Brexit: The Long Goodbye

30 March 2017

Ireland is among the most globalised economies in the world. We are an open trading nation, due to the small size of our domestic market. Exports of goods and services are therefore far more important to Ireland’s economy compared to other countries, including larger EU partners.

While Ireland has been successful in diversifying exports across international markets, our geographical connection and the composition of our trade with the UK means that certain key sectors in the Irish economy will be very heavily impacted by the UK’s departure from the EU.

The decision of the UK to leave the European Union presents unprecedented political, economic and diplomatic challenges for Ireland. Challenges to our peace, and challenges to our prosperity, how we deal with it in the months and years ahead will define the future of our island for decades to come.

Those challenges extend right across the political and economic spectrum, where so many areas are now the subject of common approaches and standards at EU level. The UK now faces the most intense, arduous and complex negotiations since the end of the Second World War, the country’s prospects will largely part depend on the 262 words of Article 50.

What is Article 50?

Introduced in 2009, Article 50 of the Treaty on European Union provides the formal exit mechanism for a country wishing to leave the EU.

Its key provision is that, in the absence of a unanimous agreement to extend negotiations, a country activating the clause will leave the bloc two years after notification. That means Britain will be out of the EU by April 2019.

The text of the article says the EU will “negotiate and conclude an agreement with an exiting member state, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union”.

So, while the negotiations are specifically about divorce, dealing with issues such as financial obligations and expatriate rights future ties between the EU and the UK also play a part.

How will a deal be ratified and is Article 50 revocable?

A comprehensive trade deal would be separate from an Article 50 agreement and would require unanimity among member states.

That is a higher hurdle than the requirements for the exit agreement itself, which needs to be backed by the UK, a “super qualified majority” of the other EU countries at least 72 per cent of the states representing 65 per cent of the population and the European Parliament.

What happens next?

The road ahead is unclear. No state has left the European Union before, and the rules for exit  contained in Article 50 of the Treaty of Lisbon are brief. 

Therea May now faces a ‘legislative swamp’ after starting a two-year countdown in which she must seal a deal or face the damaging prospect of dropping out of the EU without a deal.

At stake are not just the country’s ties with many of its European neighbours the largest trading bloc in the world but its economic and political relations with Ireland the UK’s closest neighbour.

Already the UK's Brexit Secretary and the EU's chief negotiator have some common ground, they both agree there should be no return to a hard border in Ireland. Hard borders have come to mean one which has physical form, through checkpoints or customs posts.

Brexit, Borders and Business, what lies ahead for Ireland?

As part of Brexit there will have to be some form of customs enforcement. From 1923 until the creation of the EU Single Market in 1993, that enforcement involved customs posts at the border.

From an Irish perspective, the greatest concern will focus on what the border with Northern Ireland will look like. All sides have declared their commitment not to return to “borders of the past”, but given early indications that the UK intends to leave the Customs Union, it may be difficult to preserve the current arrangement.

Concerns have been expressed regarding the impact of tariffs should a transitional deal not be in place. While some WTO tariffs are small, tariffs for agri-food products can be very high, beef tariffs for example can be over 50%. The volume of trade between Ireland and the UK, estimated at over €1 billion in goods and services being exchanged between our countries on a weekly basis, means that Ireland will wish to keep trade with the UK as open as possible.

At the same time there is likely to be a wish to capitalise on the move of multinationals out of the UK, should this arise. It has been reported that the IDA have approached 1,200 multinationals to assure them that Ireland’s future remains aligned with the EU.

Consequences for business deals, tourism, cross-border freedom of movement and currency fluctuations also weigh heavily on the minds of all businesses, but particularly those operating in border counties. The business community have been vocal over the past number of years regarding the need for Ireland to remain competitive if our economy is to continue to grow. However, Government sources have also reiterated Ireland’s commitment to the 12.5% rate of corporation tax.

How we maintain and improve competitiveness in the face of the UK’s exit from the EU is now even more of a challenge. Potential divergence between Ireland and the UK may have consequences on our attractiveness as a location for foreign direct investment and may also impact the extent to which Irish companies can compete with UK companies across international markets.

 


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