Brexit 'progress' is not easing exporters' fears

The latest twist in the Brexit saga, promising as it may be politically, does nothing to ease the plight of businesses trading with the UK.

Brexit 'progress' is not easing exporters' fears

The latest twist in the Brexit saga, promising as it may be politically, does nothing to ease the plight of businesses trading with the UK.

The request by British prime minister Theresa May for an extension of the Brexit date to June 30 and the choreographically indirectly-leaked indicator from European Council president Donald Tusk, that a year-long flexible extension should be looked at, sets the scene for a further protraction in negotiations.

More clarity will come from the EU summit on Wednesday, when the heads of the 27 EU member states vote their formal response to Ms May, but the odds are against her staying in power. A fresh British general election is a likely scenario and, with it, further uncertainty for exporting and importing companies who will be forced into protracted scrambling for safe options to protect their business.

Despite the fact that trade with the North is less than 2% of our total export and import revenue, it is destined to continue to be central to the Brexit negotiations. The visit of German chancellor Angela Merkel to Dublin, last week, to get a better handle on the Irish border issue, will no doubt have been promoted by this consideration.

With her long tenure in dealing with EU matters, it is likely that the option of triggering the so-called GATT (General Agreement on Tariffs and Trade) Article 24 of the World Trade Organisation treaty, which introduces the so-called "frontier traffic exception" under the WTO most favoured nation rules, will have crossed her mind.

Under this WTO article, ordinary WTO customs rules "shall not be construed to prevent advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic."

Triggering this article would enable the EU to declare the whole of the North a frontier zone to the EU customs union, thereby removing the need for customs controls – at least on the EU-Irish side.

There remains, of course, the issue of import and export duty and excise tariffs. These could be agreed as zero-rated by the two parties under a UK-EU transition agreement. However, the thornier question of agri-food sanitary certification, quota licenses and certificates of origin with the associated inspections to ensure compliance, remains.

These may be overcome with regulatory alliance agreements, but these may take some time to negotiate and conclude. For the manufacturing industry, complying with the EU rules of origin may be its biggest stumbling block.

When exporting products to third countries with which the EU has a free trade agreement, Irish exporters have enjoyed a preferential tariff rate if the products have enough EU content, according to rules of origin. Post-Brexit, exporters may no longer be able to count on UK-purchased parts used to make the finished product, being considered as EU content.

The manufacturing industry in Ireland relies heavily on a wide range of imports of components from the UK. These components - ranging from fully-assembled motors, coils and switch gear, to nuts and bolts - are integrated into the finished product in Ireland before being exported internationally.

Irish businesses are now re-examining their supply chains for any UK input as "non-originating", to check if they meet the EU preferential origin rules for their manufactured goods. Searching for alternative sources internationally is now a priority for many. It could, however, take years for businesses to re-adjust their manufacturing processes in order to comply with EU rules of origin.

Every exporter – small or large – will have to determine what percentage of their goods originate in the UK according to the complex technical and legal rules.

Managing to keep things going in the face of continuous uncertainty and the prospect of significant and sudden changes in regulatory requirements is a tough task at the best of times and one that Irish business does not relish. Increased export and import taxes could all mean a rise in costs. A fall in sterling's value, on the back of a no-deal Brexit, would double down on exporters' woes.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership

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