Cliff Taylor: Fractious start to next phase of Brexit shows dangers for Irish economy

The three key points for the Irish economy and businesses as EU and UK set out their stall

The UK and EU have both been setting out their stall on the next phase of talks, just days after Brexit took place. The temperature seems to be rising again, though it is worth noting that the real talking won't start until March. On Monday the chief EU negotiator, Michel Barnier, outlined the EU's draft negotiating guidelines – now to be subject to discussions before being finalised – while UK prime minister, Boris Johnson, made a key speech on the UK's approach. Here are the key economic takeaways for Ireland.

1. Overall picture

It is still all to play for in terms of what kind of deal is negotiated – and with Johnson insistent that he will not seek an extension to the time allowed for talks, it will all have to be agreed and approved by the end of the year. That means the deal will have to be pretty much concluded by the end of October, to allow for the required ratification by EU member states.

Seeing a deal done is vital for Ireland – though there will be an economic cost whatever happens. Updated estimates by Copenhagen Economics, the consultancy firm, are that a trade deal along the lines of the political declaration agreed in December would lead to Irish GDP being between 3.3 per cent and 3.9 per cent lower by 2030 than would otherwise be the case. Most of this " hit" could be expected over the next few years.

However if the EU and UK do not do a trade deal by the end of the year – and no extension has been agreed – then the UK will trade with the EU on what are called WTO terms, meaning tariffs and other barriers to trade. Copenhagen has estimated that this could reduce Irish GDP by 7 per cent by 2030 – again with most of the hit in the earlier years. This would pose a significant threat to growth in 2021 and 2022.


2. The specifics

What is at stake for Ireland is access to the UK market. Both sides have said they want no tariffs – special taxes on imports – and to cooperate on standards to cut red-tape and bureaucracy. Trade is most unlikely to be as free as it is now – and new bureaucracy and delays are likely – but a trade deal could remove a fair bit of the damage.

Most exposed in the event of no trade deal being completed would be areas like the food sector, which is a big exporter to the UK and would also be hit hard if WTO tariffs were imposed. This would also push up the price of UK foodstuffs for Irish shoppers.

For the Northern Ireland economy, the issues are different. It has been promised free access to EU markets and also that it will remain part of the UK customs regime. However, businesses in the North await details of how checks would operate on goods moving from Britain into the North – and also what bureaucracy would apply on goods moving the other way. Senior UK ministers continue to insist that businesses in Northern Ireland will have free access to the UK market, but Barnier warned today that the UK had signed up for checks on goods coming from Britain into the North – to protect the single market.

3. The flashpoints

The next Irish government and businesses face two uncertainties. One is what kind of a deal could be done by the end of this year – and can one be done at all. At best a basic deal. one covering tariff-free trade in goods, looks the most that could be achieved by December, leaving talks of services, data and other areas until later. So we are facing into new uncertainties, first about what kind of deal might be done and second about what it will include.

A key issue in the talks will be EU demands that the UK sign up for what are called level playing field provisions – to maintain standards in areas like environmental protection, employee rights and state-aid rules – in return for tariff free access to the single market.

No tariffs would be good news for Irish businesses, though different regulatory regimes could still impose costs in terms of bureaucracy and checks. EU access to UK fishing waters will also be a potentially difficult issue which will feature early in the talks, and is vital for the Irish fleet.

For the next government, the so-called Irish protocol will also be vital. Ireland will have a role here in a committee overseeing the implementation of the new controls on goods entering Northern Ireland from the rest of the UK. Trade experts say putting this in place by the end of the year will be a big challenge. If the two sides do a trade deal which eliminates tariffs it would make it easier to implement, though the EU side will still insist on proper protections for the single market. This could well be a contentious area and one of vital interest to Ireland, North and South.