Wednesday, 20 May 2020

Questions (528)

Cian O'Callaghan

Question:

528. Deputy Cian O'Callaghan asked the Minister for Business, Enterprise and Innovation the projected cost to trade in the event of a failure to agree a trade agreement between the European Union and the UK; the projected cost by sector; if she will provide a comparison of the projected cost of no trade agreement compared to an agreement with no tariffs and quotas; and if she will make a statement on the matter. [6722/20]

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Written answers (Question to Business)

It is the case that Brexit, in whatever shape it finally takes, will have significant implications for the Irish economy and will fundamentally change the nature of the trading relationship for Irish businesses trading with the UK.

In order to better understand the economic impacts of Brexit, my Department has conducted extensive research on a wide range of Brexit related issues affecting Irish businesses since the result of the UK referendum in 2016.

Of particular interest to the Deputy is a 2018 study entitled "Strategic Implications for Ireland arising from changing EU-UK trading relations" a comprehensive and independent expert study that my Department commissioned from Copenhagen Economics. The study examined the implications of Brexit for the Irish economy and trade, quantifying the impact of possible new barriers to trade which might emerge as a result of Brexit.

The study also provided analysis of the likely impact of Brexit on key sectors of the Irish economy. Five sectors were identified that account for 90% of the impact and these are: Agri-food, Pharma-chemicals, Electrical Machinery, Wholesale & Retail, and Air Transport. The rise of non-tariff barriers due to regulatory divergence is the main factor driving the results as opposed to the imposition of the tariff regimes of the EU and the UK on their respective imports/goods.

This analysis was undertaken on the basis of no policy action being taken although this of course is not the case given the extensive Brexit mitigation actions put in place across Government and across all sectors of the economy in the past few years. 

All of the scenarios examined in the 2018 study produce a result that is less favourable than a non-Brexit scenario. The scenarios considered reflected four of the possible outcomes from the future relationship between the EU and the UK – an EEA scenario, a Free Trade Agreement (FTA), a Customs Union, or a worst-case, no trade deal, WTO scenario.

The WTO scenario was found to have the most negative impact on the Irish economy gradually reducing GDP growth by 7% by 2030; an EEA scenario would be least damaging gradually reducing GDP growth by 2.8% by 2030. The study found that regardless of the scenario modelled, the Irish economy was still expected to record strong, positive growth out to 2030. Brexit would have a dampening impact, however, resulting in a lower growth rate than would otherwise have occurred.

Following the adoption of the Withdrawal Agreement and the Revised Political Declaration (RPD) on the Future Relationship between the EU and the UK last year, my Department undertook further Brexit analysis with Copenhagen Economics. Under this latest study, two additional scenarios for a Free Trade Agreement were examined to take account of the provisions of the RPD published in January 2020. This latest study is also available on my Department’s website at www.dbei.gov.ie. 

Overall, the findings from this study suggest that a Brexit outcome based on the RPD is likely to reduce Irish GDP by between 3.2% and 3.9% by 2030 compared with a baseline where the UK remains a member of the EU. This compares to a negative impact of 7% in the no deal (WTO basis) modelled in the previous Copenhagen Economics study.

In response to the various Brexit analysis and studies undertaken across Government I have, over the course of the last three budgets put in place through the enterprise agencies, an extensive suite of enterprise supports to assist businesses to meet the challenges presented by Brexit. They range from liquidity support through short-term and long-term loans, to restructuring aid for businesses in severe operating difficulties. The majority of enterprise supports are open to all businesses, including SMEs, and not just those that are clients of the enterprise agencies.   

Of course most recently businesses have been beset by the huge challenges that COVID-19 has brought about. Government has responded swiftly by making available a myriad of supports to help businesses deal with the crisis presented by this pandemic.

As we begin the phased reopening of the economy this week in line with the Government's COVID-19 recovery plan, I am acutely aware too that businesses must not lose sight of the Brexit-related challenges that remain. This is particularly highlighted by the challenging negotiations that are currently ongoing between the EU and the UK to reach an agreement on the future trading relationship, and the ever-present danger of a no trade deal scenario.

As our economy recovers post the Covid-19 pandemic, I encourage businesses more than ever to avail of the Government supports that are widely available. Full details are available on my Department’s website at www.dbei.gov.ie