Hard Brexit, trade, and the border

Today’s announcement by the Prime Minister Theresa May that Article 50 of the Treaty of Lisbon will be triggered in March 2017 has brought into sharp focus the potential impact that a hard Brexit could have on the Northern Ireland economy. Should the UK leave the European Union without any form of free trade deal with the EU, then trade across the Irish border could be subject to tariffs in line with World Trade Organization rules.

A hard border between Northern Ireland and the Republic of Ireland could curtail trade and have adverse economic impacts both north and south of the border. However, in terms of the overall economy, the effects would be felt much more in Northern Ireland. A third of Northern Ireland’s exports in 2015 (£2.1bn of £6.3bn) were to the Republic (trade with Great Britain is not considered an export), whilst only 1.6% of the Republic of Ireland’s exports of €111bn were to Northern Ireland (€1.73bn).

A major risk to the Northern Ireland economy from a hard Brexit is the fact that, under WTO rules, dairy and other agricultural products are the products that incur the highest tariffs. Food and live animals accounted for 16.3% of Northern Ireland exports in 2015, the majority of which is trade with the Republic. In Great Britain, only 3.9% of exports came under this category.

Tariffs on dairy produce can be as high as 42% under WTO rules. Such a high tariff would have a disastrous effect on cross-border dairy trade. Meat and animal products attract high tariffs of 20% or more. This is before taking into account non-tariff barriers and the withdrawal of EU farming subsidies, all of which could have severe consequences for Northern Ireland’s agricultural sector, which is already under pressure due to issues such as the collapse in milk prices.

The chart below shows how the sectoral breakdown of Northern Ireland exports have changed over the last 20 years (2016 data refers only to Q1 & Q2).

ni-exports-by-type

The total share of Northern Ireland’s exports in 2015 to the EU (including Ireland) was 51.3%, compared to 47.7% for the UK as a whole. In 1996, 40% of Northern Ireland exports were across the border, whilst the wider EU accounted for 70.4% of Northern Ireland exports, so whilst the EU is still the destination for a majority of NI exports, its share has dropped considerably over the last 20 years.

ni-exports-by-destination

A noticeable uptick can be seen in the above charts can be seen for pharmaceutical exports and exports to the United States. These are both due to the rapid increase in pharmaceutical exports to the United States, which has boomed in recent years. Historically, trade in agricultural products to the Republic was Northern Ireland’s most valuable export by destination and commodity, but this has now been overtaken by pharmaceutical exports to the United States.

ni-exports-by-quarter

Despite the fact that non-EU exports are growing strongly, the fact remains that agricultural exports to Ireland and the wider EU remain a vital part of the Northern Ireland economy. The argument for a hard Brexit being in the wider benefit of the UK economy is that the UK’s exports attract low tariffs under WTO rules and therefore the adverse impact of WTO tariffs on exports will be mitigated.

Whether you agree with this argument will largely depend on your views on Brexit and which way you voted in the referendum, but it seems clear that Northern Ireland, and in particular rural border areas dependent on the agricultural economy, will be amongst those who will lose out the most. In addition, these areas are amongst the poorest in the UK, and they also voted to remain in the EU by a significant margin.

Whilst it is encouraging that Northern Ireland’s exports to outside the EU have increased in recent years, the risks to Northern Ireland’s economy seem pretty clear, whilst the potential benefits in terms of easier access to external markets are vague and badly defined. It is absolutely essential that Northern Ireland’s interests are represented during the Brexit negotiations, as a hard border and punitive tariffs on Northern Ireland agricultural exports would be disastrous for the local economy.

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  • Skibo

    I agree that they only exist in small numbers at the moment but as the realism of what Brexit will mean for NI, their ranks will swell.
    Business is business. If big house Unionism realises their future lays in a united Ireland within the EU, they will direct the masses to follow. It will be interesting.
    The only real business man I noted within NI who pushed for Brexit was Wrights busses.

  • Brendan Heading

    It’s extremely simplistic to speculate that the violence might return just because customs posts start popping up.

    On the other hand, put large numbers of people out of work, and there’s no telling where it might go.

  • Brendan Heading

    So – why stop people at the border?

    To prevent illegal immigration into the UK, which is going to be an enormous problem. You know full well what a huge political issue immigration is.

    And if Ireland, under EU instructions, keeps on stopping cars at the border maybe the American executives will consider alternative routes.

    If anything, they’ll stop doing business in NI. It is the UK which is erecting barriers to trade, not Ireland.

    I can’t believe how naive people are when they say they think that everyone else will just keel over and play dead when faced with the UK’s demands.

