Irish businesses have been keeping their fingers crossed for months that a Brexit trade deal can be done. The UK's exit from the EU single market and customs union is going to hurt one way or another – but a no-deal would bring a much higher level of disruption, cost and risk.
Now, facing what may be a final deadline, the two sides say they remain far apart. So just what is at stake for the economy, businesses and jobs?
Talk immediately after the 2016 vote of the UK doing a deal to retain “ frictionless” trade with the EU has been long forgotten. What is at stake now, as the talks go to the wire, is whether there is a hard Brexit or even worse, crash-out chaos.
And such are the costs involved that some business sources are quietly asking if a way can be found to avoid this and prolong the talks into 2021. It would be a surprise if Brussels had not tried to scope this out – and an even bigger surprise if the bloc’s mandarins admitted it at this stage.
But it is legally complex as there is no clear way to prolong the existing transition period and the UK has insisted that the talks must conclude this year. For now, all we have from Brussels are basic measures to keep planes flying and trucks moving and proposals on fishing access to which the UK may or may not sign up.
If a deal is done, at best it will be a basic one avoiding tariffs – or import duties– and quotas on trade, but even a basic deal will mean a new customs regime which will create costs to businesses and result in initial delays.
These are a big issue for Irish food producers and farmers. But there is a wider question too. Would the UK exiting without a trade deal lead to lengthy recriminations as a blame game takes hold? Would it lead to ongoing disruption and damage future co-operation, while threatening a longer-term wedge between Ireland and one of our major trading partners?
Some say the UK would quickly come back to the table looking for a deal next year. But many people in Ireland who are close to the negotiation process believe that the post no-deal politics would be so toxic this simply would not happen. The truth is we just don’t know.
The flipside is that, in the longer-term, there would be some upside, with the likelihood of more foreign direct investment here as the UK loses free access to EU markets. We have already seen some of this in banking and financial services, and there could be more to come.
A Department of Finance analysis thought this was likely to happen, but that it would become evident slowly, over two to three years. In contrast, most of the costs will be up front – particularly if there is no trade deal.
Calculating the economic cost of this no-trade deal is not straightforward. "There really hasn't been anything like this before" says Marina Lawless, research professor at the Economic and Social Research Institute.
Normally, calculations of the impact of trade changes on economies relate to countries doing new deals, she says, or joining organisations such as the EU. Moving the other way is almost unprecedented and calculating the impact due to disruption to supply chains makes it very difficult, along with the impossibility of predicting what delays will occur or how long they will last.
The longer-term cost to the Irish economy of a no-trade deal Brexit could be about 6 per cent, according to Lawless, who spoke on the issue in her role as a member of the Irish Fiscal Advisory Council at an Oireachtas committee this week. This is about €21 billion in cash terms.
Department of Finance forecasts are that, in the case of a no-deal, the hit to growth next year alone could be three percentage points off GDP. In other words, a no-deal outcome means the hit is not only bigger than if there was a deal but also comes more quickly.
If there is a deal there will be costs too, as economic research suggests that the costs of so-called non-tariff barriers – the customs procedures, bureaucracy and delays which will apply even if there is a deal – can cost as much or more as tariffs.
The longer-term cost if there is a deal might be about 4 per cent of GDP, but the costs in year one would be a lot less.
The key point of a no-deal outcome is that it would lead to additional costs for two reasons. One is tariffs, which we can calculate. The second is the reasonable expectation of more delays and disruption to supply chains for a period. This is near impossible to put a figure on, but could be very significant,certainly in the first half of 2021.
A key issue for Ireland is the landbridge through the UK to and from EU markets, across which 150,000 trucks move each year. Significant delays are now expected, particularly going through UK ports to the Continent, threatening major disruption to supply chains and businesses and possibly for some products on Irish shelves.
The wider costs of Brexit, even with a deal, are already being felt across the many sectors which trade with the UK as they prepare for the imposition of customs requirements.
As the UK moves out of the single market and customs union, it becomes a third country, involving new customs rules and detailed food and animal safety regulations, bureaucracy and checks. Many smaller companies have found it hard to get UK suppliers and customers to even engage with these issues, according to Irish customs experts.
A no-deal brings tariffs – or import duties – which both sides would have to apply under World Trade Organisation (WTO) terms.
In most non-food sectors, as Lawless explains, these tariffs are low, typically zero or in low single figures, with a few exceptions such as some types of clothing and shoes which are a bit higher.
But by far the most significant tariffs relate to the food sector, covering a range of products from processed foods to cheese, but with the heaviest burden on meat and particularly beef. The Irish beef sector exports 90 per cent of its output and almost half of these exports go to the UK market, including everything from prime cuts to burgers used by fast food chains.
Tariffs on meat range from 20 per cent for pigmeat to 34 per cent for poultry and 70 per cent-plus for beef. This risks pushing much of the Irish meat trade out of the UK market completely.
Many of the big players – such as ABP and Dawn Meats – have invested in UK plants, but these are processing UK cattle. As tariffs would apply on unprocessed exports, there is no possibility of processing Irish beef in the UK facilities. So if the tariff regime comes in, the sector has an immediate and very big problem, as do the 80,000 farmers who supply it.
The dairy sector will be hit too. While it has been more successful in diversifying markets, traditional exports in areas such as cheddar would be under threat. Processed food companies would also face big challenges. as would the mushroom sector
But if there is one key pinch-point for Ireland in a no-trade deal Brexit , it is the beef sector with its €1 billion in exports to the UK set to face a tariff wall of over €700 million.
The Government is examining what support measures it could put in place for the worst affected sectors in a no-deal scenario.
An extension of the wage subsidy scheme, which applies to companies hit by Covid-19 is expected, perhaps tweaked to take account of companies that have to put employees on short-time working due to a fall-off in trade. Employers groups such as Ibec have also been pushing for a restoration of export credit guarantees to help companies diversify into new markets.
Cormac Healy of Meat Industry Ireland, the body which represents the sector, has said that some kind of special support mechanism would be needed to allow companies to stay in the UK market. It is not clear if this could be done within WTO or EU state-aid rules, though some special temporary supports for the sector are likely to be considered.
Farmers are also calling for special help, with their representative body, the IFA, calling for a support programme and also on the EU to ban beef imports from third countries to create new markets for beef from member countries such as Ireland.
Tariffs also mean that food will be the main area of imports affected coming into Ireland from the UK, with price increases likely in the shops for a range of items from cereals to meat, to processed food and all kinds of confectionery.
If there is no progress by this weekend and a no-deal exit of the UK from the EU is on the table, expect that the demands for assistance from the businesses and farmers worst-affected will grow even louder.
A real issue for the longer term is what this will mean for trade between Ireland and Britain. Integrated supply chains are already being re-examined, the landbridge will be partially bypassed and the business calculations behind thousands of decisions about where to invest, buy and sell are changing.
It is hard to calculate what this will mean in the years ahead, but it is a seismic change.