Brexit: Substantial challenge with or without deal

Foreign Affairs Minister Simon Coveney has warned that Ireland must prepare for the “real possibility” of trading with Great Britain on WTO terms on 1 January, as talks between the EU and UK continue to stutter.

Coveney said that he remained hopeful that an agreement could be reached between the EU and UK but admitted that little progress appears to have been made on the main sticking points which have to date prevented an agreement.

The Minister has outlined the need for preparedness from businesses for the significant changes on how business will be conducted between Ireland and Great Britain, even if an agreement is reached.

In September the Government published its Brexit Readiness Action Plan, which highlighted that even the securing of a free trade agreement between the EU and the UK would bring “substantial challenges for supply chains and trade flows and will require checks and controls in both directions on EU-UK trade”.

“In practice, this will mean that every time an Irish company or individual imports from, or exports to, Great Britain they will need to (at least) complete a customs declaration. A limited FTA would not address the full range of the EU’s relations with the UK,” the Government states.

In the eventuality of a no deal scenario “immediate and disorderly change” would occur in the way the EU and UK trade and engage. Trade on WTO rules would see the addition of tariffs and quotas on trade in both directions, with significant impacts on Irish trade, notably in the agri-food sector.

In early October, hopes for a deal appeared to be dead after Prime Minister Boris Johnson said that Brussels had “abandoned” the talks by taking unacceptable positions including that only the UK needed to make concessions.

The outburst by Johnson came after an EU summit where leaders signalled a toughness on Brexit. Many of those leaders are still angry about the UK’s Internal Market Bill, the creation of which blindsided EU negotiators and served to undermine commitments already signed up to in the 2019 Withdrawal Agreement.

Following an initial standoff in the talks, an ‘intensified period’ of negotiation was launched on 22 October. However, post-Brexit competition and fishing rights appear to remain as the two major barriers to progress, with neither side willing to move from their respective positions.

For Ireland, the significant risks posed by the ending of the transition period, with or without a deal, have been highlighted by the Government as:

• a disruption of East-West trade between Ireland and Great Britain due to delays at ports and/or inability of businesses to meet regulatory requirements;
• delays to trade transiting the UK land bridge, with knock-on impacts on wholesale and retail supply chains;
• closure of businesses and/or loss of jobs in Ireland due to trade disruption and associated costs, including possible tariffs and currency movements, in particular in the agri-food, fisheries, manufacturing and retail sectors;
• a regional economic and labour market impact due to the location of most exposed business sectors;
• deterioration in Ireland’s macroeconomic position, already impacted by the COVID-19 crisis;
• loss of access to fish landings from UK EEZ, and displacement of other EU fishing activity into Irish waters;
• possible deterioration in the resilience of Ireland’s medicines supply chains; and
• some disruption to daily life in areas such as online retail purchases from UK; financial services sourced from the UK; the exchange of personal data with entities in the UK; and for transport services to, from or through the UK (e.g. aviation or road haulage).

While the Foreign Affairs Minister has described a deal as “doable”, the lack of confidence from the Irish Government is evident in the recent Budget 2021 announcement, with measures based on a no deal outcome. The Budget provided for a flexible €3.4 billion recovery fund to be used by the Government to stimulate demand and mitigate the effect of Brexit and Covid-19 on the Irish economy.

Additionally, the Government committed to accessing the €5 billion Brexit Adjustment Reserve announced by the EU in July and allocated €340 million to improve infrastructure at Irish ports and airports, customs compliance activities and the hiring of 500 additional frontier staff.

The Government is also expected to bring forward a Brexit Omnibus Bill, with an ambition to:

• preserve access to priority services, benefits and reliefs relating to trade between Ireland and the United Kingdom;
• satisfy several obligations and commitments Ireland has made to the United Kingdom outside of EU membership; and
• prevent a cliff-edge scenario for Irish people and businesses after 31 December 2020.

Northern Ireland

The Government have also restated their position that the Protocol on Ireland/Northern Ireland remains an integral part of the Withdrawal Agreement, in the face of moves by the UK to override some parts of the agreement through the Internal Market Bill.

“The Protocol on Ireland/Northern Ireland is an integral part of the Withdrawal Agreement. It is a comprehensive and legally operative solution that addresses the challenges of Brexit on the island of Ireland. Regardless of the outcome of the future partnership negotiations between the EU and the UK, the Protocol will apply from the end of the transition period. Its implementation is a key priority for Ireland and the EU,” the Government says.

Despite receiving the necessary backing in the House of Commons, the Internal Market Bill is likely to face opposition in the House of Lords, where there will be an opportunity to amend the Bill. However even if specific amendments, deemed to be breaking international law, are removed, MPs will have the opportunity to reinstate them. Progress on the EU-UK negotiations will be crucial to the future of the Internal Market Bill as proximity to a deal may will offer the Prime Minister enough leverage to drop contentious elements in favour of getting a deal over the line.