Brexit: 50 things Ireland needs to know
Europe’s priorities in secession talks are set out – but what will it mean for Irish business?
UK prime minister Theresa May finally pulled the starting gun on Brexit talks this week. The European Council’s president, Donald Tusk, will today circulate a series of guidelines which the EU will use as both sides call in the divorce lawyers.
The Irish Times wades through 50 issues posted by the triggering of article 50 – from energy prices to the size of chocolate bars.
1. We will get a sense of the European Union’s view on one of the most pressing issues for Ireland in relation to Brexit – the land Border with Northern Ireland and whether the reintroduction of physical checkpoints can be avoided – as soon as Tusk issues his statement we will see if the Border will be given a priority consideration in the divorce talks. But that will only be a start. Remember, Ireland secured declarations from German chancellor Angela Merkel and French president François Hollande during the financial crisis that it was a “special” case – but it didn’t amount to much in easing the burden of bailing out the State’s banks. Will it be possible to avoid the return of tariffs and customs controls for goods moving across the Border and to Britain?
2. Scotland’s first minister Nicola Sturgeon won the backing of her parliament on Tuesday to pursue a second independence referendum. May, for now, is refusing to sanction another Scottish plebiscite before Brexit talks conclude. Could it be only a matter of time before we see a Border poll in Northern Ireland, which, like Scotland, voted to remain in the EU? Sinn Féin has been pressing for a referendum on Irish unity, while Fianna Fáil is putting together a White Paper on what a reunified Ireland would look like.
3. Could the Northern Ireland issue reignite sectarian tensions and trigger a new wave of violence?
4. Will UK airlines be able to operate in EU markets and will EU airlines be able to operate in the UK? For example, Ryanair flies from Edinburgh to London and UK low-cost carriers fly many routes within continental Europe. Unless some deal is done, UK airlines will have to establish headquarters in Europe to continue to fly these routes, while European carriers would have to set up in the UK. Regulators would dictate how substantial a presence that should be - and it wouldn’t be brass plate. EU rules also require airlines flying within its borders to have majority EU shareholdings. As the bulk of the EU shareholders in IAG and Ryanair are currently London based, what happens?
On the upside, could travellers benefit from a return of duty-free sales post-Brexit? UK lobby groups are reportedly working behind the scenes to pave the way for a comeback for duty free.
5. Will travellers face customs checks and possibly taxes when travelling from the UK to the EU and vice versa? Such checks operate at the moment for people coming from outside the EU and look likely to be introduced at airports and ports.
6. What impact will Brexit have on Irish trucks transiting through the UK on their way to deliver goods to the EU via French ports? Under the Common Transit procedure in place between the EU, EFTA countries (Iceland, Norway, Liechtenstein and Switzerland), Turkey and Macedonia, most goods can transit freely between these countries. The UK would have to opt into this procedure for it to apply. Visiting Dublin this week, French finance minister Michel Sapin said: “There are no reasons not to do so within Brexit.”
7. How will quotas in the fishing industry operate after Brexit? At the moment the UK fishing industry is controlled by EU quotas, limiting the amount it can fish and imposing a variety of rules. Can a deal be done to continue this after Brexit? If not, where will British waters begin and end? Who will patrol the seas to make sure British vessels don’t fish in EU waters – including waters off Ireland – and that EU boats don’t enter British waters?
8. The Republic currently imports about 88 per cent of its energy needs, mainly from or through the UK, according to the Sustainable Energy Authority of Ireland. A report this year from the Oxford Institute of Energy Studies said the Republic would effectively be cut off from continental Europe’s gas market when the UK leaves the EU. Could this leave the Republic exposed to supply disruption or higher energy prices post-Brexit?
9. Could securing Irish energy supply be a key bargaining chip for the UK as it heads into difficult talks with the EU?
10. The prospect of securing a load of international banking, insurance and fund management jobs for Dublin has been hailed for months as a key upside for the Republic from Brexit. But, so far, Ireland seems to be losing out in the race to secure business from the City of London. US insurance giant AIG and private equity group Blackstone opted this month to relocate their European headquarters to Luxembourg, while Lloyds of London ignored Dublin for Brussels as it unveiled its new European hub this week. Is regulatory arbitrage between competing centres really playing a role in decision making, as Eoghan Murphy, the minister for financial services, expressed concerns about earlier this month to the European Commission? Central Bank governor Philip Lane warned this week that his organisation would not be following suit. Still, Barclays and Bank of America Merrill Lynch are among banks to have chosen the Republic as their European bases post-Brexit.
11. Is the Government overly ambitious in its target in securing 10,000 new financial services jobs by the end of the decade?
