Companies in the Newry area of Co Down are considering relocating to the Republic to take advantage of the low corporation tax regime and to establish a euro zone base, according to a report by the Newry & Mourne Enterprise Agency to be published today.

The report, which examines the effects of tax, currency and incentive differentials between North and South, claims the Northern Border region is at a serious disadvantage due to currency fluctuations, the low corporation tax rate in the Republic and its membership of the euro zone.

Growth in the southern part of Northern Ireland is being stifled as a result of the competitive advantages that exist in the Republic, the report says.

"We see this as a major policy issue for the future of the Northern Ireland economy, whatever political framework is put in place," said Mr Conor Patterson, chief executive of the Newry & Mourne Enterprise Agency, an independent economic development agency.

There are several aspects to the problem, according to the report.

The North's 30 per cent corporation tax rate is a serious deterrent to inward investment compared with the 12.5 per cent that will be in place in the Republic by 2003.

Exchange rate uncertainty creates a barrier to trade for Northern companies wishing do business with the Republic.

The Republic can market itself to North American companies as the only English-speaking euro zone country.

Northern Irish companies may follow the lead of those in the transport and haulage sectors, which have relocated to the Republic to take advantage of lower road tax charges and fuel prices. The report criticises an earlier British government report for failing to acknowledge the impact of the South's adoption of the euro, incentives package, energy prices and excise duties on the North's economy. It also criticises the North's Department of Economic Development strategy review for failing to recognise the potential gains for Northern businesses arising from the region's contiguity with the in the Republic.

It wants the British government to establish a policy team to evaluate a range of options from harmonisation with the Republic's model to compensation for disadvantaged Border companies.