Brexit deal a mix of opportunity and disadvantage for Ireland

With the Brexit agreement only being finalised a few days before it was implemented, attention has naturally focused on the immediate implications for companies, especially those engaged in transporting goods to or from Britain or through it to the EU.

However, there is a wide range of other aspects of the agreement that will take time to impinge on our lives. While many of these changes will be disadvantageous, there also will be some new opportunities.

Because the agreement between the UK and the EU is limited in scope, there will be significant obstacles for firms in the UK in providing goods and services to the EU. Not least of these will be the “rules of origin” requirement, which will require UK manufacturers to prove that the goods produced in the UK are largely made with UK parts, or parts imported from the EU. Complying with these rules can be quite onerous.

As a result of the new obstacles to trade, the UK will be a much less attractive investment location for firms from outside Europe that want to sell goods and services to the EU. Even before Brexit became a reality, when then prime minister David Cameron visited India in 2013 on a trade mission, he found that large Indian enterprises were reluctant to commit to investment in the UK because of the UK government's ambivalent attitude to EU membership. These reasons not to invest in the UK are much stronger since the first of January.

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Now that the UK has finally left, any multinational wanting to supply the large EU market will have a strong preference for locating in the EU rather than in the UK. In addition, quite a number of large multinational enterprises already operating in the UK are considering whether future investment should be rerouted to an EU country. It is only firms wanting to supply the limited UK market that will continue to invest with equanimity in the UK. This problem for the UK is an opportunity for both the Republic and Northern Ireland.

Long game

For many of the large multinationals in the UK, such as those in car or aviation manufacturing, Ireland would not be an obvious alternative location. However, across a range of goods, and especially services, the Republic looks attractive. An ESRI study in 2016 by Edgar Morgenroth suggested that in the long run the resulting increase in foreign direct investment could significantly increase Irish output and add more than 1.5 per cent to employment. However, this positive result could take many years to play out, as investment matures slowly.

The North, with its dual status of being in both the UK and the EU single market for goods, has a particular opportunity to attract foreign investment, especially manufacturing, and in that regard may have an edge on the Republic. While this special provision is an opportunity for Northern Ireland, the Executive will have to go out and sell these advantages as they may not be that obvious to foreign multinationals from outside Europe.

However, the provision of services from Northern Ireland to the EU does not enjoy that favourable access.

A second important feature of the EU-UK agreement is that it allows tariff- and quota-free access to the UK market for Irish producers, especially food producers. If there had been a no-deal exit, there would have been immediate massive disruption of this trade. Instead, the agreement means that trade will initially continue largely as before, with the notable exception that getting the goods to market in Britain will be a costly business because of increased administration. It remains to be seen how much of these new costs will be carried by consumers in Britain and how much by Irish producers.

More difficult

However, in the long run things could be much more difficult for Irish food producers, especially in the meat sector. The UK is a substantial net importer of food. At present much of it comes from the EU. The price paid reflects the fact that the EU is a protected market: for example, beef prices within the EU are much higher than the world market price.

It seems likely that over the coming decade the UK will gradually open its market to food imports from outside the EU. If they imported beef and lamb from Australia or South America, this would dramatically cut the UK price of meat. In turn this would have a very serious impact on Irish producers dependent on the UK market. However, as with the opportunity for increased foreign investment, this will take some time to play out.