Oct 22 2019
International trade accounts for a significant proportion of the Irish economy. According to the Central Statistics Office, Ireland exported a total of €140.7 billion and imported €92.1 billion in 2018. The United Kingdom is Ireland’s largest trading partner, with the World Bank stating that it accounted for 22.1% of imports and 11.8% of exports in 2017. Therefore, the implications of a disorderly exit of the United Kingdom from the European Union could severely affect the Irish economy through the potential introduction of tariffs and non-tariff trade barriers. Tariffs will reduce the competitiveness of the Irish industry as the United Kingdom reverts to the World Trade Organisation (WTO) Most Favoured Nation (MFN) status. Likewise, non-tariff barriers could lead to costly delays for just-in-time manufacturing and cross-border supply chain management.
In terms of value, the pharmaceutical and medicinal manufacturing industry is the largest exporting industry to the United Kingdom. According to the UK parliament, it accounted for 15.6% of total Irish export revenue, at £2.1 billion (approximately €2.4 billion), in 2018. As both the United Kingdom and Ireland are members of the WTO, UK MFN status will allow a large proportion of pharmaceutical industry exports to be covered by the Pharmaceutical Tariff Elimination Agreement and subject to zero tariffs once the United Kingdom leaves the European Union. However, not all pharmaceutical products are covered by this, as the agreement has not been updated since 2010. As a result, firms and customers could opt to purchase resources from lower cost countries. Furthermore, any border delays may be costly and affect the viability of cross-border supply chain management, disrupting the supply of medicines to UK customers. As the largest UK market for medicines, the limited financial resources of the National Health Service may result in restricted purchases of Irish medicines in order to reduce costs.
The United Kingdom is Ireland’s largest market for meat and meat products, accounting for 42.9% of industry export revenue in 2018, at €1.4 billion. The largest segment of this market is fresh and chilled cuts of beef, accounting for nearly 50% of exports. One result of a disorderly exit is likely to be the appreciation of the euro against the pound strongly discouraging the importation of Irish beef as its relative price increases. The potential introduction of tariffs would also be expected to make Irish meat less competitive in the United Kingdom. Furthermore, the United Kingdom will no longer be obligated to abide by EU regulatory standards and could import cheaper meat from other countries, such as the United States and Brazil, diverting demand away from the industry. Additionally, industry items are likely to face delays as they are subject to greater health controls and higher customs compliance at the British border. This is anticipated to increase the time and cost of transportation for the industry, as cold supply chain management becomes more complex.
Perfumes and essential oils also make up a notable proportion of Irish exports to the United Kingdom, accounting for £524 million (approximately €591.5 million), or 3.8%, of total exports in 2018, according to UK Parliament. As members of the European Union, both Ireland and the United Kingdom are subject to the Registration, Evaluation, Authorisation and restriction of Chemicals regulation. This is one of the most complex legislative features of the European Union, and is focused on the production and use of chemical substances and their effect on the environment and human health. If the United Kingdom deviates from this regulation, it may reduce costs for their domestic producers and allow greater access into their market for non-EU countries, reducing the competitiveness of the Irish industry in the United Kingdom. In addition, the United Kingdom may create its own chemicals agency, creating additional regulation for industry firms, although it is likely to still observe the United Nations’ (UN) Globally Harmonised System of Classification and Labelling of Chemicals.
Overall, a disorderly exit of the United Kingdom from the European Union represents a threat to Irish industry demand. Both Ireland and the United Kingdom belong to external organisations, which may be able to negate more substantial negative effects of this outcome, such as through membership of the UN and the WTO. However, a problem faced by Irish exporters would be the reduction of competitiveness through the introduction of tariffs. Additionally, the establishment of non-tariff barriers could substantially damage supply chain management and discourage UK firms from importing required goods, instead substituting in domestic products. This may result in more intense competition from outside of the European Union, as the United Kingdom may relax regulations.
For a printable PDF of Across the Border: The effects of Brexit on Ireland-UK Trade, click here.