'Brexit' would cut Irish-UK trade by a fifth: ESRI
Published 05/11/2015 | 02:30
A potential British exit from the EU is likely to "significantly reduce" bilateral trade between the UK and Ireland by at least a fifth, a wide-ranging report from the Economic and Social Research Institute (ESRI) states.
A 'Brexit' would be particularly damaging for sectors that export disproportionately to the UK, such as food and beverages. And as Ireland is heavily dependent on UK imports, any potential trade barriers could result in higher prices here, the think tank warned.
The ESRI warned that a British withdrawal could also see passport controls imposed on the border, a reduction in the ease of movement between the Republic and Britain and the removal of the automatic right to work in Britain.
Residency problems could also emerge for the up to 400,000 Irish-born people living in the UK, the ESRI said.
Average wages could also fall, with the ESRI speculating that a percentage of the annual numbers travelling to the UK could end up in Ireland instead.
And reduced GDP in the UK, could lead to reduced GDP in Ireland.
"A changed relationship between the UK and the EU could potentially have far-reaching consequences for Ireland, especially if there were changes in areas such as trade and migration," the ESRI report said.
"Estimates from the literature suggest that a Brexit is likely to significantly reduce bilateral trade flows between Ireland and the UK. The impact could be 20pc or more."
The ESRI warned that under an extreme scenario, imports from the UK could be treated as so-called third country imports and would automatically be subjected to EU tariffs. The knock-on effect here would be a hike in prices for consumers.
"As a small country, Ireland does not produce as big a range of goods as larger countries, which limits the possibility of substituting local goods for foreign ones," the ESRI report said.
"Furthermore, strong supply chain linkages with the UK, particularly in relation to consumer goods, similar tastes and familiarity with brands, would reduce the likelihood of switching to goods produced in other EU countries, at least in the short term. Thus, the impact would be to raise prices in Ireland."
In an extreme example, the UK may negotiate trade deals with non-EU countries, particularly for certain sectors such as agriculture and food. This would result in more competition in the UK market, which is likely to put Irish exporters under pressure, the ESRI said.
The think tank said a Brexit could impact on Ireland through UK environmental policy via the operation of the Single Electricity Market on the island of Ireland, and could also necessitate more costly interconnection infrastructure in order to connect to the EU electricity market.
"If the UK remains independent of the rest of the EU, enhanced interconnection with UK would leave Ireland vulnerable to any problems in the GB market. Under these circumstances enhanced interconnection by Ireland with the rest of the EU, most probably to France, could provide useful diversification, reducing risk for Irish consumers, but this would come at a substantial cost," the ESRI said.
The report said Ireland should reduce its dependence on its UK interconnection, and look to tap into the wider EU market. In terms of migration, the think tank said net migration to the UK in 2014 was 300,000, so taking 20pc of this, equating to 60,000, could see average wages fall by around 4pc.