12. To what extent are the housing crisis, the shortage of grade-A office space and the dearth of schools offering an international curriculum weighing on companies’ decisions regarding moving business from the UK to the Republic to maintain EU passporting rights for goods and services post Brexit?
13. Could the Republic, home of Europe’s biggest banking crisis, which cost taxpayers a gross €64 billion, end up hosting one of the agencies set up to deal with the turmoil and prevent future disasters: the European Banking Authority (EBA)? With the EBA set to leave London after Brexit, the Republic is pitching Dublin as the perfect new base.
14. While Brexiteers highlight that the sky didn’t implode in the immediate aftermath of the UK referendum, the value of sterling certainly did, delivering a blow to Irish exporters and the tourism industry. Sterling is now down about 14 per cent against the euro from the time of the vote. Has all the negative news been priced in, especially with Europe facing important elections in France and Germany this year? “With Brexit uncertainty set to dominate sterling’s relationship with the euro for months to come, Wednesday’s events merely mark the end of the beginning,” according to David Lamb, head of dealing at Fexco Corporate Payments.
15. The UK remains the Republic’s most important export market and the Republic is the UK’s fifth-largest market. Some €1.3 billion worth of goods and services move between both states every week, according to the British Irish Chamber of Commerce. Almost 200,000 people in the Republic are employed as a result of our exports to the UK, the Department of Foreign Affairs says. Will Brexit give rise to protectionism in the UK?
16. Are Irish businesses ready to navigate potential supply chain problems, given how reliant many companies are on UK firms to source essential materials and components?
17. Should UK-focused exporters be looking at diversifying from that market? Can they do so effectively? Companies will have to ask themselves how much this will cost.
18. The UK accounts for 37 per cent of all food and drink exports, worth about €4 billion annually. Disruptions to this market through the imposition of tariff barriers, border checks, certification requirements or other regulatory changes pose an unprecedented threat. With Britain’s focus firmly on financial services and car manufacturing, will the Government be able to get food on the Brexit talks table?
19. There are provisions within the EU’s state aid rules for the use of aid to remedy a “serious disturbance” to the economy of a member state. Normally, EU governments can only intervene in cases of clear market failure. Brexit and the related slide in sterling, however, would seem to fit the definition of a “serious disturbance”. Should the Government then seek EU clearance for a range of financial supports to aid struggling firms?
20. Even if the Republic does succeed in maintaining tariff-free access to the UK for food exports, the possibility of preventing Britain from doing a trade deal with non-EU countries – already flagged as a key aim of the UK government – remains a significant challenge. The agri-food sector has most to fear from Britain forging a free trade deal with Mercosur, South America’s trading bloc, potentially resulting in a flood of cheap food into Britain and Northern Ireland. Could this leave the Republic actually wanting a hard Border contrary to our stated aim?
21. Could Brexit signal a new dawn for knobbly potatoes and wonky carrots? For years, farmers have been forced to discard cosmetically ugly fruit and vegetables to comply with fussy industry standards, which Brexiteers continually blame on the EU. In reality, Brussels has never sought to dictate the curve of your banana. It has, however, established grading rules in relation to the shape and curvature of certain produce to ensure importers know what they’re getting, but largely at the behest of industry.
22. Irish companies that are heavily exposed to the UK – from Kingspan to Applegreen – have defied pessimistic projections at the time of the Brexit referendum, as UK consumers have so far remained resilient, construction activity has rebounded from its mid-2016 lows and economic growth has been more robust than feared. But will the world’s fifth-largest economy – to which the Republic is hugely exposed – continue to hold up as UK and EU officials get down to proper negotiations over the coming years?
23. Irish economic growth rate – which has topped the euro zone table in recent times – has been buoyed by the UK economy. Can it avoid being impacted by any UK slowdown?
24. The Republic’s unemployment rate has plunged from a high of 15.1 per cent five years ago to 6.6 per cent in February, helped by exports to the UK and tourists visiting from Britain. Minister for Finance Michael Noonan said last month that the country was “heading towards full employment”. Might that declaration have been imprudent, given the Brexit headwinds the Republic faces?
25. Irish home prices have bounced by almost 50 per cent from their low point in early 2013, though they remain about 32 per cent below their peak a decade ago. Economists largely expect that house prices will continue to rebound at pace this year, helped by existing undersupply, measures by the Central Bank and Government to ease borrowing restrictions for first-time buyers and a potential influx of City of London financial types. But could the recovery be impacted if the UK economy stutters as Brexit talks progress, denting Irish growth? Could homeowners face a double whammy as the European Central Bank starts to increase its base rate, currently at zero, as early as next year?
