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Britain: ‘our nearest neighbour and our natural friend’

Trade between Ireland and the UK remains robust but it’s crucial that businesses plan for post-Brexit challenges, experts warn

Taoiseach Garret FitzGerald and British prime minister Margaret Thatcher in 1985. The then taoiseach had described Britain as “our nearest neighbour and our natural friend”. Photograph: Photocall Ireland

Taoiseach Garret FitzGerald and British prime minister Margaret Thatcher in 1985. The then taoiseach had described Britain as “our nearest neighbour and our natural friend”. Photograph: Photocall Ireland

 

Ireland and the United Kingdom have been each other’s most important trading partners for as long as trade has been recorded. Trade between the two maritime nations was as natural as it would have been between neighbouring towns. The relationship long predates Brexit and will continue long afterwards.

Indeed, the relationship has survived revolution, trade wars, world wars, and the dislocation caused by the separation of the currencies in 1979. It is little wonder the then taoiseach, Garret FitzGerald, described the UK in 1983 as “our nearest neighbour and our natural friend”.

It should also come as no surprise to learn that interest in trading with Britain among Irish businesses remains undimmed. “In Enterprise Ireland we are seeing just as much interest in the UK as we always have,” says Marina Donohoe, UK and Northern Europe manager with Enterprise Ireland. “We have increased resources here to respond to continued client interest and new market opportunities and we have recruited three new staff in the past month.”

That said, Brexit, in whatever form it eventually takes, is certainly going to present challenges for trade between the islands. According to KPMG partner Brian Daly, there is a wide range of issues which companies must take into account when attempting to plan for Brexit. These include regulatory regimes, passporting rights for financial services products, migration rights, funding sources, supply-chain disruption, standards, data-transfer rules, and intellectual property rights, among many others.

“What we are saying to companies is that they should look at what a hard Brexit would mean for them,” says Daly. “That’s the only one that that they can actually plan for at the moment. Already, the banks and insurance companies are having to report to the regulator on their Brexit plans.”

He agrees the UK will remain Ireland’s most important trading partner in the post-Brexit world and that it will be a case of making the adjustments necessary to continue to compete there under the new circumstances. “Companies exporting to the UK at present will have to look at their supply chains and reassure them that they have a Brexit plan in place,” he says. “Major multinational firms may not be interested in continuing to supply companies if they believe they don’t have a future.”

In other cases, companies may have to alter their business model. While the shape of any future trade deal between the UK and the EU is still unknown, there will almost certainly be tariffs. “It is possible that some companies might decide to re-engineer themselves to service the UK market from within it by producing more goods locally in the UK,” he says. “This will not be an overnight thing. It will happen over a period of years.”

Aidan Gough, strategy director with cross-border enterprise promotion body InterTradeIreland, believes the nature of the relationship will change post-Brexit but that its importance will continue. In this context, he is very concerned about the results of a recent InterTradeIreland business survey which found that 95 per cent of cross-border traders are not planning for Brexit.

‘Major concern’

“That is a major concern,”he says. “We are trying to spur them into action. We are saying that they should ask themselves questions about different issues that might affect their business. For example, what if Rules of Origin certificates have to be produced when shipping goods across the border. We know that they cost £48 each and that cost will mount up over a year. Nobody has all the answers but by asking the questions, businesses will start preparing themselves and might even identify new opportunities.”

The overall InterTradeIreland advice for cross-border traders is to “plan, act, engage”. “Brexit is almost personal,” Gough adds. “It will have a different impact for different businesses. They need to get out there and engage with their customers and suppliers to build the strong relationships that will help them succeed after Brexit.”

Dr Julie Byrne, banking and finance lecturer at the UCD College of Business, point out that some companies are more exposed to the impact of Brexit than others. “The UK will remain our most important trading partner, but the impact of Brexit depends on the industry you’re talking about,” she says. “Some sectors are more exposed than others. Some will be hit hard and others might even benefit. The agri-sector, for example, is particularly exposed.”

That exposure not only arises from the prospect of tariffs and other trade barriers like border controls but also from the UK’s declared intention of doing trade deals with other potential food suppliers from outside Europe. The big fear is that the UK will implement a so-called “cheap-food” policy, where low-cost food is imported from the Americas and other producers which do not apply the EU’s strict quality standards.

“If the UK do reach trade agreements for cheaper food that will probably lead to job losses,” Byrne notes.

But there are opportunities as well, as Marina Donohoe points out. “Exports by Irish companies to the UK grew by 2 per cent in the last year and if you take food out it was 6 per cent,” she points out. “A lot of Irish exporters are mainly focused on London and the south-east region but there are also opportunities in the north and in Scotland. Take construction exports, for example. These were worth €2.3 billion last year and a lot of that was in London. We are helping construction firms target the UK national infrastructure programme, including the HS2 high-speed rail link between London and the north. There will continue to be opportunities for trade after Brexit, but the important thing is not to be naive and to prepare for its impact.”

Ireland and the UK by numbers

The UK is Ireland’s largest trading partner, accounting for 19 per cent of Irish services exports worth €23.5 billion and 13 per cent of goods exports valued at €15 billion. It is also the source of 8 per cent of services imports (€12 billion) and 23 per cent of goods imports worth €16.8 billion.

According to the CSO, the UK accounted for €89 billion, or 10.9 per cent, of total outward Irish direct investment in 2015. Inward investment from the UK to Ireland was lower at €37 billion, or 4.6 per cent, in 2015.

In addition, Irish residents hold significant portfolio securities in the UK. In 2015, these were valued at €114 billion in equities, €216 billion in bonds and notes and €70 billion in money market instruments.

According to the Revenue Commissioners, there were about 12,000 Irish traders exporting goods and/or services to the UK, with an estimated value of these exports in the region of €33 billion. These traders directly employed more than 680,000 people at the time. About 90,000 Irish-based businesses import goods and/or services from the UK.