Jim Power: One wonders why the UK ever joined the EC in the first place

The UK relationship with the EU has become incredibly acrimonious and the wounds may never be healed, writes Jim Power

Sun, 13 Dec, 2020 - 12:15

I recently got slagged off by a faceless individual on social media over describing the democratic vote of the UK electorate on 23rd June 2016 as ‘bizarre in the extreme’.

Despite the response, I stand by that assertion. I cannot understand the logic of walking away from completely free access to a single European market of 448 million people, and then try to negotiate trade deals with countries thousands of miles away.

I really do believe the decision of the UK electorate and the subsequent behaviour of the UK political elite is bizarre in the extreme. It is basically driven by ideological zealotry that is hard to comprehend. The British distrust of Europe has a very long history. In 1930, Churchill said that ‘we are with Europe, but not of it. We are linked, but not combined’. One wonders why the UK ever joined the EC in the first place.

For Ireland, from 1st January we will, for the first time in our history, be a member of the EU without our nearest neighbour. This will be challenging, but certainly not the end of the world for the economy.

An important motivation behind Ireland’s EC membership back in 1973 was to reduce the traditionally very strong economic, currency, and political dependence on the UK, and diversify Ireland’s international trading and political relationships. Over the succeeding years of membership, these objectives were gradually achieved, and Ireland steadily expanded its relationship with continental European countries, and indeed the United States. This process was given a significant impetus when Ireland became a founding member of the Single European Currency in 1999, without the UK.

In the first nine months of this year, the UK accounted for just 8.5 per cent of Ireland’s total merchandise exports. That is relatively insignificant on the face of it - the export exposure to the EU-27 is almost 40 per cent. However, and this is a big however, the trading relationship with the UK for certain segments of the Irish economy is still very substantial.

For the agri-food sector, the UK still remains a very important trading partner. There are no surprises here, as geography and culture are the most important drivers of certain trade, particularly in food and beverages. From a cultural and taste perspective, the Irish agri-food sector always found the UK a relatively straightforward market, and the UK agri-food sector always found Ireland to be a relatively straightforward market to sell into.

In the first nine months of this year, 37 per cent of Ireland’s agri-food exports went to the UK. This disproportionate export exposure demonstrates just how vulnerable this sector would be to the imposition of tariffs, or any other restrictions on trade. However, we also buy a lot of food from the UK. It is currently the origin of 45.9 per cent of Ireland’s total imports of food and live animals. This demonstrates the significance of Ireland for the UK agri-food sector, but it also demonstrates the vulnerability of Ireland’s food supply chain to the imposition of tariffs, or any other restrictions on trade.

There are justifiable concerns that many UK food items that populate Ireland’s supermarket shelves could be conspicuous be their absence after 1st January 2021 and be considerably more expensive. Hard to see any winners on either side.

Regardless of what happens at this stage, the UK relationship with the EU has become incredibly acrimonious and the wounds may never be healed. Unfortunately, Ireland is caught in the crossfire and this presents considerable challenges. However, we have no choice and will have to adjust, as we will.

Ireland can stand on its own two feet and will just have to build up alternative markets for our food exports, and change the sourcing of our imports. We can also exploit the opportunity presented by import substitution, and by the fact that Ireland is now the only native English-speaking country in the EU, except for tiny Malta.

In order to cushion the sectoral impact of Brexit, there will be funding available from domestic sources, circa €3.4 billion; and from the EU Brexit Adjustment Reserve Fund, circa €5 billion in total. Of course, much of this financial aid will be once-off, whereas the Brexit event is more long-term and structural. Ireland will have to adjust; will have to grab the opportunity, will have to deal with the problem and most importantly not wallow in self-pity.