The Brexit roadshow rolls on and last week’s commotion in the House of Commons shows just how difficult it is for businesses to cope with the uncertainty it throws up.
When a political system is as broken as the UK’s system is right now, the only sensible response from business is to hope for the best and plan for the worst.
Last week we saw many examples of the mess the UK government has got itself into. It was capped by the Speaker of the House pulling the rug from under the government’s attempt to put the withdrawal agreement to parliament for a third time.
After a shambolic week, British Prime Minister Theresa May thought she had found a way to pressure Tory Brexiteers and induce the DUP to accept the agreement or risk losing Brexit. It was a last shot to extricate herself from the corner she has painted herself into with each red line she drew to get through successive difficult meetings.
While political observers now reckon a no-deal Brexit is less likely than several weeks ago, anyone looking for consistency and logic in all of this has long given up.
For example, the UK government insists it is undemocratic for the electorate to vote a second time on an issue that was decided by 52% of the voters. However, it sees no contradiction in trying to make parliament vote three times on the same withdrawal agreement, which was first rejected by two-thirds of MPs.
The tariff arrangements in the event of a no-deal Brexit would treat Northern Ireland differently from the rest of the UK. This is despite the crux of the problems with the backstop is that it is currently structured to placate the DUP who wished to avoid a situation where the North would be treated differently to the rest of the UK. The irony seems lost on the DUP and the UK government.
Stepping back from the political mess, there are businesses in Ireland and the UK who need to deal with the fall-out. These businesses cannot discount a no-deal Brexit, even if it seems now that a long extension to Brexit is most likely and the prospect of a second vote is enhanced.
Any kind of Brexit is damaging to the Irish economy, but it has to be remembered that the impact will not be the same for every sector and every region in Ireland.
The Irish agri-food sector, and as a result more rural locations, are most at risk. The UK tariff scheme in the event of a no-deal Brexit will also have a larger negative effect on agri-food than other sectors of the economy. The UK accounts for half of all of Irish beef exports and the UK imports £4.5bn (€5.3bn) of Irish food and live animals each year.
However, while the effect of Brexit may be to reduce the level of Irish economic activity, particularly felt in vulnerable sectors, the Irish economy is dynamic enough and Irish businesses vibrant enough to eventually deal with Brexit setbacks.
Attempts to measure the economic effects of Brexit assume that the structure of trade remains unchanged, but of course economies are not static. In any disruption, there are always opportunities as well as threats. This is without exploring potential loopholes in the treatment of Irish goods imported to the UK through the North.
For example, in relation to agri-food, the UK exports £15bn of food and live animals every year and three-quarters of that goes to the EU, with £4bn to Ireland. The Dutch, French, and Germans will need alternatives to the more expensive, tariffed British food. How quickly can Irish producers replace that produce?
It is probable that the EU will help Irish producers with efforts to meet this new market gap. In addition, Irish food products may now also be more competitive in the domestic market relative to UK imports.
Breaking into new markets is easier said than done, of course, and in the short-term Brexit will have a negative disruptive effect on Irish businesses. But the January trade data released last week shows that total Irish exports to the UK are now less than 10% of our total exports for the first time.
Already, the shift to new markets is happening and the uncertainty with Brexit will speed that up irrespective of the final outcome.
- Dr Declan Jordan is director of the Spatial and Regional Economics Research Centre in Cork University Business School