UK cabinet finally wakes up on Brexit

Irish firms engaged in the trade of goods have reason to feel some relief with the latest Brexit negotiations, while recognising that huge potential pitfalls still remain, says Kyran Fitzgerald.

It would appear that Theresa May has finally managed to face down her critics within the British cabinet.

The UK government’s proposals are riddled with ambiguity. They will stick in the throat of officials in Brussels committed to the core freedoms of the EU — that said, they represent a very significant step forward.

At its heart is a commitment on the part of Britain to abide by the EU rule book when it comes to customs arrangements governing the movement of goods.

Irish firms engaged in trade in goods have reason to feel some relief while recognising that there are huge potential pitfalls. We are still at the very early stage of a negotiating process in which major bumps will be encountered on the road, with time running out.

The view is that future arrangements will have to be put in place before Christmas to allow for a proper implementation process ahead of the formal departure date next March.

The EU’s lead negotiator bristles with impatience. Stationmaster Barnier’s whistle is in his mouth. He is glancing frequently at his watch. The doors of the train are banging shut, one by one.

The Brexit talks cannot be viewed in isolation. US president Donald Trump has begun applying tariffs to a much wider range of overseas goods and both China and the EU have begun to

respond. This must surely be concentrating minds. The chaotic situation in world trade does not accord with the Brexiteer vision of a brave new world of global trade. But hardliners in Brussels too are being given reason to pause and think carefully.

Warnings from UK business leaders about the threat to investment and by extension to jobs have been angrily rejected by some Tory MPs and notably by UK foreign secretary Boris Johnston, yet they clearly have impacted on the thinking of those in the centre ground of the Tory party.

The Institute of Directors in London has just published a survey of 800 business leaders. Avoiding customs related disruption is their key priority.

Warnings from the boss of Jaguar have had particular resonance given that company’s central importance to the wider economy of the British midlands.

Closer to home, the ESRI on Friday hosted a seminar which included the publication of some very interesting findings on the exposure of Irish business to a hard Brexit and on the ongoing response from within Government to the challenges presented.

Martina Lawless, ESRI associate professor, has highlighted the degree to which Irish firms could be exposed to a surge in the price, or reduction in the availability of key UK imported inputs.

Whereas just under 14% of total exports went to the UK in the survey period, almost 26% of Irish imports came from Britain. Many of these imports are of intermediate goods used in processing. Irish owned firms are particularly exposed with over half (53%) of their total imports coming from Britain whether in capital goods or food inputs.

Prof Lawless has broken these imports down as follows: 57% — intermediate products; 5% — capital goods/machines; Food — 32%; 7% — final consumer products.

She stresses the link between imports and exports. Every 10% rise in imports generates a rise in exports of close

to 5%.

In event of a ‘hard’ Brexit and a shift to World Trade Organisation rules, it is Irish-owned firms rather than overseas based multinationals who would be the most affected.

Irish firms trade much more in food products the average tariff rate on which is 18% compared to just 3% on capital goods, 4% on non food consumer goods and 3% on capital goods.

Clearly, a failure to negotiate a deal that preserves current arrangements to a significant degree will have a significant impact on the supply chain and ultimately on the viability of many Irish exporters.

A group of experts gathered to discuss the findings. Panel members included Prof Lawless, Fergal O’Brien of Ibec, and Peter Rigney of Congress along with senior Enterprise Ireland official, Jonathan McMillan, and William

Beausang, assistant secretary at the Department of Education.

The world of business was represented by Paul MacAree, a senior executive with the translations company Simultrans, and Ian McDevitt, head of Innovation at Ventac, a Wicklow-based engineering firm.

In Mr Rigney’s view, the ‘Anglosphere’ will become less important following the UK’s departure. The teaching of languages in Ireland will have to be “repurposed”. Employees should be implanted in overseas companies and immersed in foreign cultures.

The ICTU executive also questioned our reliance on university teaching arguing that such bias results in a

“critical waste of manpower”. Paul McAvee concurred, pointing to a “shocking lack of cultural awareness and interest in going into EU markets” on the part of many Irish firms.

Irish firms rely too much on distributors as opposed to going direct to the customer, he added.

Philip Kelly, assistant secretary at the Department of Business, Enterprise and Innovation, warned of the risk of ignoring the particular concerns of the services sector in any negotiations. Such caution is of added relevance given that Theresa May has proposed a different regime for trade in services to that in goods.

As Mr Kelly noted, free trade agreements do not cater well for the services sector where the level of data gathered is far less than in the case of goods.

Once concern is that Brexit could impact on the free flow of data of importance to financial and technology companies.

Ibec’s Fergal O’Brien warned that we could be faced with severe impacts on the cost of doing business even in the event that a deal is agreed.

CEO of the ESRI, Prof Alan Barrett, questioned whether some firms would survive such a tricky transition, arguing for changes in state aid rules so as to ensure that companies could be kept alive during a transitional period of say, five years.

It is also clear that the challenges vary from sector to sector. In IT, the concerns relate to possible restrictions on the free movement of people whereas in food, the concentration is on the impact of delay on perishable goods and the need to invest — perhaps heavily —in warehouse capacity.

Department of Business researcher Joseph Cummins, produced some key findings from interviews with almost 170 client firms.

A key finding is that it is medium sized firms which are most concerned about the likely impact of Brexit. Smaller firms tend to be more locally based, larger firms more diversified.

Pinch points vary. Financial firms rely in particular on the City of London. Pharmaceuticals fret about the impact of divergence in regulatory standards.

One interesting outcome is that the whole business of preparing for Brexit has forced firms, officials and policymakers to think in a more innovative way aqbout future plans.

The old script has been torn up. People are being forced to think creatively. Old assumptions no long hold. Like it or not, there will be no return to the world that existed prior to June 23, 2016.


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