Thursday 20 October 2016

No winners on either side of the border in a Brexit world

Dr Aoife O’Donoghue

Published 07/07/2016 | 02:30

The border crossing with near the Carrickdale Hotel in Co Louth. Photo: Kyran O’Brien
The border crossing with near the Carrickdale Hotel in Co Louth. Photo: Kyran O’Brien

IF the United Kingdom leaves the European Union there is virtually no possibility the movement of goods, services and individuals across the Irish border will continue as now. Much will depend on the nature of post-Brexit negotiations and it is impossible to say with any absolute certainty what a post-Brexit UK business environment will look like. What is clear is that for many areas, and in particular the agricultural and services sectors, it will be more complicated and expensive if they wish to do business outside the UK.

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Brexit will change the basis on which the UK and, of necessity Northern Ireland, trades regionally and globally. It will also impact on how the Republic positions itself.

It would become the sole English-language entry point (besides Malta) for international firms seeking to do business in the EU. This would undoubtedly represent an advantage. Second, to set up in Ireland or import/export through Ireland, international businesses would only have to comply with a single set of regulations to access all other EU states.

A business setting up in Northern Ireland, on the other hand, would have guaranteed access to the rest of the UK under a single set of rules - but not necessarily access to the EU under the same rules. How easy it would be to access the EU market from a post-Brexit UK will depend entirely on the trade model chosen by the EU and the UK.

However, agreeing such a model will take time, and the interim uncertainty would make it difficult to attract both foreign and domestic investment. Ireland would not face such uncertainty, amplifying the different positions of it and Northern Ireland.

This is clear when one looks at the support the agricultural industry now receives. Farmers in Ireland would continue to have unrestricted access to the EU market as well as continuing to receive substantial subsidies. While, for now, the UK government has promised to continue agricultural support in Northern Ireland in the event of Brexit, there is no guarantee that this support would continue in the longer run.

Perhaps more seriously, Northern Ireland's agricultural industry would, post-Brexit, have to compete with the highly protected industry in Ireland and the rest of Europe. It would be in the same trade position as countries such as Australia, New Zealand and developing agricultural exporters such as Brazil, Argentina and Kenya.

Non-EU countries have, for many years, been arguing at the World Trade Organisation for reductions in agricultural support within Europe and the USA, but with very little success. Given that talks at the WTO are at a standstill (in no small part because of a lack of movement on agriculture) and the current trend towards mega-regional arrangements such as the EU-US TTIP trade agreement, it is unlikely that WTO membership will provide the UK with a more 'global' position in agriculture or other industries.

If Britain remains in the European Economic Area (EEA), alongside Norway, Iceland and Liechtenstein, the free movement of goods and services between Ireland and the UK would be maintained, although the UK could set its own border tariffs. But, as seems likely, a more comprehensive withdrawal, or a Swiss-style agreement with the EU, would mean that UK goods and services become subject to the EU's external tariffs.

This option would increase import and export costs for a significant number of products as well as introducing a plethora of restrictions to cross-border movement of services. Any of these options would also mean an end to Common Agricultural Policy (CAP) payments to farmers which would naturally have a knock-on effect on the agri-food sector.

It is easy to assume that such changes will only hit business and not the private consumer, however, this is only a partial view. Personal items are ordinarily exempted from border charges; but anyone operating a small business, or moving products across the border for work purposes, would need to declare what those products were and pay levies on them according to the EU's WTO tariffs.

While a lot of products come with a zero tariff, not all sectors benefit. Cigarettes and cigars, for instance, are hit with a 33-58pc import duty.

A wide variety of consumer products, such as make-up and personal hygiene items, textiles and basic building construction items (such as doors and windows) face import charges of between 4pc-8pc.

Clothing is generally hit with import duties ranging from 8pc-17pc, and cars face import duties of 10pc-20pc, depending on their size and purpose. In the end, import tariffs are pushed onto the consumer in purchasing price, so many products moving across the Irish border could suddenly become anywhere from 5pc to 2pc more expensive.

The impact upon the agri-food and farming sector is particularly revealing. Most agricultural products and livestock are subject to EU import tariffs of between 6pc-22pc. UK agri-food products would find it difficult to compete with heavily subsided EU produce on the global market without reducing their basic costs in order to be competitively priced. Even within the UK, it is likely that suppliers will use the cheapest available option which, due to CAP subsidies, may very well still be EU products, even with the imposition of UK tariffs on imports from the EU.

Statistics from the UK Department of Environment, Food and Rural Affairs demonstrate that direct EU payments to farmers represent 87pc of annual farm income in Northern Ireland. The Department also confirmed that in the ten years to 2014, CAP Single Farm Payment alone totalled £2.5 billion in Northern Ireland.

While the UK government stated that initially it would match CAP support in the event of Brexit its previous reform proposals indicate that it may be unlikely to match the current levels of subsidy or would require more from farmers in return for support, for example in environmental protection.

When it comes to services, both setting up a business abroad or taking a job is relatively straightforward under EU free movement of services rules, Post Brexit, these will be covered by the WTO General Agreement on Trade in Service, which is significantly less open to services movement than the EU.

Non-EU nationals temporarily staying and working in the EU, unless they are in senior management, will find far more barriers to travel. Post-Brexit, virtually all UK nationals would need to satisfy national immigration requirements to temporarily stay and work in any of the 27 EU member states, including Ireland.

The Remain and Brexit campaigns do not agree on much, but all sides concede that withdrawal would have consequences on how goods and services move between EU states and the UK.

With both Ireland and the UK in the EU, from a business perspective, the Irish border is visible only on maps; but as the UK's single land border with the EU, it may become a crunch point at which tariffs and regulations start to apply.

Dr Aoife O'Donoghue is senior lecturer, Durham Law School. This is an extract from a 'Constitutional Conundrums' paper produced by a group of academics in the UK working on Northern Ireland and Brexit. It is available at

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