Brexit: Special all-island deal needed as part of any exit negotiations
The impact of the Brexit referendum result is slowly becoming clearer and more (not less) significant than was originally expected. When the history of the Brexit impact is written, the unexpected symbol of the changes will be the price of Marmite. The prices set by businesses such as Unilever and Tesco have featured alongside consequences for Musgrave NI, which owns Centra, SuperValu and Mace.
For the proponents of Brexit, who have taken comfort in the apparent lack of disruption, the impending price is that after some months with zero inflation, inflation is back. Our standard of living will be hit.
Brexit has already reshaped the Irish border. With £1 now trading at close to $1.20 and €0.90, financial planning by businesses and the forward purchase of currencies have become enhanced commercial features.
The consequences of Brexit for Northern Ireland contrast sharply with the consequences for the Republic of Ireland. Where there is competition for attracting inward investment, Ireland will offer continuing assured access to the rest of the EU. Northern Ireland, at least temporarily, can no longer be certain of that outcome.
An important distinction needs to be made between the immediate short-term impact of Brexit and how the two Irish economies will be impacted in the longer term.
Initially, the big devaluation of sterling has an impact on cross-border shopping. Temporarily, southern shoppers can be expected to come north. That cross-border shopping incentive will diminish as importers for southern retailing businesses adjust their purchases to the cheaper (devalued) costs and the island-wide market place settles to the new currency parities.
The cross-border shopping phenomenon will fade but the relative costs, depending on the source of goods and services, will change to mean that UK sourced supplies compete more strongly for domestic Irish markets (or indeed other domestic markets world-wide). Irish sourced supplies will find margins squeezed on trade into the UK.
The Irish Department of Finance is quoted, in a special review of trade prospects, as pointing to Brexit exchange risks in five sectors in Ireland which employ 94,000 people. The vulnerable sectors are food and beverage businesses, pharmachem firms, traditional manufacturers, materials manufacturers and electrical equipment makers. Of particular interest was the conclusion that most of the companies have low profit margins and are largely based outside Dublin, particularly in the border region.
The important point to note from this cross-border reflection is that the pessimistic conclusion for the Irish firms has been reached before there has been any acknowledged threat to the access by UK and Irish businesses to the continuation of the single market trading arrangements. Any cross-border tariffs or duties will further change the competitive results.
The search for a UK Brexit that allows the duty free single market to continue is, for Ireland and Northern Ireland, a critical issue for the EU-UK negotiations.
The opportunities and threats to the Irish economy after Brexit contrast strongly with how Northern Ireland may be affected.
The Irish are concerned about the competitiveness of Irish exports to the UK, the biggest external market for Irish exports of goods and services.
Several aspects of the Irish budget have been packaged or redesigned to try to Brexit-proof the impact.
In contrast, the prospects are that Ireland will become a more attractive location for financial, insurance and property services. There is already a renewal of efforts to attract international investment through the IFSC, the Irish Financial Services Centre, with its tax and location advantages, and the expected change in the passport arrangements for UK financial businesses after Brexit.
The mixture of fiscal incentives, especially for special property vehicles, and English language and commercial institutions, all point to possible Irish benefits from a UK Brexit.
In total, there is a strong case for special local all-island arrangements in the negotiations on the mechanisms for the UK leaving the EU. Now we need a clearer statement of objectives.