The draft withdrawal agreement offers some positives for the Irish economy, promising to keep the United Kingdom in a customs union with the European Union – for a period – if this is needed to avoid a hard Irish border. Crucially, if approved, it also removes the risk of a chaotic no-deal Brexit next March.
However, the uncertainty will continue for a while yet as intense political debate continues in the UK and the draft treaty heads to the House of Commons, where its approval is far from guaranteed.
Brexit was always going to be a negative for Ireland, so what we are talking about here is damage limitation, both politically and economically. Politically, the key issue is the so-called backstop, the measures intended to guarantee that there will be no return of a hard Irish border.
Ireland’s second key objective in the Brexit process was to keep trade as free as possible between the EU and the UK in future, to protect exporters and importers.
Transition period
Under the withdrawal agreement, a so-called transition period comes into play when the UK leaves the EU next March, meaning little would change in terms of how trade operates until December 2020. The option to extend this transition period is also given in the text – and may well be used. However, if the withdrawal agreement falls, then there is no transition period and the risk is that the UK leaves next March in a potentially chaotic scenario which would also deal a blow to our economy and also send sterling tumbling.
“There is no question that if a no-deal Brexit is off the table, Irish businesses would breathe a huge sign of relief,” according to Fergal O’Brien, head of policy at IBEC, the business group. However, it will still be some time before this risk can be written off.
Talks on a future trade relationship between the EU and UK would start in earnest during the transition. One option if these take more time than usual is now to extent the transition period to give more time for a deal. This would mean a longer time period for Irish businesses when there is no change in current trading arrangements.
The backstop plan means that if there is not an outcome in trade talks guaranteeing no hard border by the end of the transition period, then the whole of the UK will remain in a customs union with the EU. Under the plan, Northern Ireland would remain even more closely aligned with the EU customs and VAT regimes and single market rules, to guarantee no hard Irish border.
This backstop customs union plan would offer some wider economic protections to Ireland, even if trade will still not flow as freely as now. In fact it would be better for Ireland than the original EU plan which was just for the North to remain in the EU trading bloc to avoid a hard border. The new plan, if implemented, would also protect trade from the UK to the Republic – so-called east-west trade, as well as guaranteeing free trade from North to South.
Carol Lynch, partner with BDO specialising in trade, said that a UK-wide customs union with the EU would avoid the imposition of customs duties, or tariffs on trade between Ireland and the UK – a particular threat to the food sector here. Also, if goods regulations in the UK remained aligned to the EU – as seems possible – border checks between Ireland and Britain Could also be minimised. However, she points out that the backstop is only intended as an insurance policy which both sides hope to avoid using, aiming instead for an as-yet undefined new trade arrangement.
Business in the North
For businesses in the North, the agreement says the UK agrees that goods will move freely from there into the UK market. Attempts will be made to minimise controls at the North’s ports and airports on goods moving from the UK, the agreement says, but clearly some controls may apply – and this will be very contentious politically.
Of course the nature of the long-term trading relationship between the EU and UK will still remain unclear, with the UK-wide customs union, if introduced, seen as a “temporary” way to avoid a Border. Some level of uncertainty will thus remain for years to come, even if the withdrawal agreement is signed.
However if this customs union idea is in the withdrawal agreement as a “backstop”, it does seem to provide a pointer to future talks on how the EU and UK will trade together in future. There has been speculation on this in Brussels, but clearly there is a long way to go yet. None of this is yet tied down – far from it. For the moment all eyes remain on London.