Lastest news

What Ireland could lose and gain from a no-deal Brexit

Aug 18, 2019

With less than three months until 31 October, Brexit is beginning to look not only imminent but increasingly likely to be a no-deal. Mark Kennedy gives the ups and downs of what this could mean for Ireland.

After two delays, it looks likely that a no-deal Brexit is going to go ahead at the end of October. For Ireland, this is the worst possible outcome. The Withdrawal Agreement negotiated between the UK and EU authorities covered several important aspects relevant to a managed Brexit situation. In the core agreement, issues like VAT, policing, customs, and citizens’ rights were dealt with, forming a bridge to the negotiation of a formal trade agreement between the UK and the EU. The annexes to the agreement included a very comprehensive treatment of the issues relating to Northern Ireland – the much-discussed ‘backstop’ – which will provide stability while more permanent arrangements are agreed. The agreement also dealt with the question of the financial settlement between the UK and the EU. A no-deal scenario sets all of this aside and presents many significant and immediate practical challenges for Ireland.

Hard border

With a no-deal Brexit, there seems to be little realistic prospect of retaining an open border. While closing the border may take some time, there will be trade impacts. Moving customs arrangements to a WTO footing will impact Irish importers and exporters trading goods with the UK, with consequences for profitability and competitiveness – an impact that will be exacerbated by the non-tariff implications of trading in a WTO environment: administration and border costs, and regulatory differences that can add to the cost-base of Irish businesses. The situation for services is also uncertain; while WTO rules are less prescriptive, the potential for protectionist action will exist, and trade in certain services may be impacted.

These impacts will be most notable in certain sectors of the economy: agriculture, logistics, retail of certain products and any business dealing with Northern Ireland is likely to feel the most immediate effects. I also believe that the impact is going to be most profound in mid-sized and smaller businesses, with a marked regional distribution.

Investor confidence

There is a second issue, potentially as troubling as the immediate trade and cross-border problems – the impact on investor confidence. Our economy is significantly dependent on foreign direct investment. The combination of actual or perceived trading difficulties combined with concerns about security issues in Northern Ireland will undoubtedly impact investor sentiment towards the UK, but may also have a knock-on effect for Ireland.

One area where we already observe this possible impact is in the value of sterling, but we may also see investment decisions impacted by individual investor corporations' assessment of stability, costs of doing business, and the relativities of Ireland/UK taxation policies. It’s also likely that the negative impact of Brexit will consume resource that might otherwise be spent on both public and private sector investment projects.

The upside

Taken together, all of this paints a rather bleak picture. It is essential, however, to balance the threats with some consideration of more positive points. The EU remains our largest market, and our membership of the EU offers significant opportunities to expand trade with the EU. Ireland stands well-positioned to be the best point of access for UK businesses seeking to trade in the EU, particularly in the services sectors. Ireland will also be a key voice in the negotiation of a trade deal with the UK, offering an opportunity to address many of the issues important to Ireland.

The Irish Government and EU will and are providing support to the most vulnerable sectors in the economy in the short-term. And, while some slowing of economic growth seems likely, this is unlikely to equate to a recessionary environment.

In summary, the impact of a no-deal Brexit is going to be more damaging than we hoped for, and in many ways, we will only understand the full implications after an extended period of adjustment to what will become a newly-normalised and, I believe, positive relationship between Ireland, the EU and the UK.

Mark Kennedy is the Managing Partner of Mazars.