26. Whatever form Brexit takes, it is possible it could have a disruptive impact on commercial contracts. While law firms, such as Beauchamps in Dublin, say it is unlikely that termination clauses or force majeure (act of God) clauses can be triggered by Brexit, could some parties to agreements seek to exploit the event, particularly if the wording of documents is open to interpretation? Could others rely on the so-called doctrine of frustration, claiming Brexit has made it impossible to keep up their end of a bargain?
27. The UK’s annual public procurement spend is about £200 billion (€231 billion) and EU laws ensure Irish and other EU companies can participate in tender processes on the same footing as British firms. Is it possible that in the long-term, the UK could introduce rules that would favour its own companies when it comes to securing lucrative contracts? Or is it more likely that it is in both the EU’s and UK’s interest that current standards remain in place?
28. While trademarks, designs and other intellectual property registered by Irish companies and citizens in the UK will be unaffected by Brexit, law firm Mason Hayes & Curran has warned that those relying on EU trademarks or designs to do business in Britain may eventually lose protection in that market. Could transition arrangements be negotiated as part of the exit deal? Could they include the ability to convert EU trademarks into corresponding UK trademarks and designs? Meanwhile, the law firm says UK patents are unaffected as the country is party to the Patient Co-operation Treaty and European Patent Convention, neither of which rely on EU membership for effect.
29. How will data be treated once the UK leaves the EU? Although the expectation is that the UK will adhere to new regulations due to be adopted by the EU, will that be binding? What is to stop the UK from backtracking on data privacy laws already in effect at the time of Brexit? Will the UK be faced with having to adopt something similar to the Privacy Shield – or the former Safe Harbour agreement – that governed the transfer of data from EU states? How will the data of EU citizens be treated post Brexit?
30. Will small Irish tech firms who have been establishing business links with the UK be forced to change their plans? As our closest neighbour, many small firms see the UK as the next logical step when seeking to grow their business. Will they have to take extra steps to continue to do business with the UK post-Brexit? Will they have to wait until trade deals are hammered out with the UK and the EU before they can continue with their expansion plans?
31. The slide in sterling that was precipitated by the Brexit vote is now perhaps the biggest challenge facing ecommerce in the Republic. The threat is exacerbated by the fact that traditional retailing is migrating online at a faster rate than ever before. British online retailers are now better placed to capture this migration than Irish sites, as they have an inherent cost advantage. Will Brexit stifle investment in Irish ecommerce, and by extension damage one of the most important aspects of the digital economy?
32. The agency tasked with promoting Ireland abroad, Tourism Ireland, is an all-island body. Post Brexit, could its operation be hampered by conflicting interests? Tourism in the Border counties, most notably Donegal, is also under threat if any restrictions on cross-Border travel emerge. Will the volume of daytrippers from the North be affected? Figures released on Wednesday by the Central Statistics Office confirmed the dampening effect of Brexit on UK visitor numbers into the Republic. Between December and February, the volume of British visitors deceased by 5.9 per cent. While this decrease was offset by increases in US and European visitor numbers, British visitors account for 40 per cent of the total volume of tourists visiting the Republic, so the decrease will heighten the fears of the tourism industry over Brexit.
33. If there is a hard Brexit, presumably the UK telecommunications industry will look to shake off red tape, such as the EU cap on roaming charges introduced last April. Will unrestricted roaming charges be reintroduced between the Republic and the UK? At a local level, this is potentially a major issue for the Border counties, where the nearest mast to a customer is often in another jurisdiction. What measures will be introduced to ensure that people in these areas are not disadvantaged?
34. The UK has always been the Republic’s greatest ally at the EU table when discussions turned to the issue of corporate taxes. The State’s biggest ally on tax now looks set to become its biggest competitor, as the British make noises about further lowering corporate taxes to soften the economic impact of Brexit. With which nations should the Republic now look to build alliances in Europe on corporate tax, to counter balance the Franco-German narrative, which portrays the Republic as predatory on tax policy?
35. As it stands, the UK is second only to Germany in terms of monetary contributions to the EU. In 2015, the UK paid €11.5 billion more into the union’s budget than it got out of it, compared to Germany’s €14.3 million and France’s €5.5 billion, the third-biggest net contributor. Will the Republic and other EU countries have to up their contributions if the UK doesn’t agree to pay something in return for some benefits in future? What if the UK doesn’t pay the €60 billion which the EU calculates to be its Brexit bill, which includes commitments it has already signed up to and pension promises to EU officials?
36. What if no deal is completed within two years? A Fitch survey of global asset managers who oversee €5.8 trillion of bonds and other debt investments, published this week, found that almost a fifth of respondents see the two-year negotiating period ending without any deal. A further 29 per cent see a divorce deal being agreed but no transition arrangements put in place. The Republic is one of the most exposed to the outcome of the talks. The risk is that the UK reverts to World Trade Organisation rules, which would see the imposition of tariffs on imports and exports between the EU and UK.
