Public Affairs Ireland | Training and Development | Conferences

Martin McTaggart is a Research Assistant with the Centre for Cross Border Studies and a former Researcher at the Northern Ireland Assembly.  His work with CCBS involves contributing to the Centre’s reputation as an authoritative advocate for cross-border cooperation, by providing research, information and support for collaboration across borders on the island of Ireland, Europe and beyond. 

Over forty years on from its accession to what was then the European Economic Community in 1973, today the United Kingdom’s relationship with the European Union has reached a crossroads, prompting vigorous academic and policy debates regarding the likely socio-economic, cultural and geo-political impacts of a UK withdrawal from the EU. With a Conservative Party majority result in the 2015 general election, the UK government was committed to fulfil its pledge to hold a referendum on EU membership by 2017. While the outcome of the referendum, and of any subsequent withdrawal negotiations, remains uncertain, some likely consequences of a “Brexit” can be identified. In particular, it is foreseeable that significant transformations in UK-EU relations potentially hold far-reaching and profound consequences for future North-South trade on the island of Ireland.

Before exploring the possible ramifications for the island economy in the event of a Brexit, it is worth considering the effects of Britain’s long-standing “awkward” relationship with the EU, particularly in relation to their potential for disrupting sustainable North-South trade links. The historically turbulent UK-EU relationship, from De Gaulle’s veto of Britain’s application to join the Common Market in 1967 to today’s prospect of a UK withdrawal, has been characterised by a Britain that has often stood aside during key steps towards European integration, in particular regarding “political” and monetary union.

Whether or not such decisions have been vindicated, in the wake of the Eurozone crisis, is a subject for another debate. What is clear, however, is that the UK opt-out from the single currency has resulted in some adverse effects on North-South trade, primarily due to fluctuations in Euro–Sterling exchange rates. While Euro–Sterling currency value deviations have offered benefits to cross-border consumers, they have presented considerable challenges to businesses, as illustrated within the Centre for Cross Border Studies 2012 Bradley-Best report:

currency instability caused by fluctuating exchange rates tends to prevent the growth of a deep and stable consumer market of goods and services that requires entrepreneurs to invest in facilities, stock, product innovation and staff training simply because the viability of an enterprise could be wiped out overnight due to currency fluctuations.”

Indeed, for the Agri-Food sector, and other highly risk-intensive industries, vulnerability to reverses in currency strengths has led many operations in border regions to focus primarily on serving a narrow transient market, rather than expanding and strengthening.

Given the ever-diminishing likelihood of the UK joining the Eurozone, regardless of the outcome of the referendum, the currency fault line that exists is likely to remain a permanent feature of cross-border life. However, by highlighting an existing barrier to cross-border trade as a result of each jurisdiction’s diverging structural arrangements with the EU, one may anticipate further barriers in the event of a Brexit having a similar effect. And so, the challenge of building strong and sustainable business links between Northern Ireland and the Republic of Ireland will be intensified, insofar as the UK further deviates from EU policy norms.

Due to the deeply interconnected socio-economic links between Northern Ireland and the Republic of Ireland, and the fact that many existing ties are framed within the context of EU law and directives, any significant change in UK–EU relations will undoubtedly have an impact on future cross-border relations. However, it is important to note that any effort to quantify the precise impact of a post-Brexit environment for North–South trade is to do so in a vacuum of uncertainty. Simply put: we cannot predict what type of relationship the UK will have with the EU in the event of a vote to leave. Numerous attempts have been made to model the economic impacts of a Brexit, based upon the EU’s existing external relations with European Non-Member states, such as Norway, Switzerland, Turkey, Albania, and Ukraine. However, the outcome produced by each model differs sharply based on the arrangements reached. At present, those for a hypothetical “UK outside the EU” remain undetermined.

It is possible, nonetheless, to reflect upon the prospective issues presented by the possibility of a Brexit while drawing upon our extensive research in the field of cross-border activity, to arrive at a more nuanced understanding of its implications. Indeed, the gradual softening of the Irish border, which accelerated over the course of the peace process, has resulted in a subtle diminishing of the challenge of borders as barriers to mobility, communication, and trade. While many barriers to cross-border cooperation remain, for many today the once-hard border has become a distant memory. Individuals and businesses today can travel and trade across the border generally unimpeded. Commerce can, and does, take place without duties being levied or customs checks. Thus, for many the future of the border in the event of a Brexit is a growing concern.  While neither side of the border wishes to change existing bilateral arrangements, known as the Common Travel Area, a Brexit would put this arrangement into question. An imposition of passport controls between Northern Ireland and the Republic of Ireland, or between the island of Ireland and Great Britain, would be a regressive step in encouraging sustainable mutual cooperation between both parts of this island and between these islands.

Moreover, a post-Brexit scenario characterised by an absence of a bilateral trade agreement would undoubtedly inflict profoundly negative socio-economic effects for the UK, Ireland, and upon North–South trade. Suddenly the Irish border, which would become an external border for the EU, is the subject of negotiation between the UK and the EU – with Ireland making all possible efforts to safeguard its own interests. A Brexit without a bilateral trade agreement would result in cross-border imports facing specific tariffs upon agricultural products, food and beverages and other such products. Non-tariff barriers, such as customs controls would also be likely to adversely affect North–South trade flows. Trade barriers are likely to impact upon import prices, and given the deep supply chain linkages between the UK and Ireland, sourcing imports from alternative markets may be difficult at least in the short-term. Research conducted by the Economic and Social Research Institute (ESRI) in 2015 reveals that a Brexit is likely to substantially reduce bilateral trade flows between Ireland and the UK by an estimated 20%. While the likely effects differ from sector to sector, given the intensely concentrated trading nature within the merchandise industry, increased barriers would have a significant impact on overall trade volumes.

An InterTrade Ireland (2007) analysis on North–South business links showed that Northern Ireland firms are disproportionately more dependent on the Irish market than Republic of Ireland firms are on the market north of the border, which suggests that the negative effects of a Brexit would be greater for Northern Ireland. Likewise, a report produced by Oxford Economics (2016), and commissioned by DETI, found that in comparison to other UK regions, Northern Ireland is likely to be more vulnerable to a disruption of trade flows due to sharing a land border with another EU member state.

Given the unenviable prospect of facing increased trade barriers and restricted access to the European market, in the event of a Brexit, the UK is unlikely to withdraw on terms that disadvantage it in relation to its trade with EU partners and investment competitors. However, even if the UK secures a bilateral trade agreement with the EU, in order to retain access to the Single Market it would be required to progressively adopt EU regulations. In this circumstance, while the UK would be free to establish its own tariff structure and negotiate independent trade deals, like Norway it would be forced to accept EU regulations with limited scope to influence EU legislation from the outside.

Should Brexit be accompanied by a UK abandonment of EU regulation and trade policy, in search of inward investment from other global markets, all-island trade flows would face the significant barrier of each jurisdiction complying with separate trading standards, frameworks and harmonisation policies. Businesses that have traded freely across the border will be less willing, or unable, to continue trading as easily as they currently do. This would be considerably damaging for trade and investment North and South of the island.

The impact of Brexit upon all-island trade depends, ultimately, on the arrangement that is reached between the UK and the EU. However, it is certain that increased trade barriers are likely to be associated with significant reductions in trade flows between North and South. Such developments would have regressive effects on the progress made towards building a mutually prosperous and sustainable environment for cross-border trade.

****

cross border

Leave a Reply

Your email address will not be published. Required fields are marked *