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16 May 2016

Brexit – A UK Decision That Would Impact Ireland Most of All

Posted By: AIB Business

The possibility of the UK leaving the EU is very real according to opinion polls and, if it occurs, the impact on Ireland will be possibly greater than it will be on the UK itself, writes Phelim O’Neill from the Irish Farmers Journal.

In current referenda, as was the case in past Irish EU treaty votes, it often isn’t the merit or otherwise of the issue being voted on but rather the chance to express a view about the Government and Prime Minister. In the case of the UK EU referendum, matters well outside agriculture and the general economy are likely to shape the electorate’s decision. There is a perception held by many in the UK that EU membership has undermined sovereignty and contributed to illegal immigration and terror threat. Add to this the falling popularity of Prime Minister David Cameron, and we can see how the chance of the UK leaving the EU is very real indeed. 

If the decision is taken to leave, then according to the founding legislation of the EU, the Treaty of Rome, there will be a two-year negotiation period to facilitate withdrawal. If this happens, there are a number of models that could be agreed between the UK and the EU on their future trading relationship. These include:

  1. Being part of the European Economic Area (EEA) or the “Norwegian model”
    This model enables a non-EU member to avail of all the free trade arrangements between EU member states without membership. It operates in Norway, who have twice voted to reject the option of joining the EU as a full member. While this may initially look attractive, in practice it means accepting all EU legislation automatically into domestic law. This means that all the restraints of EU membership remain in place without the opportunity to shape or influence policy as a member. This is not an attractive option in UK Government circles.

  2. Joining the European Free Trade Association (EFTA) – “Swiss model”
    This is similar to the EEA in practice but involves transcribing EU law into domestic law by way of bilateral treaties. Switzerland currently has this arrangement but it is thought unlikely that the EU would extend this arrangement to the UK as they are not particularly happy with the time it takes to update Swiss legislation. In any case, it would again involve the UK accepting EU legislation into domestic law without the opportunity to shape or influence it.

  3. Customs Union with the EU – “Turkish model”
    This is a common trade policy which means that outside the EU the UK could still be part of the customs union as is the case with Turkey. Trade and goods can move freely within the customs union area and, while there would be less regulatory imposition, this would involve accepting International trade agreements.

  4. Deep and Comprehensive Free Trade Agreement (DCFTA)
    Probably the preferred UK option, which would lower or even eliminate tariff buyers and give more regulatory freedom than the other arrangements. However, it would be necessary to have post-exit UK standards recognised and accepted as equivalent to the EU in order to trade. For example, in an exit situation the UK couldn’t independently decide it would allow the use of hormones in beef production and trade that product into the EU.

  5. Most Favoured Nation (MFN) – WTO option
    This is essentially trading on a tariff paid basis and is the most unlikely option unless there is a serious breakdown in relationships after a British exit. It would be the most costly option both for Britain and the remaining EU27.

Many are of the view that some arrangement would be arrived at that would allow tariff-free trade of agri food to continue. However, in this most favourable scenario, there would still be an administrative cost, estimated by Professor Alan Matthews of Trinity College as being around 5%. Return of some sort of border controls would be expected, including with Northern Ireland, to ensure compliance with EU legislation in the remaining common market area of the EU 27.

Threat to Irish Agriculture

A decision by the UK to leave the EU is probably the greatest current threat to Irish agriculture. Ireland’s original decision to join the then EEC was delayed until the UK was in a position to do so in 1973, having been denied a decade earlier by the famous French “non” veto. At that time, Ireland having just put in place a Free Trade Agreement with the UK, was conscious that this was the primary market for Irish exports, agriculture in particular. Almost half a century on, Ireland has reduced its dependency on the UK as an export destination but it still remains our largest market by a distance and much more important than our home domestic market. Well over half our beef goes to the UK, as do a third of our dairy exports. It is also the main market for our sheep and pork industries, and anything that creates a barrier to trade will damage these sectors in particular.

With Ireland’s continued membership of the EU it would be impossible to put in place a bilateral trade agreement with the UK (like before joining the EEC) because the EU negotiates external treaties as a block. A further, almost unthinkable option for Ireland in the event of a UK withdrawal would be to also withdraw from the EU as our trade with them is greater than the rest of the EU combined. That would also likely involve either adopting sterling as a currency or an Irish pound as continued membership of the Euro would be impractical. Such an unravelling of history would have a certain economic logic in the event of a UK withdrawal, but would be extremely unpalatable at a political level a century after Ireland established its independence.

Let us hope that the UK chooses to remain in the EU and avoid the unattractive alternative scenarios, none of which would be for the betterment of Irish agriculture.


Written by: Phelim O’Neill, Market Intelligence Specialist, Irish Farmers Journal

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