37. Cadbury put the heart across chocolate lovers everywhere this week when it said it may have to raise prices or shrink the size of its bars while maintaining prices – or what’s known as sizeflation – as a result of Brexit in order to pass on its own higher costs to customers. What next? Twinnings cutting the amount of tea in its Earl Grey bags?
38. The UK, including Northern Ireland, has traditionally been a top location for Irish students to study. However, the number of Irish students applying to UK colleges has dropped 20 per cent this year to 3,900 according to figures from UCAS, the UK’s equivalent to the Central Applications Office (CAO). UK education authorities have guaranteed that Irish and other EU students who commence third-level courses in the coming academic year will not face the usual international fees of between £20,000 and £30,000 a year. But could that commitment fizzle out as the Brexit talks advance?
39. Could CAO points for Irish college courses increase as more students who might have opted to attend university in the UK decide to remain at home? But could this finally provide an impetus for the Irish education system to improve the level of European languages taught – making continental European universities more of an option for Irish students?
40. More than 330,000 Irish people are living in the UK – out of about three million EU nationals residing in the country. What will the deal ultimately mean for them?
41. Both the Irish and UK governments are eager that their citizens will be able to move freely between both countries post-Brexit without the need for visas or work permits, while also retaining full social welfare and pensions entitlements. Can this really be delivered, especially if other countries, such as Poland, which has almost 920,000 citizens in the UK, object to any preferential treatment for Irish nationals?
42. Should the Republic anticipate higher immigration from other EU states as the UK is likely to strengthen its controls around free movement of people, asks PricewaterhouseCoopers Ireland’s Brexit partner, David McGee?
43. What will happen to the British Irish Visa Scheme set up in late 2014 which allows Chinese and Indian visitors, who secure a short-term visa for either country, pop across the Irish Sea?
44. While Taoiseach Enda Kenny has resisted appointing a Brexit minister, saying he effectively holds that position, PricewaterhouseCoopers, for one, wonders why the Republic doesn’t have a separate minister in charge of handling matters regarding the UK’s exit from the EU. The Republic has no veto powers when it comes to the exit deal, as it will only need a “super qualified majority” of at least 72 per cent of member states representing 65 per cent of the bloc’s population. Can the Republic do without a strong voice focused solely on pushing its position on various matters as negotiations progress?
45. Brexit also poses a number of questions for the media and advertising industries. Given UK-based consumer goods giants such as Unilever and Procter & Gamble (big television advertisers here) make decisions on their Irish marketing budgets out of London, will Brexit result in a significant drag on advertising revenues at Irish broadcasters such as RTÉ and TV3 in the future, as it did in 2016? Will companies such as Channel 4 and Sky – which is estimated to control more than 20 per cent of the Irish television advertising market – need to obtain a local licence to pursue an advertising sales business here after Brexit?
46. Will London-based broadcasters targeting audiences in other European markets relocate to the Republic to continue doing so in a single market?
47. AstraZeneca, one of Britain’s two major pharma groups, and others, notably Japan’s foreign ministry, have warned that a post-Brexit Britain will be a less attractive location for Big Pharma. Japan, in particular, has indicated that its companies are likely to follow the European Medicines Agency (EMA) wherever it is located. With its strong life sciences cluster, can Ireland persuade its peers in the EU that the EMA should be relocated to Dublin?
48. What impact will Brexit have on the Premier League? The status of the 330 or so players in the Premier League, the Championship and the Scottish Premier League might not be affected given that May has signalled she wants to protect the status of EU citizens already living and working in the UK. But the days of plucking an unknown player from obscurity in Cobh or Killybegs could be over and it could impact on the movement of EU managers to British clubs and vice versa. Fans travelling between the UK and EU countries for matches might also face longer queues at ferry terminals and airports.
49. Will the rise of anti-establishment sentiment ultimately lead to other countries leaving the EU? Could European government borrowing costs diverge as a result of such speculation as they did during the financial crisis – hitting the Republic once again? The spectre of Grexit – mooted long before Brexit became a prospect – has raised its head again amid growing tensions between Greece and its bailout masters. Meanwhile, French far-right presidential candidate Marine Le Pen, who, polls indicate, will end up in a run-off vote on May 7th, is campaigning partly on plans to ditch the euro.
50. The latest national Eurobarometer report shows the Republic remains one of the most committed to the EU, with 67 per cent of those polled saying the country is better off within the union. Could the currently unthinkable notion of Irexit take hold among the public if the price of Brexit for the Republic becomes too much for this State?