1. Brexit and Trade on the Island of Ireland
DATE
10th April 2019
VENUE
Whitaker Research Day, NUIG
AUTHOR
Martina Lawless

2. Outline
Levels of economic integration
Potential impact on Ireland of “no-deal” outcome
Cross-border trade and integration
Current state of play

3. Layers of integration - memberships
Source: LGIM

4. Layers of integration: trade-offsEU
EEA
EFTA
Customs Union
Free Trade Agreement
WTO
(Norway)
(Switzerland)
(Turkey)
(Canada)
Free trade in goods
Yes
Yes (except agriculture)
Yes (for most goods)
Mostly No
Free trade in services
Partial
Common external tariff
Ability to have own trade deals
No for goods, yes for services
Votes on EU regulations
Under ECJ jurisdiction
Indirectly
Pay into EU budget
Free movement of people

5. Red lines
Source: Slide presented by Michel Barnier to the Heads of State and Government at the European Council (Article 50) on 15 December 2017

6. Brexit trilemma
Source: Automatic Earth

7. Estimating the impact: known unknowns
Political Uncertainty
Political impasse in UK means there are a range of possible outcomes
Uncertainty on shape of final trade agreement.
Economic Uncertainty
No precedent of a country leaving a major trading block such as EU; most estimates based on impact of EU membership
Most estimates apply to the long-run, uncertainty about adjustment path.

8. % Reduction in long-run GDP
Estimates of economic impact
Study
Scenario
% Reduction in long-run GDP
Bergin et al. (2019)
Deal
-2.6
No deal
-4.8
"Disorderly" no deal
-5.0
Arriola et al. (2018)
-2.3
Copenhagen Economics (2016)
EEA (Norway deal)
-2.8
FTA (Canada deal)
-4.3
-7.0
Central Bank of Ireland (2019)
-6.0
IMF (2018)
-2.5
-4.0
Vandenbussche et al. (2019)
-1.3
-5.7

9. EU Tariffs to 3rd countries (green=food)
Source: Lawless and Morgenroth, 2019

10. Share of trade by potential WTO-level tariff level
Source: CSO 2016 and InterTradeIreland 2018

11. Non-tariff barriers
Non-tariff barriers are anything that is not a tariffs that acts to restrict or inhibit international trade flows such as:
Quantity limits (quotas)
Subsidies to domestic production
Technical requirements - licensing, labelling, standards
Sanitary and phyto-sanitary rules
Also include customs inspections and documentation
Effects of customs procedures have a large negative effect on export participation but relatively little on average trade values per firm larger impact on small firms (Lawless, 2010).

12. Tariffs and non-tariff barriers tend to hit the same sectors
Source: Lawless, 2018

13. Estimated impact of WTO tariffs
Source: Lawless & Morgenroth, 2019

14. Uneven impact at regional level

15. Uneven regional impact within Ireland
Likely to reflect pattern of most impacted sector:
Proxy by share of jobs in the agri-food sector.
Source: Morgenroth, 2019

16. Potential off-setting increase in FDI?
Ireland might attract additional FDI that might otherwise have been destined for UK
Existing literature suggests that EU membership increases FDI from outside the EU by 27 per cent.
ESRI Economic Outlook (2016) assumed leaving the EU has the opposite effect and Ireland attracts a share of diverted FDI.
Estimates a reduction in negative impact of Brexit on Ireland but not nearly large enough to offset trade reductions.
Plus…regional impact very different.

17. Northern Exposure

18. Share of NI in Irish Goods Trade with UK
Source: CSO 2016 and InterTradeIreland 2018

19. Northern Ireland External Trade Structure
Source: NISRA BESES 2018

20. Cross-Border Trade Structure
Source: CSO 2016 and InterTradeIreland 2018

21. Who Exports? (NI firms)
Source: CSO 2016 and InterTradeIreland 2018

22. Cross-border deliveries by firm size
Source: NISRA 2018

23. Impact summary
Cross-border trade between Northern Ireland and Ireland more like local trade than international export activity
Almost all exporting firms in Northern Ireland include Ireland as one of their destination markets.
Over 80% of the smallest firm size group that export from Northern Ireland have all of their export sales in Ireland.
High degree of cross-border integration through supply chains.
High frequency of deliveries and low value per delivery for NI traders across the border.
Impacts of any changes in the cost of trading post-Brexit liable to be felt most particularly by very small firms trading across the border.

24. Technological solution?
Source: Deirdre Heenan via Twitter

25. Promise of world trade deals?
For UK as a whole:
Unlikely to replace levels of trade in integrated EU market.
Distance still matters to trade.
Trade-offs part of any international deal – across sectors, standards, migration(?).
Financial services and car industry most likely to be prioritised.
For Northern Ireland:
If trade-offs above mean opening UK up to world food imports, would pose major competitive challenges for NI.
Services exports not (currently) a major feature of economy.
Any deal involving changes in food standards very problematic for cross-border flows – technology unlikely to help if standards diverge.

26. What happens next?
Source: BBC news website 8th April 2019

27. Is Ireland ready? Revenue Commissioners hiring 400 extra customs staff
Expecting increase in number of customs forms from 1.7 million to potentially 20 million.
Dublin port has spent €30m to prepare new customs checks
But hard to mitigate risk of landbridge delays.
Customs advice events and funding for businesses likely to be affected.
Firms increasing holding of inventories against risk of supply disruptions (AIB purchasing manager index).
Legislation passed to continue cross-border travel, student grants etc.
But no (public) plans on NI border checks…