Ireland’s “unique exposure” to Brexit means it faces potentially devastating cuts in exports and production levels and a huge threat to jobs that could cost the country billions each year.
An independent study by Copenhagen Economics for the Government paints a bleak picture where, even in a best-case scenario, Irish GDP will be 2.8% lower compared with an alternative situation in which, by 2030, the UK had not left the EU.
That European Economic Area (EEA) scenario, similar to the type of arrangement which operates between the EU and Norway and Iceland, would see a 3.3% drop in exports and a 3.5% fall in imports.
Three other scenarios portray increasingly harmful scenarios, with the worst — a World Trade Organisation (WTO) scenario, with the EU and UK imposing tariffs on each other’s goods in a classic ‘hard Brexit’ — slashing our GDP by 7% and resulting in a 7.7% fall in exports and an 8.2% drop in imports.
The report also rings alarm bells for some of the sectors most exposed to the impact of Brexit, presenting a serious threat to rural Ireland.
The report states that 82% of employment in agri-food, the beef sector, and the dairy sector are outside Dublin — and all three face a Brexit impact to exports and production which far exceed the national averages.
According to the report:
In addition to the EEA and WTO scenarios, the report also looks at a Customs Union scenario — which assumes an EU-UK agreement that would mean duty-free trade for most products but some tariffs and border inspections — and a Free trade agreement scenario, broadly similar to the Customs Union outlook and with similar economic impact.
Areas of strategic importance include the agri-food sector, pharma-chemicals, electric machinery, wholesale and retail, and air transport. The report stresses that domestic policy responses can mitigate the impact of Brexit.
Agri-food, including beef and dairy, are where “the largest impacts occur” although other primary agriculture sub-sectors such as grains, fruit and vegetables, forestry, and fishing will also be negatively affected.
Pharma-chemicals could see production fall by 1% to 5% compared with non-Brexit 2030 levels, while production in electric machinery could drop by between 5% and 10%.
Wholesale and retail could face new costs in supply chains and will also be negatively affected by an overall drop in consumer demand resulting from Brexit, while air transport could face substantial challenges on routes to the UK.
“Of the scenarios analysed in this report, the EEA-scenario is the outcome that would minimise the economic loss [in GDP] for Ireland in the EU-UK trade negotiations,” says the report. “Measured relative to Irish GDP in 2015, the difference between the ‘best’ [EEA] scenario and the ‘worst’ [WTO] is €11bn per year in 2015-level.
“In a hypothetical situation, where regulatory divergence for goods and services could be avoided and hence the Brexit impacts only related to tariffs and border costs, the theoretical loss to Irish GDP would be further reduced to around 1% of GDP or approximately €3bn in 2015 terms.”
It says the best possible trade negotiation outcome for Ireland involves no tariffs, large quotas for agricultural products, low border costs, landbridge transit, low regulatory divergence, and low barriers for service trade.
As for domestic policy responses, it advises trade promotion that would help existing exporters access new markets, enterprise policies to aid the transition from declining to growing sectors, and a focus on supporting skills “required by the unavoidable adjustments”.
by Noel Baker and Joe Leogue
2 Beef and dairy exports
The report warns that a hard Brexit would hit exports from the Irish pharma-chemicals sectors by some 5%, more than the entirety of Irish beef exports.
The pharmaceutical and chemicals sector is the absolute largest export sector in Ireland, with the Central Statistics Office reporting that the industry accounts for 57% of Ireland’s goods exported in 2015.
The UK market represents 7% of the sector’s total exports.
The worst-case scenario would see exports to the UK drop by up to 42% but would be 7% down on a non-Brexit situation if the UK were to enter a European Economic Area arrangement on leaving the EU.
The authors predict the impacts in the pharma-chemicals sector would be “almost entirely driven by regulatory divergence and by increasing border costs”.
A difference in the regulations of how medicines are produced and sold would create the biggest costs to the Irish sector, largely because industry currently treats the UK and Ireland as the one market for pharmaceuticals.
As such, the report’s authors warn, the status quo would change with any regulatory divergence.
“Some pharmaceutical products are so-called dual-packs, that is, produced and packed jointly for the Irish and British market because of common language and common regulation, and hence for sale in Ireland and the UK with no adjustments,” the Copenhagen Economics report states.
“If changes to the regulation would affect this, it would also add costs and reduce trade and production in Ireland.”
4 Retail and wholesale
5 Financial services
The financial services sector in Ireland could benefit from Brexit, with output rising by 3% to 4% compared to if the UK had voted to remain in EU.
The report highlights how membership of the EU, or the European Economic Area, allows financial institutions to provide services in other EU states without the need to establish legally separate entities in each country.
This authorisation, called a financial services passport, is available for nine different types of banking product, such as lending, deposit-taking, and asset management.
These passports, however, are not available to non-EU or non-EEA companies, resulting in regulatory barriers for outsiders looking to operate in EU states.
The report estimates a 3%-4% benefit to Ireland should a hard Brexit result in a failure by the UK to negotiate access to the EU market.
A hard Brexit, it predicts, would give the Irish financial services sector a better access to talent and a possible further benefit of seeing firms relocate from the UK to Ireland in order to retain access to the EU market.
It must be noted that this prediction comes with a caveat.
“However, it should be emphasised that this result does not capture the possible long-term structural changes that might occur if a large part of the financial sector moves out of London to a continental location, or if large parts of the financial sector shifts away from Europe to other locations, for example, New York,” warns the
“In these cases, the financial service sector in Ireland would be severely negatively impacted.”
6 Travel and tourism
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