John
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McGuinness TD On Your Side Brexit Explained Brexit Introduced
WHAT IS BREXIT AND WHAT’S GOING TO HAPPEN?
On 23rd June 2016 a referendum was held in the UK on whether to Leave or Remain in the EU. Majorities in Northern Ireland and Scotland voted Remain, but the UK overall voted to Leave by 52%. It does this via Article 50 of the Lisbon Treaty, which sets out the procedure to leave. Once triggered, Article 50 stipulates that the UK and EU have an initial two year period to finalise a withdrawal agreement. During this time the UK remains a member of the EU, with all accompanying rights and obligations. Once Article 50 is triggered, the European Council, minus the UK, agrees the guidelines for the Commission to negotiate. Consensus requires every Member State (minus the UK) to vote in favour. Any final agreement needs to be agreed by both the EU UK. On the EU side, this requires an enhanced qualified majority. This means that no single Member State could veto or stop the deal, as it needs to be agreed by 20 of 27 Member States, representing 65 per cent of the population of the EU. The Council needs to obtain the European Parliament’s consent voting by a simple majority of the votes cast, before it can conclude the withdrawal agreement.
WHAT EXACTLY WILL THE UK BE LEAVING? The EU is governed by the Treaties of the European Union, and runs many sectoral programmes and agreements in areas including environment, transport, consumer and workers’ rights. Some parts of what the UK will leave are clear, including the political institutions of the European Parliament and European Council. However, many aspects of the future relationship are for the UK and EU to decide. Some initial positions include Prime Minister May declaring the UK will leave the Single Market and the Customs Union, and Brexit Secretary David Davis declaring the UK will leave the Euratom Treaty, which oversees nuclear energy in the EU. On the other hand, the UK wants to retain the Common Travel Area, and has agreed to underwrite funding to Horizon 2020 programmes, the EU-wide research funding mechanism. Much of the detail of what the UK will still participate in will be decided during the negotiations.
John McGuinness TD Brexit Explained WHAT’S THE SINGLE MARKET? It allows for free movement from one EU member country to another of goods, people, services and capital (referred to as the ‘four freedoms’). It also ensures common standards and regulations. The fear is that leaving the single market could result in barriers to trade, including tariffs, quotas & new regulations, being imposed between the EU and UK. This would increase costs for Irish businesses, and make them less competitive in the UK, which is Ireland’s largest trading partner.
WHAT’S THE CUSTOMS UNION? Under the Customs Union the EU sets common external tariffs. If the UK steps out of this, which it says it will, it makes it very difficult to avoid border controls on goods. This is because tariffs might have to be applied to good from third parties (e.g., USA, Canada), where the EU and UK tariffs with these third parties differ.
WHAT’S THE COMMON TRAVEL AREA? Ireland and Britain enjoy a special relationship, with the Common Travel Area (CTA) in existence since the 1920s. As a result of the CTA, the Irish and British Governments have reciprocal visa arrangements including: Passport-free travel between Irish and UK citizens; Increased security of the external Common Travel Area border; Sharing of immigration data. However, Brexit creates a situation in which the border with Northern Ireland becomes an external border of the EU. So there’s a possibility that a ‘hard’ border, potentially involving passport and custom controls, may emerge, dividing the Island of Ireland. This could disrupt cross-border trade, travel and tourism. Both governments have said one of their key priorities is to maintain the CTA. However, any such decision, involving avoiding a ‘hard’ border, will be subject to approval by other EU member states.
WHAT’S AT STAKE POLITICALLY? As well as the CTA, a grave concern politically is the potential effect of Brexit on Northern Ireland and the peace process. Brexit has the potential to undermine the Good Friday Agreement, to fuel deprivation in the North, to provide a focus for dissident paramilitaries and to slow down progress on all-island economic sectors such as agriculture, energy and healthcare.
WHAT’S AT STAKE ECONOMICALLY? The UK is Ireland’s largest trading partner, with sectors like agriculture, food, retail, tourism and manufacturing particularly intertwined with Northern Ireland and Britain. The trade Irish companies do with the UK is responsible for a lot of export-related jobs, so any new barriers put those companies, and those jobs, at risk. The UK government would like a zero-tariff relationship with the EU. However, many EU countries point out that free trade comes with the single market, including free movement of people, and that the UK cannot pick and choose which parts it wants. Trade barriers can include tariffs, quotas, subsidies and different standards and regulations. All such barriers have the potential to drive up costs for Irish businesses, making it harder forthem to compete in the UK and elsewhere. It has the potential to hurt border regions especially hard and to deprive the state of much-needed taxes to fund public services.
