Wednesday 19 December 2018

Brendan Keenan: Focus on avoiding hard border sidesteps the real trade issues

'Cross-border trade is quite concentrated, making it easier to identify where problems will arise' Photo: AFP/Getty Images
'Cross-border trade is quite concentrated, making it easier to identify where problems will arise' Photo: AFP/Getty Images
Brendan Keenan

Brendan Keenan

Not since 'soft landing' has a phrase caused so much trouble as 'hard border'. One thing they have in common is that they have no precise meaning, so anyone can interpret them as they see fit.

The endless mock-up photographs of people in peaked caps and signs saying, 'Stád!' are probably the best guide to public perceptions of what is involved; being stopped for checks while going about your personal business. Yet that is about the least likely outcome.

Some Northern comedy writers have identified that there is a lot of nonsense going on, with the TV series, 'Soft Border Patrol'. Whatever the programme's artistic merits, their satire seems closer to reality than most of the political posturing.

Apart from personal inconvenience, people's worries about a new border concern things like citizenship, right to work, taxation, pensions and the myriad all-island activities which take place. Most of these can be dealt with satisfactorily in the terms of the UK's withdrawal. Many already have.

Protecting them would have been easier if the word 'border' had never been mentioned. Even free movement of people could have been finessed. Northern unionists will have no constitutional qualms about Poles or Romanians being checked when they cross the Irish Sea.

The Border question is really about goods and services; the stuff of the business pages, about which the bulk of the population knows little and cares less. It is an old axiom of journalism that the important is not always interesting, and the interesting not always important. It is a pity so much effort has gone into making the unimportant interesting - in the unpleasant, Chinese definition of that word.

The implications of a hard Brexit for goods and services are both important and unpleasant, but mostly in terms of trade with Britain rather than Northern Ireland. There is no denying that there are particular consequences for this island, in the context of cross-border trade, but they have little or nothing to do with the way the border is managed. Delays cost money, but disruption to supply chains because it is no longer profitable to export and import will be even more costly.

Those chains are the subject of a new report undertaken by the ESRI in a joint research programme with InterTrade Ireland, giving a detailed insight into the somewhat curious world of cross-border trade. The report includes thumbnail sketches of companies involved in the trade. One of the best known would be O'Neill's sportswear. It is also one of the biggest, with 700 employees.

The firm imports yarn from outside the EU, knits it into fabric in Strabane, and sends it to Dublin for dyeing. That fabric is then sent back to Strabane where it is made into clothing. Some is then sent back again to Dublin for storage, but could go north again for branding and finishing, before perhaps being sold to customers in the Republic.

It is these complexities, rather than the actual volume of trade, which could make disruption so damaging, although the volume is not insignificant. Around 11pc of exports to the UK go to Northern Ireland, which in turn provides 8pc of imports to the Republic.

International comparisons suggest the figure ought to be higher, but we all know the historical reasons why it is not. It still represents a significant Irish dimension, given that the North's population is less than 3pc of the UK total.

The core of this report, however, is supply chains and the traffic in intermediate goods for further processing so clearly illustrated in the O'Neill's case, rather than the limited trade in consumption goods. Forgetting about peaked caps, the question is to what extent these can survive an end to the customs union, through change, flexibility, government support, access to finance and, to some extent, special arrangement for the island?

The patterns themselves give some grounds for optimism - or at least hope. Cross-border trade is quite concentrated, making it easier to identify where problems will arise. Just 50 products make up three-quarters of the total. Less than one in five of the firms sampled does two-way trade, exporting and importing, but they account for more than 60pc of the trade.

Such firms are also innovative, with high levels of product turnover. Many products are traded for just one year before being replaced with something else. The larger firms are more likely to do this, which should help them adjust to Brexit, but it also shows the high failure rate of new products. That will be a problem for all exporters to the UK, as they seek to develop new markets in the EU.

The all-island market has its own characteristics. Almost half the firms export just one product to the North, whereas less than a tenth do that when exporting to the rest of the world. Around a quarter send almost all their exports across the Border, while others sell more than 90pc elsewhere - often to the rest of the UK.

Most cross-border trade is also intermediate goods for further processing rather than final sale. For both north and south, the share of such trade is greater in most sectors than it is in exports to Britain.

One might still argue that there is still no great reason to differentiate cross-border trade from cross-channel trade - except for the preponderance of dairy in that trade. It typically accounts for 20-30pc of all imports from the North, reflecting both sales of liquid milk for consumers in winter months and milk for further processing, which is then exported back.

LacPatrick in Monaghan is one of the companies chosen as an example. It takes about 100 million litres from a co-operative in Co Antrim with which it merged in 2015, and processes it as part of the Republic's successful global export industry in milk powder and baby formula.

Post-Brexit tariffs could see LacPatrick process more milk in Northern Ireland, where it also has a plant in Tyrone but, as the report says, that is not the end of the story. When the UK exits the EU, Northern Ireland will no longer be included in the EU export agreement with China, where LacPatrick sells most of its powdered milk.

It is not just a border issue - perhaps not even mainly a border issue, but a question of the UK's trading relationship with the EU and the extent to which particular Irish characteristics, such as the preponderance of supply-chain trade on the island, can be accommodated in that new relationship.

If they can't, firms will have to make what adjustments they can - perhaps by looking at products with lower tariffs - and governments will have to keep delays and administration costs to a minimum. That is something they signally failed to do with the old Border.

It should all have been quite technical. But the Irish establishment's horror of special deals for Ireland in the EU backed it into a position of advocating a special deal for Northern Ireland in the UK, and giving it legal force.

In doing so, it has created a level of apprehension, for different reasons, among both northern nationalists and unionists. That could yet create a situation which would indeed relegate all the other stuff to the business pages; but for all the wrong reasons.

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