Prime Minister Boris Johnson’s latest gambit to prevent any close scrutiny of his Brexit strategy by the British parliament, by closing down the shop for five weeks, should not blind either the EU or Irish negotiators to the enormity of trade disruption that will arise from a hard exit of the UK at the end of October.
What is at stake is €500bn in two-way trade in goods alone between the EU and the UK and a further €326bn in two-way trade on services. Disrupting this level of trade has the potential to push the UK and Ireland into recession and to bring down the EU too.
The recent slowdown in Germany is a stark reminder of the effect of trade disruption on even the strongest economies. The slowdown was brought about by the collapse in German exports in the three months to June, which is weighing the eurozone’s largest economy to push it to the brink of recession.
It just shows the fragility of the market right now. The consumer sentiment indicator for Germany shows a reading that although unchanged from the previous month remains at a 28-month low. The gauge measuring economic expectations also fell.
Concerns over the global economic downturn, the ongoing trade dispute with the US, and the prospect of a no-deal Brexit are all seen as increasing the risks of a recession in Germany. If a fall in exports is a serious problem for a country like Germany, where exports represent a very significant 47% of GDP, then it is an ominous signal for Ireland’s economy which is three times more dependent on exports.
This has implications for traders, who have been attempting to shift more of their exports away from the UK and into the eurozone. Understanding the complexity of the trade relationships linking the UK, not alone to Ireland but to the rest of the EU, is the key to a breakthrough in delivering a sustainable new deal with the UK, before it inadvertently falls out of the EU.
Boston Scientific, which has major manufacturing facilities in Ireland, gives us a valuable insight into the issue. It supplies heart stents from its Galway facility to the UK’s National Health Service and pacemakers from its Clonmel facility. But crucially, the products are first shipped to the Boston Scientific European distribution centre in Belgium, and then on to the UK.
In Ireland the shipment is recorded as an export to Belgium and the final distribution to the UK is recorded as an export from Belgium. Hence, any shift in trade regulations after Brexit will affect Boston Scientific’s employment in Ireland and its large range of Irish sub-suppliers, to a greater extent than the bald trade statistics might suggest.
As negotiations with the UK are now down to the wire, a softer tone from Tánaiste Simon Coveney and chief EU negotiator Michel Barnier would be useful in trying to get Mr Johnson and his Brexit team to a move to a more realistic assessment of the potential economic damage.
The key obstacle to a breakthrough is clearly the backstop covering the North, an economic region in trading terms that is miniscule. In the context of the extensive damage a crash out by the UK could do to most of the EU member states, particularly to that all of Ireland, a fresh solution needs to be put on the table. The time for sitting on established positions and repeating mantras is over.
The “trusted trader” principle is well established in industry and among customs authorities in the EU and internationally and could provide the core principles for an alternative to the backstop.
The trusted trader allows for distinct regulatory systems and customs regimes, does not infringe the integrity of the EU’s single market or the status of the North and does not tie the UK to the EU customs union, thus allowing the UK to pursue its own trade policy.
The common travel area arrangement guaranteeing free travel rights and privileges of Irish and UK citizens which began in 1922, predates EU membership. It is recognised under the Treaty of Amsterdam and all sides have agreed will not be affected by Brexit.