Jobs and Business
HOW DOES BREXIT THREATEN JOBS AND BUSINESSES IN IRELAND? Yes. The Department of Finance believes that over five years, Brexit could result in 40,000 less people in employment, increase the national debt by €20 billion and reduce exports to the UK by a third. The UK has signalled it will leave both the EU Single Market and Customs Union. This could result in new barriers that add cost, complexity and time to trade between the UK and Ireland. At the end of the separation period (March 2019), possible issues include: I)
Imposition of tariffs between Ireland and UK, and vice versa;
II)
Divergence in product standards, with the UK no longer subject to EU regulations;
III) New border controls between Ireland and the UK; IV) Lower business regulations for UK companies (e.g., environmental protections, working conditions); V) Uncertainty on contract enforcement, as the UK may no longer be subject to rulings of the European Court of Justice; VI) Uncertainty on employees’ right to work (UK in EU and EU in UK); VII) Uncertainty on data protection, with the UK no longer bound and protected by EU regulations; VIII) Changes in cost of funds and goods, due to currency fluctuations. This is on top of the recent sharp decline in sterling since the Brexit referendum, reducing the competitiveness of Irish firms. In 2016 alone this reduced the value of Irish exports to the UK by some €500m.
HOW BADLY ARE IRISH BUSINESSES AND JOBS EXPOSED TO BREXIT? Irish exporting companies have less than half the economic output of foreign exporting companies in Ireland. But they employ far more people, given their job-rich nature. And with the UK being Ireland’s biggest trading partner, Irish exporting companies are badly exposed. For Ireland’s SMEs, for example, the UK accounts for 40% of exports. Different sectors are exposed to different degrees, with agri-food, fisheries, tourism, retail, transport and manufacturing amongst those particularly vulnerable. Similarly, different companies have different levels of exposure, based on factors including their level trade with the UK, the types of products they sell and where their supply chains are.
ARE WE SEEING AN ADEQUATE GOVERNMENT RESPONSE TO THESE THREATS? No. The Department of Jobs, Enterprise and Innovation has a dedicated Brexit unit consisting of a Principal Officer and three staff (the newly established UK Department for Exiting the European Union employs 335 officials). Enterprise Ireland received funding to hire just over 30 staff. The IDA received just €750k ‘Brexit’ funding, and permission to hire just 9 staff. Bord Bia has permission to hire just 4 staff in
2017 for Brexit. At the same time, important negotiating positions are not being advocated for on behalf of business.
HOW IS FIANNA FÁIL PROPOSING IRISH BUSINESSES AND JOBS ARE PROTECTED? The details of what is required will evolve as the negotiations proceed. As they start, calls we’re making include: • A national response to Brexit, ensuring State agencies and representative groups have sufficient staff and funding; • Direct engagement from State agencies with affected sectors and companies (E.g., providing support on currency hedging, access to credit, product diversification, establishing UK bases, online trading supports); • Keeping the UK as close as possible to the Single Market and Customs Union, to maintain the current zero-tariff situation; • Northern Ireland to be afforded special status, including an option for it to remain in the Customs Union, Single Market and sectoral agreements; • Engagement with businesses on contingency planning for a disorderly Brexit; • Relaxation of State Aid rules for countries and sectors affected by Brexit and establishment of an Enterprise Stabilisation Fund; • Review of Enterprise 2025 (The State’s10 year enterprise strategy) to account for impact of Brexit on Irish Enterprise; • A dedicated market access unit in the Department of Jobs, Enterprise and Innovation to enable new export markets be opened for Irish services and goods; • Review competitiveness of enterprise, including identifying opportunities to streamline compliance.
here to help If you need assistance with any of the issues raised in this newsletter or if I can be of help to you, your family or community, please contact my office or visit my Clinics. We are always happy to help.
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WHAT CAN BUSINESSES DO NOW TO PREPARE FOR BREXIT? A recent survey of Irish-owned SMEs shows that 15 in every 20 companies believe Brexit will affect them, but only 3 in 20 companies are taking action. Here are some questions for companies to ask. • Am I exposed to sterling fluctuations? • Is my pricing strategy correct for the UK market? • Might my UK buyers begin to source inside the UK? • Is much of my supply chain in the UK? • Could my UK-based credit costs increase? • Do my non-UK exports move through the UK? State agencies like Enterprise Ireland, and several trade groups, can provide support and advice for companies preparing for Brexit. If you think your business might be affected, act now.
