Under Western Eyes

Mar 19, 2019

The Sunday Business Post, 17 March 2019
The British Government’s post-Brexit customs proposals published this week are little short of bizarre.  Unilateral decisions on a tariff regime fall some distance outside international trading conventions.  If the proposals were ever implemented, Britain could wave goodbye to any prospect of new trade deals with other countries post Brexit.  While one of the great promised advantages of Brexit was a new British capacity to strike its own trade deals, no established economy will agree tariffs and quotas with Britain while the land border on the island of Ireland is so ill defined.

However, this focus on the movement of goods may mean we are looking in the wrong direction.  The local narrative on these islands has been about the disruption to the flow of goods across borders, and the impossibility of carrying out rigorous checks while still holding an open border on the island of Ireland.  The success of the EU as a single market has been far more pronounced in goods rather than services, but it may well transpire that the services market will be the defining issue for the UK as it comes to terms with its brave new world post Brexit.

On the West Coast of the US, businesses are wondering above all else why the UK is choosing to restrict free movement of people.  This perspective, from business representatives I spoke to in the San Francisco Bay Area this week, may be more clear-sighted than our local concerns.  The sharpest consequence of Brexit for Britain might have less to do with trading in goods than the curtailment of that nation’s capacity to export services by choking the flow of immigration.

Freedom of movement of people within the EU has never been about the mere lifting of passport controls at borders between member countries.  Rather, it has been about the entitlement of individuals to secure work, or to secure social benefits like unemployment benefit, family assistance or housing.  Of course there are obligations associated with providing these benefits, both for the recipients and for the host countries that provide them.  Those obligations are worthwhile in modern economies which are far more service-oriented than goods-oriented.

When it comes to the challenges for business around the Bay Area the recurring motif is all to do with the availability of staff.  There is no apparent shortage of work, particularly for qualified people.  When a services industry is choosing to locate or expand, the availability of workers is often more important than access to markets or tax breaks.  Services can be delivered without necessarily having to be local to the market which consumes the service.  But services have to be generated somewhere. 

Britain will point out, and with some justification, that it has a coherent immigration policy which is designed to attract the kind of workers that the government considers most appropriate.  Generally speaking, migrant workers have to be skilled, have a sponsor, some independent means, a knowledge of English and the wherewithal to apply for a work visa in the first place. 

An immigration policy is vital as choking off the supply of labour at a time of practically full employment makes no economic sense.  Neither does it make sense for a government to decide, almost arbitrarily, that only workers capable of earning over a set amount (in the UK that's approximately 30,000 sterling) are the kind of workers that the economy requires.  Using measures like salary to discriminate between who should and shouldn’t work in a country is a fairly blunt instrument.  For instance there is no point in having a series of tax incentives for companies to locate in your country if those companies cannot attract workers. 

From speaking to executives in Silicon Valley, the main challenge they now see when it comes to expansion is about workers willingness to move, rather than the tax advantages of one country over another as was the case for so many years.  As one executive put to me, for her business the tax planners no longer steer the foreign investment decisions.  Increasingly it is down to the human resources personnel.

In a hard Brexit, many EU workers (though not Irish workers apparently) will have to apply for settled status.  Even if the proposed immigration restrictions are lifted, how confident will workers from Europe be about remaining in, or relocating to, the UK?  Many will also be concerned about the prospects for their families or dependents.  This is bound to have a knock-on effect on the British export services industry.

It will also have a knock-on effect on the Irish services industry.  It has been noted in Washington this week that a hard Brexit means that we will be the only English speaking country in the EU with unfettered access to workers from the other 26 member countries.  That may turn out to be a colossal competitive advantage for this country.

It is correct to be profoundly pessimistic and worried about the consequences for Irish trade in goods, particularly agri-food, post a hard Brexit.  The trade in services is a different matter entirely.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.