How Brexit will hit you when shopping in Penneys or M&S

Last month saw an agreement reached between the EU and the UK, which involved a commitment by the UK to avoid a hard border on this island. However, British ministers still say they intend that the UK will leave the customs union – something that is incompatible with a soft or non-existent border. It remains to be seen how this ambiguity will be resolved in the future negotiations.

It is disturbing to see British politicians and commentators still asserting that a free trade agreement, that avoids tariffs between the UK and the EU, would facilitate a soft or non-existent border. This is totally incorrect as it ignores the fact that much of the trade crossing the current non-existent border involves goods imported from third countries.

Thus Penneys, supplying its stores in the UK, ships a range of clothes manufactured outside the EU in countries such as Vietnam and Bangladesh. When Marks & Spencer supplies its shops in Ireland, many of the goods it ships from UK warehouses are also manufactured outside the EU. In the absence of a customs union these third country imports will be subject to duties, even if UK and Irish goods are not. To collect the duties payable to the EU, a customs border of some kind will be required.

Implications for Ireland

Thus, given the uncertainty about UK intentions, it would be wise to consider the implications for Ireland of a hard border after Brexit.

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Ireland and Britain form an integrated market, with Irish retailers supplying stores in the UK and British retailers supplying stores in Ireland. The introduction of a hard border would have major consequences for their integrated retail supply chains.

The customs clearance of a consignment of clothes and food, some of which have been manufactured in the UK, some in the EU and some elsewhere, will be time-consuming and, hence, costly, even if done electronically. Checking random consignments crossing the border, to verify compliance, will take time. Even if the delays are minimised on the Irish Border, goods entering the UK on the way to Ireland may well be delayed by customs in Dover.

Secondly, any delays in the resupply of Irish retailers could immediately lead to shortages in the shops, because retailers hold only a day or two in stocks in warehouses in Ireland; they don’t have space to hold more. As two-thirds of the goods on supermarket shelves either come from the UK, or through the UK, shortages could be widespread in the event of customs delays. Even if the shortages are only temporary and apply to a few lines, panic buying could aggravate the situation, as it has done in the past.

The Donegal issue

Because shops in Donegal are supplied by lorries passing through the North, any delays at the Border could be particularly severe for consumers there. The obvious solution to the Donegal issue would be to agree that lorries are sealed on leaving the warehouse in Dublin and unsealed in Raphoe or Letterkenny. A similar solution is needed for goods transiting the UK from Rotterdam or Antwerp. This would eliminate the need for border checks on trade through the UK but it would still involve additional administration and cost.

These problems will also potentially affect many manufacturers who minimise stocks of parts and rely on just in time deliveries. While holding larger stocks would reduce the danger of disruption in the supply chain, it would come at a cost. As in the retail sector, storage may become a problem.

Obvious solution

An obvious solution to the potential difficulties in importing goods through the UK would be for Irish retailers to establish a warehouse in Rotterdam where they would collect all their non-UK imports and then ship direct to Ireland. However, such trade normally involves lift-on and lift-off of containers, not lorries, and Irish ports don’t have the capacity to handle a big increase in such trade.

Even with the most efficient electronic documentation, the costs of supplying retailers in Ireland will rise significantly. There is the risk that some UK retailers might just give up if this is too troublesome, resulting in a loss of competition and higher prices. Long-term what is needed is to attract new entry by foreign retailers, such as the French retailers Carrefour or Leclerc, who have a supply chain immune from UK difficulties. They could bring enhanced competition and more efficient distribution. The Department of Business, Enterprise and Innovation needs to actively foster retail competitiveness, including attracting new entrants.