Are free trade deals really working for Irish exporters?

All EU states registered large increases in exports outside Europe with the exception of Ireland and Cyprus
Are free trade deals really working for Irish exporters?

The opening up the Irish and EU markets to competition from the foreign companies associated with the free trade agreements can create problems for some sectors. Picture: David Keane.

The rapid spread of the Delta variant has forced some countries to reverse plans to reopen their economies, denting the hopes of Irish exporters for continued expansion. 

In particular, falling exports to countries outside of Europe are beginning to spook Ireland's exporters, who managed last year to throw off the impact of the many burdens of the covid pandemic and grow sales both within the EU but also across global markets.

Not so this year, according to the latest Eurostat release which shows all EU member states registering large increases in exports outside Europe with the exception of Ireland and Cyprus.

Double-digit export growth to Asia and the Americas was recorded by Germany, France, Italy and Spain, while Ireland fell back by four per cent year on year for the first five months of 2021. Much of the €2.4bn in lost sales emanated from falling exports to Japan, Canada and the US.

The fall in sales to Japan is particularly worrying as it was Ireland’s third-largest trade partner outside the EU and the second largest in Asia back in February 2019, when the EU-Japan free trade deal was signed off. 

Since then, exports to the market have fallen each year and looks likely to fall by a further third this year.

The free trade agreement was supposed to be good news for Irish exporters of pharmaceuticals, medical devices and agri-foods. 

Food exports to Japan such as pork and beef were due a dramatic reduction in tariffs. Beef duties were scheduled to be reduced from 38.5% to 9% and cheddar cheese tariffs (currently 29.8%) to be scrapped. And the lucrative Irish whiskey brand to be protected.

The 41 per cent fall in sales to Canada in the period clouds a trend of strong growth in exports since the EU-Canada free trade talks were concluded in 2014. The agreement was finally signed in 2016 and entered into force provisionally on the 21st of September 2017. 

The agreement is being applied only provisionally because it needs to be ratified by all national parliaments, with Ireland one of the few countries still outstanding, as some members of the Green Party are opposed to ratification, mainly due to concerns over the system of investment protection.

The fall in exports to the US is of the much smaller two per cent range and well within the normal monthly variations.

Insights

There are a number of insights into the fall in exports to these markets. 

Business consultancy Copenhagen Economics, commissioned by the Irish Government to review the benefits of the Canadian, the Japanese, and other free trade agreements to Ireland's exporters, reported earlier in June that whereas there were general benefits for Irish business and the economy, they also pointed to the downside of Free Trade Agreements.

In particular, the opening up the Irish and EU markets to competition from the foreign companies associated with the free trade agreements can create problems for some sectors. 

As a consequence, they say, not every sector in Ireland will be impacted positively, thereby presenting a competitiveness challenge for Irish producers in their home market as well as within the wider EU marketplace.

Avoiding business closures and job losses within these sectors may involve looking for new export markets and product innovation, the consultants concluded.

The analysis of lost export sales is further complicated by the aggressive post-Brexit free trade deals being rapidly negotiated by the British government, which has the effect of flooding the UK market with goods and services from outside the EU and at the same time enabling UK exporters greater freedom to compete in these markets.

The more extensive Covid travel restrictions applied in Ireland will also have played their part in the downward cycle of Ireland's exports in the more far-flung markets. 

This will have impacted smaller firms who have been responding to the Government agencies urging to expand sales away from the Brexit hit UK market and who, unlike multinationals, don’t have offices in these markets.

The IMF in their July Economic Outlook 2021, also offer some insight. whereas they present a bullish growth picture for the rest of the year, they also point to ‘Fault Lines Widening in the Global Recovery’ as a result of unusual pandemic-related developments and transitory supply-demand mismatches. 

Irish exporters may be falling into one of these fault lines.

  • John Whelan is a former chief executive of the Irish Exporters Association

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