The coming year will be a nervous one for the Irish farm and food industries, writes Stephen Cadogan.
By the summer of 2018, our exporters will want to know where they stand, as they begin to enter into contracts with UK supermarkets.
They must agree terms for the 37% of Irish food and drink exports destined for the UK, valued at about €4.13 billion (in 2016).
Right now, they have no idea what kind of trading scenario they face.
The possibility of the UK and the EU reverting in 2019 to World Trade Organisation (WTO) terms is not negligible, says Alan Matthews, Professor Emeritus of European Agricultural Policy at Trinity College, Dublin.
He says the consequences of such immediate disruption to trading occurring overnight after Brexit Day are so immense that it seems unimaginable that political leaders would allow this to happen.
Nevertheless, falling over the Brexit “cliff-edge” is a possibility, because the two sides are so far from agreeing long-term trade arrangements and transitional periods.
That opens up the WTO scenario of customs clearance checks at borders, loss of automatic access to each other’s markets for a host of goods and service providers, and tariffs on trade between the two sides.
Ireland stands out in terms of tariff exposure on the UK’s imports from the EU.
We provide 5% of the UK’s imports, but we would be charged close to 20% of the total EU tariff in a WTO scenario.
Tariffs imposed on imports from Denmark and Ireland would be over 10% (with the maximum values potentially as high as 18% in the case of Ireland), mainly because a greater proportion of Danish and Irish exports to the UK consist of agri-food products, on which tariffs are higher than the average for all goods.
Germany, on the other hand, would be liable for just under 18% of the tariff owed to the UK, despite accounting for over 28% of the trade flows.
These estimates come from an Irish ESRI study, but are likely to be underestimates of the effects of re-introducing tariffs on EU-UK trading, says Alan Matthews.
That situation leaves the EU at a disadvantage in negotiating its “divorce” with the UK.
The UK side has the advantage of being single-minded, whereas the EU side is split 27 ways by the different agendas of its member states.
And looking at the consequences of trading under WTO rules shows clearly the varying effect of the “divorce” on the 27 member states.
UK negotiators can capitalise on that, knowing they can push hard, after a recent opinion poll of their citizens showed that 61% would be content to see “significant damage” to the UK economy as the price for leaving the EU.
The UK can hold out for the hard Brexit that apparently suits them, with the food and farming industries of countries like Denmark and Ireland among the bargaining chips on the table.
Experts studying the WTO scenario say the food and clothing sectors would be hardest hit. Results of the Irish ESRI study indicate that trade between the UK and the EU in clothes would fall by 99%.
The next 10 most affected sectors are all food-based, with falls of 68% for the dairy trade, eggs and honey sector and up to 95% for sugar and confectionery.
Into this scenario comes the call by Government Chief Whip, Joe McHugh, that the European Union should help Ireland financially after Brexit, in thanks for the Irish bearing the brunt of European austerity during the financial crisis, thus helping to save the euro currency when it was “on the brink”.
If the EU went further, and committed now to making good any losses suffered by member states in the event of a WTO scenario resulting from Brexit, it would ease fears among member states, and would give the EU a more advantageous position in negotiating with the UK.
It is one way of defusing the Brexit “cliff-edge” which UK negotiators may be depending on in order to secure a “hard Brexit” on their terms.
And without a “hard Brexit”, the commitment would end up at no cost to the EU.