. Exports, particularly to the UK and the US have been the driving force of this growth, and this needs to be protected. Brexit could have a huge impact on our export industry in the medium- to long-term, with possible delays to trade as a result of customs checking and, if tariffs are imposed between Ireland and the UK, this could negatively impact our cost competitiveness. The impending referendum is already having an impact, with total Irish exports down 2% in March – a stark contrast to the 20% increase in 2015 from the previous year. Irish exports to the UK in March were down 8%, which suggests that concerns about the upcoming vote is having an impact on both investment and consumer confidence in the UK.

It is vitally important to Ireland that the UK remains part of the EU. Let’s hope that the right decision for exporters and business owners is made when the polls open on 23rd June.

 

Written by: Simon McKeever, Chief Executive, Irish Exporters Association – the independent representative body for all Irish exporters

 

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