I will repeat Mr. O'Ceallaigh's core conclusions. The logic of a hard Brexit, that is to say British exit from the Single Market and the customs union, inevitably points back to a border within the island of Ireland. Set against this logic are the clear political statements from both the UK and the Irish Government, supported by various voices from within the EU, that nobody wants to go back to having a hard border, the desire to retain the common travel area subject to Mrs May's work to not undermine immigration objectives, and then the dimension of the peace process. We have here a certain logic of a British position, and set against that, political objectives. The very practical question is what practical policies have to be put in place to achieve those political objectives. That is at the core of what we are going to be faced with in the negotiation.
I want to talk about the broad trade and economy and I want to focus specifically on the agrifood sector. We will look at the focus on the wider economy, first within the Republic of Ireland. What is the economic damage and where is it going to come from as a result of Brexit? There are two basic aspects. One is the assumption that we refer to in the status report that we produced last week which the committee has been provided with. It is a reasonable medium-term assumption that the value of sterling, vis-à-vis, the euro, is going to be lower than it otherwise would have been. That is a medium-term reality and that is going to put pressure on Irish competitiveness. The second is that as we move away from British membership of the Single Market and customs union it would translate into trade barriers. These are the transmission mechanisms whereby economic damage can be done.
What is it likely to add up to? The most recent and most cogent attempt to assess this was provided last week by the Department of Finance in its testimony to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. There were three core conclusions. First there will be, as a result of a hard Brexit, a reduction of national wealth, a possible 30% fall in exports to the UK, a rise in unemployment with 40,000 fewer people employed in the economy over ten years. The work that the Department of Finance and the Economic and Social Research Institute, ESRI, have done in modelling would show that again, over a ten year period, Irish GDP would be some 4% smaller than it would be if there was no Brexit.
The overall conclusion has to be - it is very relevant to the wider political discussion - that Ireland's economy is likely to be more seriously affected than any other member state in the European Union. When we turn to Northern Ireland specifically, we have provided the committee with a submission for today, and I want to point to two issues which are dealt with in this submission. One refers to a report that was done by the Northern Ireland Assembly and the Open University Business School in 2015, on attempting to assess what the impact of Brexit would be. I think it would be useful to read into the record the core conclusion that came from this. It refers to the trend rate of growth of the Northern Ireland economy as being about a third lower compared to that of the UK while the comparative unemployment rate is about twice that of the UK as a whole. Thus if the medium forecast for the impact on UK GDP from a Brexit is around 2% lower then it could be expected that trend total GDP would be 3% lower in Northern Ireland. It refers also to this having a knock-on effect on unemployment. So there is real evidence to suggest that because of the structural weakness of the Northern Ireland economy, any negative impact that Brexit will have on the UK will be amplified in the case of Northern Ireland.
The second area relates to foreign direct investment. Clearly Northern Ireland, because of how the economy is structured, with a large level of public sector employment, needs more private investment and more foreign direct investment. The effort to put in a 12.5% rate corporation tax in Northern Ireland as part of a recent agreement from a couple of years ago was designed to do that.
The fear is that Brexit will actually take us in the opposite direction in that it will not be possible to realise the benefit of the 12.5% rate that would otherwise be realised. Ireland had success with a lower taxation rate because it gave access to the wider European Community.
I would like to turn to the agrifood sector which is of major importance and has not received sufficient attention up to now. I want to touch briefly on a few areas. I acknowledge the similarities between the agrifood sectors North and South. I shall consider the current trade realities and how the sectors in Ireland and the United Kingdom are integrated. I shall then examine what a hard Brexit would mean in tariff rates for the agrifood sector and, finally, take a look at some of the more medium to longer-term perspectives.