  • Oriel27

    Agreed Brendan, people can put up with alot of things in their lives, at the end of the day all people really need is those basic needs for survival – food, warmth, shelter, safety etc.. all provided for by working in a job. They say the best way to hurt someone is in the pocket. Yes, if people were prevented from going to their work (hard border), harassment, surveillance, interrogation (like it was in the 80’s) – there is no telling what could happen. Remember history always repeats itself.

  • Oriel27

    Very true – look at the real lack of interest in the Flag protest from the unionist working class.

  • Sir Rantsalot

    You might need new glasses if you can’t see the benefits of sovereign governmental and economic control of your county, compared to corporate unelected control via Brussels.

  • Sir Rantsalot

    You might ask yourself what the benefits of being in the EU actually are?

  • Sir Rantsalot

    Their US passport should help identify them in a few seconds. Sooooo annoying to have to wait for seconds on end ! 😁

  • Sir Rantsalot

    “What about a post-Brexit NI makes it more attractive to new FDI?”

    Not having to waste money to comply with zillions of mental EU pointless regulations anymore.
    Also if the UK makes a better trade deal with the source country than the EU has, that will benefit the UK as a whole over the EU.

  • Sir Rantsalot

    Countries do trade deals to benefit their country, not to destroy it’s local industry. Duh!!

  • john millar

    The ROI and UK are “non schengen” -that is immigration control continues for traffic between the remaining EC members and the/ROI. Its part of the common travel area system
    https://en.wikipedia.org/wiki/Schengen_Agreement

    The ” common travel area” is an outworking of partition– as long as NI is in the UK it will survive. ( It would be impossible to control movements between Ireland/GB whilst there was free access from NI)

    HOWEVER if the ROI joins “schengen” then the CTA would have to go– a fudge would be created for NI and the border would move to Irish sea– hardly likely– the ROI will remain non schengen

  • lizmcneill

    as opposed to unelected bureaucrats in Whitehall? The English don’t care about Northern Ireland. Why should I be glad they have more control?

  • lizmcneill

    You mean pointless EU regulations like workers rights? Yes, maybe in a country where people can be forced to work 60 hours a week, some firm might set up a few sweat-shop-esque call centres or something.

  • lizmcneill

    Funding for scientific research, being easily able to export agricultural products, workers’ rights, food standards, the ability to live and work anywhere in the EU, regional development money….

  • Brendan Heading

    John,

    Talk of Schengen is a red herring. We are talking about the issues that flow from two countries that have two different immigration systems co-existing with an open border between them. How does the country with the restrictive immigration regime prevent people from entering via the open border ?

    Imagine a Polish bricklayer is working in London. The post-brexit UK refuses him a work permit and decides to deport him back to Poland. Nothing prevents him from getting on a plane to Dublin, taking a bus into Northern Ireland, and then from there taking the ferry across to Scotland and a train back down to London to resume his illegal employment. The Irish government will check his passport, but they can’t prevent him from entering their jurisdiction.

    If the UK government follows through on its rhetoric and begins to aggressively clamp down on immigrant labour, the prospect exists of a huge tide of illegal immigration and people working illegally, all crossing the Irish border. If the police start locking down the major motorways you’ll see illegal crossing points and associated problems (eg those seen at the camp in Calais). The UK government will have to devote significant resources to tackling all of this, alongside the diplomatic issues it will cause with the Irish government.

  • Brendan Heading

    Yes, that’s right. For those who did not follow my argument, the point is that the UK may well decide that the UK will benefit the most by opening up all agriculture to the free market and forcing farmers to compete without subsidies. This is exactly what they did with coal mining, steel, shipbuilding and other things. The only reason why this has not already happened is because of EU farm subsidies.

  • Brendan Heading

    EU farm subsidies significantly alter the behaviour of the market that local farmers sell into. Don’t you understand that taking them away will fundamentally disrupt that market ?

  • john millar

    “Talk of Schengen is a red herring. We are talking about the issues that flow from two countries that have two different immigration systems co-existing with an open border between them. ”

    What is at issue is the “Common Travel Area”
    The UK stayed out of “Schengen”— to preserve the common travel area the ROI had to stay out as well.

    We now face the dilemma where the ROI stays in the EU with the UK out.- whither the common travel area?
    Control across the Irish Land Boundary is a non starter impossible to police without Arizona/Texas style enforcement.

    Any immigrants taking the long way round via the ROI will be
    controlled via the choke points- air and sea crossings —similar to the way traffic was controlled during the current “troubles” The immigration service will continue its “inland” enforcement process.

    The natives North and South won`t like it – the alternative- a formal end to the common travel area will not arise until/if there is a UI

  • john millar

    “I questioned a lot of unionists about the benefits for Northern Ireland of the U.K”

    The main benefit for ” Unionists ” is that they are not in a UI

    You need to find ways to shift that mindset and/or to keep up the “outbreed them ” strategy and neuter them thru the ballotbox.