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Linking a trade deal between the European Union and the United Kingdom would boost the outlook for the Irish economy next year, in large part because it removes a major threat to food exports and trade in general. The draft of the agreement that is being finalized Wednesday night, which has yet to be approved by the EU member states, proposes that no tariffs or quotas will be applied to trade between the two parties. The only Irish sector directly affected even by the terms of a deal will be the fishing industry, which will have more restricted access to key UK waters.
Official forecasts released with the October budget suggest that Irish economic growth could be up to three percentage points higher next year with a trade deal in place, meaning potential GDP growth of 4.5 percent in 2021 instead of the current forecast of 1.7 percent. Finalizing a deal would also avoid the initial chaos and cost of a no-deal scenario and the long-term damage it would cause to relations between the UK and the EU.
Trade between the EU and the UK will, of course, get even more complicated and expensive with a deal as the UK leaves the single market and the EU customs union. However, if a trade agreement were not reached, the two parties would have negotiated under the so-called terms of the World Trade Organization (WTO). This would have meant tariffs, or import duties, that would have applied to trade in both directions.
Tariffs are higher in the food sector and this would have caused major problems for Irish exporters to the UK, particularly in the beef sector, threatening farm jobs and incomes. High tariff levels of 70% or more would have been applied to Irish beef sales in the UK market if WTO terms applied, setting the price of the Irish product on the shelves and meaning that it had to look for other less lucrative markets. Dairy exports, in particular cheese, and other food exports would have also been affected and lower tariffs would have been applied in other sectors, such as clothing and some other manufactured products.
Tariffs would also have been applied to imports from the United Kingdom to the Republic, which would have pushed up the prices of a variety of consumer food and household products, prepared foods and meals and meats. Prices may increase in some cases anyway, due to the additional cost of customs procedures that will apply even in the case of a deal.
Irish companies will be watching closely to see what measures are agreed to limit disruptions as new customs procedures are introduced. However, there will be significant relief, assuming an agreement is finally signed by all parties, that the additional bureaucracy and costs of fees have been avoided. As the European Parliament will not have time to vote on a deal, EU member states are likely to agree to apply it provisionally from January 1, pending its approval.
A trade agreement between the two parties would also facilitate the operation of the Northern Ireland protocol, the special agreement to avoid a trade border on the island of Ireland. This is because the controls and bureaucracy necessary to ensure that the correct tariffs were applied to goods entering Northern Ireland from Great Britain and intended to be transferred to the Republic, and therefore to the EU single market, would be avoided. Personalized controls and food and animal safety controls will continue to be necessary.
Fight the coronavirus
A Brexit deal, and the emergence of vaccines to combat the coronavirus, will mean that the growth estimates behind the 2021 Budget will change. The projections had been made on the basis that no vaccines were widely available and that no agreement had been reached on Brexit.
However, the possibility of a prolonged lockdown in 2021 will act to slow growth in the first few months and generate significant additional costs for businesses and people out of work. The government set aside € 3.4 billion in the budget in a recovery fund, most of which was not allocated, and while some of this may now go to fisheries, a Brexit deal would mean that much of the rest could be earmarked. to fight the consequences of the virus.
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