Brexit Introduced Northern Ireland HOW WILL BREXIT AFFECT NORTHERN IRELAND? When the UK exits the EU, Northern Ireland exits. It may no longer be part of the Customs Union or Single Market, and won’t be subject to EU law. The North South border will become one between the Republic of Ireland and a non-EU state. Special status should be afforded Northern Ireland to help protect it from Brexit fallout.
WHAT IMPACT WILL THIS HAVE ON THE ECONOMY? Northern Ireland is the region most vulnerable to Brexit. For example, 52% of Northern Ireland exports go to the EU, including 38% to the Republic of Ireland. EU Common Agricultural Policy (CAP) funding for Northern Ireland accounts for 87% of total farming income. Cross-border trade has grown substantially over the past 20 years and stands at over €6bn. Custom controls would inevitably lead to delays, increased business costs, less trade and fewer jobs. All efforts must be made to maintain access for Northern Ireland to the Customs Union, Single Market and EU sectoral programmes.
WHAT WILL HAPPEN TO PEOPLE WHO TRAVEL OVER THE BORDER ON A REGULAR BASIS? Common Travel Area (CTA) arrangements between the UK and Ireland date back to the foundation of the Irish state. Between 23,000 and 30,000 people are cross-border workers – including non-Irish and non-UK EU citizens – living and working on different sides of the border. Both Irish and British governments have committed to no return to the borders of the past, but it is by no means certain this will be achieved. Ensuring cross border travel is fully maintained must be a key goal for negotiations.
John McGuinness TD Brexit Explained WILL THERE BE BORDER CHECKPOINTS?
WHAT WILL HAPPEN THE RIGHTS OF IRISH CITIZENS IN NORTHERN IRELAND?
Customs controls operated on both sides of the border from 1923 until their abolition in 1993, when the EU Single Market came into effect. There are up to 300 major and minor crossings along a 500km border, with 35,000 people crossing the border each day. The prospect of border controls depends on the nature of the agreement reached between the UK and EU. It is critical for trade and free moment that border checkpoints are avoided.
The Good Friday Agreement recognises ‘the birth right of all the people of Northern Ireland to identify themselves and be accepted as Irish or British, or both, as they may so choose, and accordingly confirm that their right to hold both British and Irish citizenship is accepted by both Governments and would not be affected by any future change in the status of Northern Ireland’. Therefore, following Brexit, Northern Ireland residents will retain full rights to EU citizenship through their right to hold Irish citizenship either jointly or as a sole citizenship. What this means is that post Brexit Northern Ireland will contain the largest concentration anywhere of EU citizens living outside of the boundaries of the EU. It is an absolute obligation on the EU and UK to reflect this unique reality in the upcoming negotiations.
WHAT ABOUT THE PEACE PROCESS? The Good Friday Agreement brought to an end the brutal conflict in Northern Ireland. It is an international agreement between Ireland and the UK and is lodged with the UN. This agreement must remain in place after Brexit, and early public agreement from all sides must be achieved on on-going implementation of the peace agreements.
WILL THE EU CONTINUE TO FUND PEACE PROGRAMMES? The decision of the UK to leave the EU may have implications for PEACE & INTERREG Funding which has been vital in supporting the peace process and border regions. Between them, PEACE and INTERREG have seen nearly €3.5 billion of investment in Northern Ireland and the Border region of Ireland over the last quarter of a century, with more than half a billion Euro to be invested over the period 2014-2020. The UK government has guaranteed funding for all programmes up to 2020 but it is unclear what will happen beyond that date. EU peace funding needs to be continued post- Brexit.
WILL BREXIT MAKE A UNITED IRELAND MORE LIKELY? Under the Good Friday Agreement the British Secretary of State for Northern Ireland can call a referendum on a united Ireland if there is clear public support for such a vote. Now is not the time for such a border poll, which could be viewed by the Unionist community as opportunism, rather than genuine consensus for an all-island Ireland. Nevertheless, Brexit makes the economic case much stronger for an all-island Ireland. Creating an all-island economy, including protecting Northern Ireland’s membership of the EU, could, over time, increase economic activity and social outcomes in Northern Ireland. All opportunities to bring North and South closer – politically, economically and socially – must be explored as part of Brexit negotiations.
John McGuinness TD
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