Brexit ‘would slash Irish-UK trade by 20%’

Bilateral trade flows between Ireland and Britain could fall by a minimum of 20% over the long-term, if the latter were to exit the EU, a new report has forecast.

In what it calls a ‘scoping’ exercise, economic think-tank the ESRI has penned a report on the economic consequences for Ireland of a British exit resulting from the British government’s planned referendum on EU membership.

It gives the 20% trade loss figure as an average, stressing the impact could be higher and would differ depending on the sector.

The ESRI hasn’t offered an actual monetary value of lost trade.

However, earlier this year, the Institute of International and Economic Affairs suggested a British exit scenario could wipe €6bn off the annual value of Irish exports, with small firms suffering most.

The new ESRI report cites trade, foreign direct investment and energy as the main areas affected, but any loss of business between Ireland and its second largest trading partner wouldn’t happen overnight, but over the medium-to-long-term.

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Ultimately, the ESRI sees an exit as a worst-case scenario. “It is more likely some other solution will be found, that would have less impact (for Ireland),” said report co-author Edgar Morgenroth.

But, if it does happen, the report suggested the UK will be worse off for it, while Ireland will bear the biggest impact, in terms of neighbouring states.

“The evidence provided by this analysis suggests that Ireland’s interests will be best served by the UK remaining within the EU. Ireland benefits from an economically strong UK and the UK will benefit from continued membership of the EU,” the report stated.

“The UK is more important as a source of imports to Ireland than it is as a destination for Irish exports, and any barriers to trade would increase prices of UK imports to Ireland,” it said.

Britain remaining an EU member would also strengthen Ireland’s chances of becoming part of a pan-EU electricity market, the report suggests, saying Ireland might need expensive electricity interconnection with the EU if the UK left.

“If a British exit occurs, Ireland would face a dilemma, expensive direct connection to the EU or further integration in the GB market,” it said, adding a non-EU Britain raising its carbon price could raise the price of electricity in Ireland.

Conversely, a lowering of the UK carbon price could cut prices, which would have implications for Irish producers.

The ESRI also pours cold water on the idea that a British exit would see higher levels of foreign direct investment flow into Ireland.

On account that many of the multinationals in Britain, such as carmakers, are in sectors unlikely to locate in Ireland; and that Ireland is a small economy already punching above its weight in inward investment terms, it said any additional attractiveness of Ireland to new foreign direct investment projects is likely to be small.

“The analysis suggests larger EU member states such as Germany, France, Italy, Spain and Poland would benefit more from the redirection of new foreign direct investment away from the UK.”

Also touching on migration issues, the report suggests that a British exit could result in restrictions to the free movement of people between Ireland and the UK; resulting in implications for the Irish labour market.