Let us consider the similarities. In both the Republic of Ireland and Northern Ireland the agrifood sectors have a higher economic importance than in most other countries and are more dependent on exportation to other parts of the European Union. They are highly dependent on Common Agricultural Policy income supports as a proportion of net farm income. On page 7 of our submission we consider some of the comparisons between Northern Ireland, the Republic of Ireland and Britain. Let us keep it as simple as possible. In 2014, in the Republic, direct payments under the Common Agricultural Policy amounted to 60% of net farm income. In Northern Ireland the figure was 91%. That has remained and is likely to remain the case. Net farm income in Northern Ireland is very much dependent on the CAP support arrangements.
With regard to trade and market realities, there is a huge interconnection between the two economies. The United Kingdom is Ireland's largest market for food and drink exports, accounting for 41% of all such exports. The market was valued at €4.4 billion in 2015. Some 52% of beef exports and 30% of dairy exports from Ireland go to the United Kingdom. On the other side of the coin, Irish food and drink imports from the United Kingdom in 2015 were worth €3.1 billion.
The cross-Border trade in the agrifood sector is remarkable in respect of a number of products. One billion litres of milk are imported from Northern Ireland each year. Half a million pigs are sent from the Republic of Ireland to Northern Ireland for processing, while some 300,000 lambs are sent in the other direction. This is part of normal logic; different things are done in different parts of the country. There are more complex supply chain arrangements which I do not really have the time to go into. What if we are to have a hard Brexit and the United Kingdom applies WTO rules which is what it is talking about as an alternative? Based on the Department of Finance's figures and the tariff levels that would apply to Irish produce going to the United Kingdom, meat products would be subject to tariffs at a rate of 50%, dairy produce and eggs at a rate of 25% and processed meat products at a rate of 35%. Clearly, tariff barriers of this scale would have a major impact on prices and income levels, with considerable implications for trade on the island of Ireland.
When we look to the medium and longer term in regard to agricultural policy, we must separate out the two strands. The Republic of Ireland and Northern Ireland both have stability in funding up to 2020 under current EU funding arrangements. Beyond that date, there will have to be a new multi-annual financial framework, on which negotiations will have to start in the next couple of years. With the withdrawal of the United Kingdom's contribution to that budget, decisions to be taken on funding under the Common Agricultural Policy, for example, will become a lot harder to make. The outcome of the multi-annual financial framework negotiations will be central to Irish Government policy in the next couple of years. In the case of Northern Ireland, it is a good deal more complex. First, we start with the reality that net farm income in Northern Ireland is much more dependent on subsidies under the Common Agricultural Policy than other places, certainly the Republic of Ireland. The UK Government has guaranteed funding levels up to 2020, but beyond that date there will have to be a new UK agricultural policy. From the estimates produced in our submission, we conclude that just to make up what the current subsidies provide for Northern Ireland farmers, at least an additional £300 million will be required to be added to the block grant in Northern Ireland. In the context of the considerable effort made on the part of the British Government to cut public expenditure, the notion that Northern Ireland will be able to receive an extra £300 million, in addition to the block grant, to maintain current farm supports seems highly problematic.
There is a longer term issue regarding what shape UK farm policy will take. There is a very strong possibility that the United Kingdom will be tempted to move back to a cheap food policy, the policy it had effectively from the middle of the 19th century until 1970. That would put the Northern Ireland agrifood sector in a position of extreme vulnerability in the next five to ten years.
I started by saying we had high-level political wishes not to have a hard border, to have a common travel area and to protect the peace process, but we must negotiate the practical policies to achieve this. However, that is going to be very difficult and I have spelled out some of the consequences of not achieving these objectives. This is at the heart of the negotiations. In overall terms, a hard Brexit would be bad for Ireland, North and South. It would represent a major inhibitor to the development of the all-island economy, on which significant progress has been made in the past two decades. Northern Ireland, because of its economic structure, particularly of its farming sector, is particularly vulnerable. That is the challenge we face. That is ultimately the answer to what the committee is attempting to assess, namely, the impact of Brexit on the Good Friday Agreement.